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PAPER INDUSTRY SURVEY SHOWS CAPACITY FALLOFF

WASHINGTON – U.S. paper and paperboard capacity fell in 2001 and 2002, the first time that total industry capacity declined in consecutive years, according to the 43^rd Annual Capacity Survey of the American Forest & Paper Association (AF&PA).

                 The survey, released today, showed declines of paper and paperboard capacity of 1.9% in 2001 and 1.3% in 2002.   “The contraction reflects the industry’s efforts to adjust to stiff foreign competition and a period of cyclically weak paper and paperboard demand,” the survey said.

                 Total 2002 paper and paperboard capacity of 100.5 million tons has been revised downward by 2.5% from the projection of the prior survey. Two factors accounted for the revision: (1) removal of capacity that closed in 2001, but had not yet met the “one year rule,” which was still in effect at the time of the survey; and (2), removal of capacity that permanently closed in 2002 and was immediately removed from the survey under its new ground rules.

                 Under prior ground rules, unless shuttered mills were immediately dismantled, they had to remain closed for one year before their capacity was removed from the survey.   Current rules call for AF&PA to remove immediately from capacity those shut machines where the owner’s intention to close them permanently has been clearly stated in a public announcement. 

As a result, two years of capacity closures have been removed from this survey.  A total of 40 mills and 104 machines were permanently closed in the 2001-2002 period.

Looking ahead, the survey indicates that paper and paperboard capacity will remain essentially unchanged in the next three years, declining by 0.5% in 2003, and then increasing 0.8% in 2004 and 0.4% in 2005.

The flatline projection for paper and paperboard capacity can be partially countered by  Congress’ passage of the President’s economic growth plan, with its elimination of double taxation on dividends, said W. Henson Moore, AF&PA President and CEO. “It will make our industry more competitive globally and fuel a lasting economic recovery with  increases in business, jobs and modern plants and equipment” he said.

Paper Grades

Newsprint capacity fell from almost 7.5 million tons in 2000 to just over 7.0 million tons in 2002.  The decline reflects a change in capacity from newsprint to groundwood grades and the shutdown of several machines, according to the survey.  Newsprint capacity is projected to fall another 4% to 6.7 million tons by 2004, mainly due to this year’s major newsprint-to-groundwood conversion projects.

Printing-writing paper capacity, now at 27.3 million tons, fell about 2.1 million tons in 2001 and 2002, according to the survey.  This is the lowest level for this grade since 1994.  Capacity is scheduled to remain unchanged in 2003 before climbing 1.6% next year and 0.5% in 2005.

Capacity for uncoated groundwood rose 10.3% in 2002 to 2.0 million tons, and is projected to grow another 5.4% in 2003 and 3.4% in 2004 and remain unchanged in 2005.  Coated groundwood capacity grew 2% in 2002 to 5.04 million tons.

Coated freesheet capacity declined last year to about 5.0 million tons, or about 7%.  Another 2.4% drop is expected this year, at which time capacity will have fallen by about 12.6% below its peak in 2000.  The unprecedented plunge can be attributed to more than half a dozen machine and mill closures, according to the survey.

Capacity for uncoated freesheet fell to 13.6 million tons in 2002, the lowest level in almost 10 years.  Capacity is expected to increase to 14.0 million tons by 2004, with no appreciable change in 2005.  The increase stems from the startup of a new machine that is replacing several smaller machines.

Tissue paper capacity continues to grow, but at a slower rate than in previous years.  One new tissue machine is scheduled to come on line in 2003, and four new machines have been announced for 2004.  As a result, capacity is slated to grow at an average annual rate of 1.9% in the 2003-2005 period, compared with a 2.2% average annual growth rate in the 1992 to 2002 period.

The survey showed that kraft paper capacity will continue is pattern of decline due to plastics penetration. Unbleached kraft paper capacity is projected to fall at an average annual rate of 0.9% in the 2003-2005 period.  Bleached kraft paper capacity is expected to decline by 5.4% in 2003 and remain stable the next two years.

Paperboard Grades

U.S. containerboard capacity fell by 1.0% in 2002 and is expected to fall at an average annual rate of 0.1% in the next three years.   Linerboard capacity dropped by 0.9% in 2002 and is projected to decline 0.7% in 2003 and then hold stable in 2004 and 2005.

