Asian Crisis Hits Northwest Pulp and Paper Mills
http://forests.org/-- Forest Conservation Archives
12/28/98
*******************************
RELAYED TEXT STARTS HERE:
Title: Asian Crisis Hits Northwest Pulp and Paper Mills
Source: Puget Sound Business Journal
Status: Copyrighted, contact source to reprint
Date: 12/28/98
Byline: George Erb
A third of the pulp that the Port Townsend Paper Co. shipped to Asia
went to companies in Korea -- until the Asian economic crisis dragged
the
mill's Korean customers into bankruptcy protection.
"We have not had an order from Korea in more than a year," said John
Begley, president and CEO of Port Townsend Paper.
It's a familiar story in the Northwest pulp and paper business, which
was seeing signs of a recovery until the Asian economy imploded,
plunging the industry back into the doldrums.
The economic mess slashed sales to Asia, glutted the North American
market with pulp and paper products and drove down prices almost across
the board.
Pulp and paper companies are hunkering down. Many mill managers have
imposed austerity programs, temporarily shut down production lines
and, in some cases, laid off workers. Talk of mill expansions is
nonexistent, if not laughable.
"There's no question that this is a serious downturn, and hopefully
we're going to see a light at the end of the tunnel," said Curt
Copenhagen, spokesman for the Longview Fibre Co. of Longview. "But we
haven't seen it yet."
The industry was still clawing its way back from a 1995 downturn when
the currency markets blew up in Thailand last year, triggering a
financial
crisis that engulfed one Asian nation after another.
As the economies sank in Japan, Thailand, Malaysia and other Asian
countries, orders for Northwest pulp and paper products began to dry
up and prices started sinking
"These are global markets, and you've got a third of the globe in either
recession or depression, which has substantially pulled down demand,"
said Bruce Lippke, director of the Center for International Trade in
Forest Products at the University of Washington.
Domestic pulp and paper companies shifted more of their attention to
North American markets -- but so did their Asian competitors. Asian
mills, taking advantage of favorable exchange rates, began shipping
cheaper products to the United States.
The resulting glut of pulp and paper products has become increasingly
apparent over the course of the year.
"When you have a lot of supply, prices go down," said Joyce Routson,
executive news editor for Pulp & Paper, the industry trade publication.
And prices have fallen almost without interruption since January.
One benchmark grade of pulp, northern bleached softwood kraft, now sells
for $500 a metric ton on the East Coast, down 11 percent from $565
during the first three months of the year, according to Pulp & Paper.
Paper prices sank, too. A benchmark grade of paper, 20-pound uncoated
free sheet, fetched between $700 and $720 a ton in November, down
from between $820 and $840 the previous year, the trade journal said.
In Hoquiam, managers of Grays Harbor Paper L.P. are experiencing the
declining prices from both sides -- as both buyers and sellers. The
company buys pulp from other mills and uses it to make uncoated free
sheet paper.
Even though Grays Harbor Paper is paying less for its pulp, the company
is also getting less money for its paper.
"Prices peaked in January, and except for one uptick, they have declined
on a month-by-month basis throughout this year," said Patrick Quigg,
a financial officer at the independent mill. "Everything seems to be
heading down."
Northwest mills are adjusting to the tough business climate in a variety
of ways, depending on their existing efficiencies and how much of their
business depended on the Pacific Rim.
Austerity moves are de rigueur among pulp and paper companies these
days. Mill managers have delayed equipment purchases, cut travel budgets
and reduced their spending on outside consultants.
Many Northwest mills temporarily shut down some of their production
lines, a move that executives make with great reluctance. The industry
is one of the most capital-intensive in the world, and most mills must
run 24 hours a day to make money.
Nonetheless, Port Townsend Paper shut down its market-pulp line for six
weeks in April and again in November.
In Tacoma, the Simppson Tacoma Kraft Co. now run its pulp-drying
machinery once a month instead of every week. The machine serves the
overseas market -- pulp must be dried before it is shipped -- but sales
are sharply off.
Earlier this fall, Weyerhaeuser Co. of Federal Way shut down a machine
at its containerboard mill in Springfield, Ore., for as long as six
months because of declining orders from Asia.
Some Northwest mills are laying off workers. Last month, Grays Harbor
Paper laid off 5 percent of its work force. The mill, which still
employs 239 people, is one of the largest industrial employers in Grays
Harbor County.
About 80 workers lost their jobs in two separate layoffs this fall at
Longview Fibre, which lost $6.6 million in the fiscal year that ended
Oct. 31. Weyerhaeuser is using attrition to trim the work force at its
ppulp mill in Cosmopolis, Gray Harbor County.
Nationwide, most mills have delayed plans to buy new equipment.
The American Forest & Paper Association this month said the nation's
paper-making capacity will grow about 0.9 percent between 1999 and
2001, the slowest growth rate in nearly 40 years.