AF&PA expects US capacity to remain flat

The American Forest & Paper Assn. (AF&PA) released its 47th Annual Survey of Paper, Paperboard, and Pulp Capacity March 9 in New York, NY. Total US paper and paperboard capacity declined 1.6% in 2006 to 97.7 million short tons, the sixth consecutive annual contraction in paper and paperboard capacity, and the sharpest decline since 2001. Capacity declined only fractionally in 2004, and by 0.8% in 2005. From 2001 through 2006, US capacity declined at an average annual rate of 1.0%.

Competition from paper imports, growth in the US trade deficit with respect to packaged goods, and electronic substitution, were some of the factors that directly or indirectly led to the capacity reductions. Despite the 1.6% decline, 2006 paper and paperboard capacity still came in 0.4% above the 97.3 million tons projected by last year’s Survey. During 2007-2009, aggregate US paper and paperboard production capacity is projected to remain essentially flat, with capacity declining 0.7% in 2007 but then increasing 0.7% in 2008 and another 0.2% in 2009.

PAPER GRADES
• Newsprint. US news - print capacity has been in steady decline, falling from an all-time high of 7.46 million tons in 2000 to 5.53 million tons in 2006 – down 26.0% for the period. Recent declines measured 4.5% in 2004, 13.1% in 2005, and 4.0% in 2006. Last year’s decline and the anticipated 2007 decline of 0.7% are partially attributable to the conversion of a machine to produce printing-writing papers. Basis weight reductions also contributed to the reduction in capacity tons. Newsprint capacity is projected to contract 3.1% in 2008, mainly because of grade swings into uncoated mechanical papers, and then stabilize in 2009.

• Printing-writing. Both uncoated mechanical and coated free sheet capacities expanded in 2006. US capacity to produce the four major printing-writing paper grades declined 1.2% in 2006 and is projected to decline at an average annual rate of 0.7% during the next three years.

• Uncoated mechanical paper. Capacity rose 0.8% in 2006 to 2.26 million tons and is slated to rise 1.8% in 2007 and 5.0% in 2008. These changes reflect some planned shifts from newsprint to uncoated mechanical paper grades. These machines are swing machines able to switch between the two grades. Capacity to produce uncoated mechanical papers is projected to be stable in 2009.

• Coated mechanical paper. After remaining nearly flat during 2004 and 2005, capacity contracted 6.4% in 2006. The decline resulted from grade re-classification at a mill to coated free sheet as well as a machine shut-down during 3Q06. Capacity will edge up by 0.6% in 2007 and is projected to hold nearly stable at about 4.7 million tons during the next two years.

• Coated free sheet. Capacity continued to expand by 3.4% in 2006 to 5.31 million tons; by comparison, capacity expanded by 4.1% in 2004 and 2.3% in 2005. The gains were attributable to the previously mentioned grade re-classification from coated mechanical, which more than offset the shut-down of two machines in 2005. Coated free sheet capacity reached an all-time high of 5.62 million tons in 2000 and then declined sharply over the next three years to 4.82 million tons in 2003. The cumulative three-year decline was 14.2%. Capacity is slated to decline 3.2% in 2007, largely because of a machine shut-down early in the year, and then hold about stable in 2008 and 2009.

• Uncoated free sheet. Capacity has been trending lower since 2000 when it reached a record high of 15.2 million tons. After declining by 1.4% in 2004 and 0.9% in 2005, uncoated free sheet capacity fell another 1.4% in 2006 to 13.4 million tons. The decline in 2006 resulted from the shuttering of three paper machines at the end of 2005, and the closure of two more machines in 2006, offset partially by the conversion of a newsprint machine to make paper for the uncoated free sheet market. Uncoated free sheet capacity is projected to decline 2.5% in 2007 and 1.5% in 2008. The declines result from two machine conversions in 2007 – one from uncoated free sheet to linerboard and another from uncoated free sheet to a mix of uncoated free sheet and pressuresensitive release and label paper. These capacity reductions are partially offset by the newsprint machine conversion mentioned previously. Capacity to produce uncoated free sheet is projected to decline a marginal 0.2% in 2009.