Capacity to produce corrugating medium fell l.3% in 2002, and is expected to be about the same level in 2005.  Bleached board capacity rose by 0.8% in 2002.  With no new machines on the horizon, bleached board capacity is expected to remain unchanged in the next three years.

Market Pulp

Total market pulp capacity is slated to fall by about 200,000 tons during the period 2003-2005 to an estimated 10.3 million tons, the survey showed.  Major changes to the sub-grades include substantial declines in dissolving pulp capacity due to the closure of a facility in the South.

Recovered Paper

Recovered paper consumption at U.S. paper mills edged up 0.1% in 2002 to 34.8 million tons.  The current survey projects that mill consumption of recovered paper will grow at an average annual rate of 1.3% a year in the 2003-2005 period.  Consumption of the high grades is projected to grow at an average annual rate of about 2.1% in the 2003-2005 period.  The next fastest growing grades will be mixed papers, averaging 1.7% a year, followed by OCC at 1.2% a year.

NOTE TO EDITORS:   Following is detailed information, by grade, from AF&PA’s 43^rd Annual Capacity Survey.

OVERVIEW

U.S. capacity to produce paper and paperboard declined 1.9% in 2001 and 1.3% in 2002, marking the first time that total industry capacity has declined for two consecutive years.   The contraction reflects the industry’s efforts to adjust to stiff foreign competition and a period of cyclically weak paper and paperboard demand.

Beginning with this Survey, the way that permanently closed mills/machines are accounted for has been modified.   In the past, unless shuttered mills were immediately dismantled, they had to remain closed for one year before their capacity was removed from Survey estimates.  This was done to recognize that the capacity of an idled machine not dismantled still had potential to be restarted and, thus, “overhangs the market”.

More recently, industry practice has been for owners to announce publicly their intention to permanently shut machines/mills. Consequently, AF&PA will remove immediately from capacity those shut machines where the owner’s intention to close them permanently has been clearly stated in a public announcement. The capacity of other idled machines will continue to be removed from the Capacity Survey after one year, unless resumed operation is in prospect.

At 100.5 million tons, 2002 paper and paperboard capacity has been revised down by 2.5% from the level projected by the prior Survey. The revision partly reflects the removal of capacity that closed in 2001, but had not yet met the “one-year rule,” which was still in effect at the time the prior Survey was being compiled.   It also reflects the removal of capacity that permanently closed in 2002 and is being immediately removed from the data as prescribed by the Survey’s new ground rules.   Hence two years of capacity closures have been removed in this Survey rather than the customary one.  

In all, 40 mills and 104 machines were permanently closed in the 2001-02 period and have now been taken out of the Survey numbers. 

The Survey indicates that paper and paperboard capacity will remain essentially unchanged during the next three years, declining by 0.5% in 2003 and then rising 0.8% and 0.4%, respectively, in 2004 and 2005.   The nearly flat performance seen with respect to the aggregates is also evident with respect to most of the major grades.

PAPER GRADES

Despite the startup of some new capacity,newsprint capacity has fallen by nearly 6% over the last two years – from almost 7.5 million tons in 2000 to a little more than 7.0 million tons in 2002.  The decline reflects mainly swings in capacity from newsprint to groundwood grades and the shutdown of several machines.  The newsprint capacity level in 2002 represents the lowest level since 1990.  Moreover, it is projected to decline almost another 4% to 6.7 million tons by 2004, mainly due to this year’s major newsprint-to-groundwood conversion project.

At 27.3 million tons, printing-writing paper capacity in 2002 is down 2.7% from that of 2001 and 7.0% from the record year of 2000.  This represents a loss of about 2.1 million tons in just two years.  Moreover, printing-writing capacity is now at its lowest level since 1994.  Capacity is scheduled to remain essentially unchanged in 2003 before rising by 1.6% in 2004 and 0.5% in 2005.

After falling by almost 7% in 2001 to the lowest level since the late 1980s, uncoated groundwood   capacity climbed by 10.3% in 2002 to 2.01 million tons.  Most of the increase is attributable to the startup of a new machine in the third quarter of 2001 and to a rebuilt machine in late 2001.  Capacity is projected to grow another 5.4% in 2003 and 3.4% in 2004 and remain essentially unchanged in 2005.

