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50th Annual Survey of U.S. Paper, Paperboard & Pulp Capacity, 2009-2012

March 31, 2010 - Against the backdrop of an exceptionally weak economy, U.S. paper and paperboard capacity declined 2.5% in 2009 to 93.9 million tons, according to the American Forest & Paper Association's 50th Annual Survey of Paper, Paperboard, and Pulp Capacity.

Last year's decline was larger than the 0.8% reduction in paper and paperboard capacity registered in 2008 and exceeded the 0.9% average annual rate of decline recorded during the ten-year period from 2000 through 2009, AF&PA said.

A total of 27 machines (14 entire mills) were permanently shut down in 2009, according to the information compiled for the Survey. In addition, four more machines (three mills) are slated for permanent closure in 2010.

The Survey responses suggest that paper and paperboard capacity will decline an additional 3.4% in 2010 and then hold essentially stable during the subsequent two years.

PAPER GRADES

U.S. newsprint capacity declined 0.9% in 2009, to 4.8 million tons, marking its lowest level since 1979. Though the 2009 decline was smaller than those of recent years, nearly a million tons of newsprint capacity is currently idle. Newsprint capacity contracted 8.6% in 2008 and at an average annual rate of 4.2% during the period 2000-2009. Reflecting continued shifts to uncoated mechanical grades, the Survey indicates that newsprint capacity will decline 1.2% in 2010, 0.9% in 2011, and 0.4% in 2012.

Total printing-writing paper capacity (uncoated and coated free sheet, uncoated and coated mechanical papers) declined 6.6% in 2009 to 22.7 million tons. Three of the four major grade categories — uncoated mechanical being the one exception — registered declines in 2009. Relative to its historical peak level of 27.6 million tons in 2000, printing-writing paper capacity has declined 17.8% during the nine-year period through 2009. According to the Survey results, it is slated to contract another 4.7% in 2010 and 0.5% in 2011. It is projected to hold essentially stable in 2012, rising 0.1%.

Uncoated mechanical paper is one of the few grade categories that have been recording capacity gains. Following a 4.5% increase in 2008, uncoated mechanical paper capacity expanded 6.2% in 2009 to 2.5 million tons. The increase largely reflected shifts from newsprint and coated mechanical papers. The Survey indicates that uncoated mechanical paper capacity will continue to increase in the future, rising 4.8% in 2010, 1.6% in 2011, and 0.6% in 2012.

Coated mechanical paper capacity declined by 483,000 tons, or 10.4%, in 2009. Some of that reduction reflected the full-year impact of two mills that closed in 2008. It also reflected shifts in capacity from coated mechanical to uncoated mechanical as well as specialty papers. Coated mechanical paper capacity is slated to decline 6.8% in 2010 and 1.9% in 2011 due in part to a mill closure during the first half of 2010. No change is projected for 2012.

After declining 2.1% in 2008, coated free sheet capacity decreased an additional 11.8% in 2009, to 4.6 million tons. The decline reflects the permanent closure of two coated free sheet mills — one each in 2008 and 2009, as well as the 2009 conversion of a previously idled mill to produce linerboard and bag paper. Coated free sheet capacity is projected to decline an additional 4.3% in 2010 and then hold stable during the following two years.

After peaking at 15.2 million tons in 2000, uncoated free sheet capacity dropped almost 25% through 2009 to 11.4 million tons. This nearly decade-long decline included a 6.6% reduction in 2008 and a 5.4% contraction in 2009. Moreover, capacity for this grade is slated to decline an additional 6.3% this year and 0.7% in 2011. No change is indicated by the Survey for the year 2012.

More than a dozen uncoated free sheet paper machines were closed at various times during 2008 and 2009, contributing to the capacity reductions reported for 2009. More closures have been announced for this year, resulting in the decline in capacity.

After expanding by 4.6% in 2008, unbleached Kraft paper capacity contracted 2.9% in 2009 to 1.6 million tons; it is projected to decline 0.2% this year. These declines reflect swings to linerboard. In 2009, a previously idled coated free sheet machine was restarted to produce Kraft paper, but the mill has since been idled due to financial difficulties.

Meanwhile, bleached packaging and industrial converting capacity rose 5.2% in 2009 after declining 8.9% in 2008. The Survey indicates bleached Kraft paper capacity will decline 5.9% in 2010 and 2.6% in 2011 before stabilizing in 2012. Since bleached Kraft paper is produced only on machines that produce other paper grades, its capacity in a given year is largely determined by the product mix for that year.