• Tissue paper. Four new tissue machines began operating in 2006. Capacity expanded at an average annual rate of 3.7% between 1999 and 2002, but average annual growth subsequently slowed to 1.3% a year from 2003 through 2005. It declined 0.4% in 2006 to 8.24 million tons. The new tissue machines partially offset the removal of five machines from the Survey in 2006. Average annual growth of tissue capacity during the projection period (2007-09) is 1.0%. Six tissue machines are slated to come on-line during 2007. However, the residual influence on annual capacity of machine closures in 2006 and ramp-up schedules means that most of the effect on annual capacity will not occur until 2008. In particular, tissue capacity is slated to decline 1.3% in 2007 and then rise 3.0% in 2008 and 1.2% in 2009. Three additional machines are expected to start up during 2008 and 2009.

• Unbleached kraft. Capacity has been in a long-term decline owing to displacement by plastics; it contracted 5.3% in 2006. This reflects the removal from the Survey base as of 4Q05 of two machines, which had been idle for several years but not judged to be permanently closed. Hence, the full-year effect on capacity was not manifest until 2006. Unbleached kraft capacity is slated to edge down by 0.3% in 2007, re-expand 0.7% in 2008 and then hold stable in 2009.

• Bleached packaging and industrial converting paper. Capacity declined 38.4% in 2006 to 204,000 tons. The decline was largely from the removal from the Survey base in late 2005 of a previously shuttered machine and shifts to other white paper grades. Capacity to produce these grades is slated to increase 3.3% in 2007, holding stable during the next two years.

PAPERBOARD GRADES
• Linerboard. Capacity rose 0.2% in 2006. The increases resulted from productivity improvements, product mix changes within linerboard and shifts from recycled medium, which more than compensated for the removal of three  machines – two during the second half of 2005 and one in 1Q06. There were small declines of 0.2% in each of the two previous years. Linerboard capacity is slated to edge up 0.4% in 2007 and then rise 1.0% in 2008. This reflects the conversion and ramping-up of a machine from uncoated free sheet to linerboard during the fall of 2007.

• Corrugating medium. Here, 2006 capacity declined by 4.6%. This is largely the result of the removal from the Survey in early 2006 of a machine that had been idled during mid-2005 and now being converted to another grade. Medium capacity will virtually stable at 10.8 million tons during each of the three projection years, through 2009. • Bleached paperboard. Capacity declined by 4.9% in 2006 to 5.81 million tons, mostly in the folding carton category which contracted by nearly 260,000 tons. The sharp reduction was attributable to the shut-down of a machine in 1Q06 and also to the residual effect of three machines being removed from the Survey base during the 3Q05 and 4Q05. Capacity is projected to decline by 0.4% in 2007 and then rise 0.1% in 2008. It is then expected to hold about stable in 2009.

• Recycled paper board. Ca pa ci ty folding, set-up and other – has been declining since early this decade. It declined by 3.1% in 2006 reflecting the closure of eight machines that year and the residual effect of several machine closures during 2005. Capacity is projected to decline 4.1% in 2007 mainly because of another machine closure early this year, and the residual effect of closures in 2006. After that, it is expected to increase by 1.0% in 2008 and 0.2% in 2009.

• Gypsum wallboard facing. Capacity declined 3.8% in 2006, primarily because of swings to other board grades. After edging up slightly in 2007, capacity is projected to increase 12.3% in 2008 with the conversion early that year of a previously shut medium machine to make gypsum wallboard facing paper.

• Unbleached kraft folding boxboard. Capacity rose 3.0% in 2006 to 2.52 million tons. It is expected to rise at an average annual rate of 0.5% during the projection period to 2.56 million tons in 2009.

MARKET PULP
• Chemical paper grade market pulp. Capacity declined by 4.7% in 2006 to 9.34 million tons, reflecting the closure of two mills during the first half of the year. Production capacity is projected to rise 0.8% in 2007 and then remain nearly stable during the subsequent two years. Market pulp capacity changes also result from reclassification of affiliated shipments to/from market and from opportunistic sales to market from integrated mills. The complete Survey may be purchased for $1500 through AF&PA’s website, or by contacting Jared Davis at AF&PA (ph: 202-463-2738, e-mail: Jared_Davis@ afandpa.org).

The American Forest & Paper Assn., www.afandpa.org

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