After rising by almost 2% in 2001, coated groundwood capacity grew by another 2% in 2002 to 5.04 million tons.  It is projected to decline by 3.6% this year, and rise 1.8% in 2004 and 0.6% in 2005. 

Capacity in this year’s Survey for 2004 is down more than 500,000 tons, or by almost 10%, from that anticipated in the last Survey.   Much of the difference can be explained by shutdowns that were unanticipated in late 2001, when the Survey was conducted.  The remainder is accounted for by the cancellation of previously planned capacity.

Unlike the groundwood grades, coated free sheet capacity declined in 2002 – from over 5.4 million tons in 2001 to about 5.0 million tons in 2002, or by about 7%.  Another 2.4% drop is anticipated in 2003, according to the Survey.  By then, capacity will have fallen by 12.6% from its peak in 2000.  At that point, capacity will be at its lowest level since 1995.  Indeed, it will be more than 3% below the record production level in 1999.  The unprecedented plunge in capacity can be attributed to more than half a dozen machine closures.

Estimated coated free sheet capacity in 2003 in this year’s Survey is more than 750,000 tons below that projected in the previous Survey.   The wide disparity between the two projections results partly from the aforementioned capacity shutdowns that were unanticipated in late 2001.  Moreover, some capacity that closed in 2001 was retained in the previous Survey’s totals because it had not yet met the one-year rule.  Capacity is scheduled to rise by about 1.8% in 2004 and another 1.3% in 2005. 

From its peak of 15.2 million tons in 2000, uncoated free sheet capacity fell to 13.6 million tons by 2002, the lowest level in almost a decade.  The drop of 1.6 million tons represents more than a 10 % decline within just a two-year period.  Actually, peak production in 1999 exceeded reported capacity in 2002 by more than half a million tons, or by about 4%.

According to the Survey, uncoated free sheet capacity is scheduled to increase to 14.0 million tons by 2004, or by an annual rate of 1.4% during 2003-2004, with no appreciable change expected in 2005.   The increase essentially results from the start-up of a new machine that is replacing several smaller existing machines.  The machine will ramp up to its full capacity by the end of 2004.

Tissue paper capacity continues to expand, but even here the rate of expansion is slowing.   While tissue paper capacity rose 4.6% in 2000 and 4.7% in 2001, it increased 2.1% in 2002.  Two new tissue paper machines came on line in 2002, versus three the year before.

One new tissue paper machine is scheduled to come on line in 2003, adding 80,000 tons of capacity, and four new machines have been announced for 2004, with combined capacities of 300,000 tons.   Tissue paper capacity is slated to expand at an average annual rate of 1.9% in the 2003-05 period, as compared with 2.2% average annual growth in the ten-year period through 2002. 

This Survey shows kraft paper capacity continuing its long-term pattern of decline attributable to plastics penetration. It indicates that the industry’s ability to produce unbleached kraft paper declined 5.8% in 2002 and is slated to decline an additional 2.9% in 2003. A semichemical medium machine is scheduled to be redeployed to unbleached kraft paper in late 2002.  The dominant influence, however, is swings from unbleached kraft papers to linerboard. Unbleached kraft paper capacity is projected to decline at an average annual rate of 0.9% in the 2003-05 period. 

Bleached kraft paper capacity rose 0.5% in 2002, but is slated to decline by 5.4% in 2003 and then remain approximately stable during the next two years.

PAPERBOARD GRADES

U.S. containerboard capacity contracted by 1.0% in 2002 and is slated to decline at an average annual rate of just 0.1% during the next three years.  Linerboard capacity declined by 0.9% (229,000 tons) in 2002, as incremental efficiencies and grade shifts were more than offset by the closure of several machines/mills.  Linerboard capacity is projected to decline 0.7% in 2003 and then hold approximately stable in the 2004-05 period. 

U.S. capacity to produce corrugating medium declined 1.3% in 2002 as a new machine and incremental efficiencies were offset by the closure of machines/mills and grade shifts. Medium capacity is slated to decline 0.6% in 2003 and rise by 0.4% in each of the subsequent two years.  The net impact of these changes are nearly offsetting, so that by 2005, U.S. corrugating medium capacity is projected to be at about the same level it was in 2002.

