Paper Industry Perspective
3rd Quarter 2013
IP announces Courtland, AL shut
By Jesse Marzouk
International Paper sent a
shockwave through the paper
industry when it announced the
closure off its Courtland, Alabama
paper mill. Annually, the mill has
capacity to produce 765,000 tons
of uncoated freesheet (UFS) and
185,000 tons of coated and kraft
paper. The closure will occur in
two stages, with two paper machines closing in the fourth
quarter of 2013 and the remaining two in the first quarter
of 2014.
The closure will have the
largest impact upon the UFS
market. The closure removes
approximately 8% of capacity
in North America for UFS.
This amounts to more than
two years’ worth of demand
declines in North America based
on current expectations. As a
result, operating rates in North
America for UFS will be pushed
towards 95%, a level not seen in
almost 10 years. This is well
above the level where producers
typically are able to raise prices. Only days after the announcement
of the closure, and before any
capacity had actually been taken
off the market, almost all UFS
producers announced price hikes
ranging from $40 to $70, depending on the grade. Domtar, the
industry behemoth, will benefit
the most, as it will control more
than one-third of UFS capacity in 2014 after the Courtland closure
and other smaller closures at the
end of 2013.
While the Courtland mill was
almost certainly a profitable mill,
the decision to close it came on
the back of a sharp deterioration in
UFS pricing over the last 12 months. The two most popular
grades of UFS (cutsize and offset
rolls), declined anywhere from $50
to $100 per ton over the last year.
Additionally, annual demand declines for UFS have averaged
nearly 3% since 1999, with no sign
of leveling off any time soon.
This is the difficult environment that producers of printing and writing papers in North America and Europe encounter as they
are faced with continual demand
decline. Other large scale mill
closures, even for those mills that
are currently profitable, are likely to
be seen over the next decade to
help producers maintain pricing.
Jesse Marzouk is a vice president and forestry products specialist. He has
appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies
involved in manufacturing and distribution. Jesse received his MBA in finance from
Kellogg School of Management at Northwestern University, and has a degree in
finance and accounting from Indiana University.