Tissue paper is another of the few categories of paper and paperboard where capacity has increased during recent years, expanding 1.3% in 2008 and 1.4% in 2009. During the past ten years (2000-2009), U.S. tissue paper capacity rose at an average annual rate of 1.6%.

The increase in tissue capacity in 2009 is the result of the ramp-up of a new machine that started up in the second half of 2008, the startup of a new machine in early 2009, and the restart of a previously shut mill during the second half of 2009. Two new tissue paper machines are slated to come on line during 2010 — one during the middle of the year and the other towards the end of the year. This new capacity will be largely offset by a machine closure, yielding a net capacity increase of just 0.1%.

The Survey indicates tissue paper capacity will increase 1.0% in 2011 as the new machines scheduled to come on line in 2010 operate for the full year and another 1.0% in 2012 due to the planned startup of a new machine in late 2011.

PAPERBOARD GRADES

After increasing 1.9% in 2007 and 2.1% in 2008, linerboard capacity declined 0.3% in 2009 to 26.4 million tons. A new recycled containerboard machine came on line during early 2009 and another machine was converted from the production of coated free sheet to Kraft linerboard. However, these additions were more than offset by the closure of four linerboard machines during late 2009 as well as by swings from linerboard to medium.

Linerboard capacity is slated to decline 3.8% in 2010 due to the full-year impact of the machines that closed during late 2009 and the closure of an additional machine during early 2010. Linerboard capacity is subsequently slated to increase 0.3% in 2011 and to hold flat in 2012. While unbleached Kraft linerboard capacity is projected to decline by more than a million tons during the projection period (2010-12), recycled linerboard capacity is expected to rise by 100,000 thousand tons

Capacity to produce corrugating medium rose 0.6% in 2009 to a level of 10.6 million tons, but is slated to decline 6.0% in 2010. Last year's increase partly reflected the startup of a new recycled containerboard machine during the first quarter of 2009 and swings from linerboard. However, three semichemical medium machines were permanently closed and removed from the Survey base in late2009, having a spillover effect on 2010 capacity. Capacity to produce medium is projected to edge up 0.3% in 2011 and 0.1% in 2012.

After increasing 3.2% in 2007 and 0.6% in 2008, bleached paperboard (excluding bleached linerboard and bristols) capacity declined 2.8% in 2009. The decline was partly attributable to the permanent closure of a bleached board machine during the second half of 2009. Bleached board capacity is scheduled to decline an additional 1.1% in 2010 and then hold stable in 2011 and 2012.

Reflecting the permanent shutdown of three mills, recycled paperboard capacity (folding, set-up and other) declined 5.6% in 2009 to a level of 4.9 million tons. Based on the Survey responses, recycled paperboard capacity is expected to decline an additional 0.6% in 2010 and then edge up 0.1% in 2011 and 2012, respectively.

U.S. capacity to produce gypsum wallboard facing increased 3.4% to 1.8 million tons in 2009, resulting from the ramp-up of a rebuilt machine that started up during the second quarter of 2008. Due to the very weak housing market, six paper mills producing gypsum facing are currently idle, totaling 25% of the capacity.

After holding stable in 2008, capacity for unbleached Kraft folding boxboard declined 2.9% in 2009, to 2.5 million tons and is slated to decline an additional 2.4% in 2010. No changes are indicated by the Survey for 2011 and 2012.

MARKET PULP

Chemical paper grade market pulp capacity expanded 0.7% in 2009 to 10.0 million tons. The increase largely reflected the shifting of integrated pulp capacity to market pulp that more than compensated for the shutdown of a pulp mill at the end of 2008.

Chemical paper grade market pulp capacity is slated to decline 3.8% in 2010 due to the permanent closure of a previously idled pulp line at the end of 2009. Chemical paper grade market pulp capacity is projected to rise 2.1% in 2011 as a result of the conversion of a previously shut paper machine to produce fluff pulp.

HOW TO OBTAIN THE FULL SURVEY WITH TABLES
The complete Survey with detailed tables can be purchased for $1650 by contacting Michelle Gaskins at AF&PA (202) 463-5162 or email: Michelle_Gaskins@afandpa.org.

SOURCE: AF&PA




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