Bleached board capacity edged up by 0.8% in 2002, following a 1.0% decline in 2001.   A bleached board mill was permanently closed in 2001, but no additional machines/mills were removed from the 2002 Survey base, although some capacity was indefinitely idled.  With no new machines on the horizon, bleached board capacity is slated to remain essentially unchanged during the next three years.  The lack of anticipated expansion through 2005 spans all of the major bleached board categories: milk carton & food service, folding, linerboard, and other. 

Recycled paperboard capacity (excluding containerboard) declined 1.1% in 2001 and 1.3% in 2002.   These changes reflect the permanent closure of seven machines (all uncoated) in 2001 and the shutdown of five additional machines in 2002.  Two new uncoated recycled paperboard machines came on line during early 2002, serving as a partial offset to the closures. The industry’s capacity to produce recycled paperboard is expected to fluctuate about an essentially flat trend during the next three years, declining 1.4% in 2003 and then re-expanding 0.9% and 0.5%, respectively, in 2004 and 2005.

Recycled folding boxboard capacity declined 1.5% in 2002 and is slated to fall an additional 2.8% in 2003, before essentially leveling off in 2004/05.   “Other” is the largest of the recycled paperboard categories, accounting for just less than 3 million tons of capacity in 2002.  It encompasses a wide range of products including tube, can and drum stock, tablet backs, and other miscellaneous.  Capacity to produce “other” recycled paperboard contracted 3.7% in 2002 and will decline 1.3% in 2003, according to Survey responses.  It is then expected to essentially level off in the final two years of the projection period.

The growth of gypsum wallboard facing capacity is slated to slow following several years of brisk gains.  Capacity to produce this grade increased by 7.0% in 2000, and by 3.0% and 3.2% in the years 2001 and 2002, respectively. These increases reflected the startup of a new machine in 2000 and a shift of two machines from other grades to the production of gypsum wallboard, one of which occurred in 2000 and the other, in 2001.  Gypsum wallboard facing capacity is slated to expand at an average annual rate of 1.5% during the 2003 through 2005 period.

Unbleached folding boxboard capacity rose by 0.9% in 2001 and 1.7% in 2002.  The increases reflected efficiency improvements as no new machines were brought on line and none were closed.   Capacity to produce this grade of paperboard is slated to remain virtually unchanged during the next three years, rising at an average annual rate of 0.3% a year.  This compares with a ten-year trend of 5.9% a year through 2002.

MARKET PULP

Market wood pulp capacity in this year’s Survey totaled 10.5 million tons in 2002, about 60,000 tons more than that projected in the 2001 survey.   Dissolving pulp capacity is estimated at 1.2 million tons for 2002.  Bleached softwood kraft market pulp capacity decreased 20,000 tons in 2002 to 5.75 million tons.  Bleached hardwood kraft market pulp capacity remained flat in 2002 at 3.15 million tons.

Total market pulp capacity is expected to decline by about 200,000 tons through 2005 to total an estimated 10.3 million tons by 2005.   Major changes to the sub-grades include substantial declines in dissolving pulp capacity due to the closure of a facility in the South.  By 2005, dissolving market pulp capacity is expected to total approximately 800,000 tons. Bleached softwood kraft market pulp capacity is expected to grow 1.5% annually during 2003-2005 and is expected to total 6.0 million tons in 2005. Bleached hardwood kraft market pulp is projected to decline at an average annual rate of 1.0% during the same period and reach 3.1 million tons in 2005.  Total chemical paper grade market pulp capacity is expected to reach 9.5 million tons by 2005 – about 160,000 tons lower than the 1995 peak.

RECOVERED PAPER

Recovered paper consumption at U.S. paper mills edged up 0.1% in 2002 to 34.8 million tons.   However, the 2001 level of recovered paper consumption was revised down by some 412,000 tons or 1.2%. The revision partly reflects the fact that the 2001 Survey was completed before full-year 2001 data had become available and hence company reporting, of necessity, reflected estimates.  The current Survey projects that U.S. mill consumption of recovered paper will grow at an average annual rate 1.3% a year in during the 2003-05 period. 

U.S. mill consumption of recovered paper is expected to register across-the-board gains during next three years.   In particular, consumption of the high grades (high grade deinking and pulp substitutes) is projected to grow at an average annual rate of  2.1% in the 2003-05 period.  The next fastest growing grades will be mixed, averaging 1.7% a year and OCC at 1.2% a year.  News will be the slowest growing of the recovered paper grades at an average annual rate of 0.5%.