U.S. Performance
Dominating every aspect of the U.S. economy is the country's massive debt—some states are technically broke. Its trade deficit with China has made that country the U.S.'s second largest creditor.

The U.S.'s paper trade deficit with China in 2002 was $359.4 million compared to $39 million in 1990. And this deficit does not include the paper and board used to package $125 billion worth of products the U.S. imports from China.

I can accept that countries do not go broke. They sell off bits of themselves. I hope the U.S. government can manage things.

Ken Patrick and others have recorded the following:

1. In 2001-2002, 8.2 million tonnes of capacity have been closed down, mainly in containerboard, market pulp, and printing/writing papers.
2. Since 1997, 72 pulp and paper mills have closed, as well as 33 sawmills.
3. Some 32,000 jobs have been lost in the paper industry and 57,000 in the wood sector.

So what will happen this year? More of the same I think:

• more mergers, consolidations and closures,
• more foreign acquisitions by the U.S. top five, (G-P, IP, K-C, P&G, etc.)
• running battles with authorities over energy supplies and costs
• disagreement over recycling—single stream or segregated?
• more foreign competition
• increased acquisition of U.S. companies by the big Europeans such as Stora Enso and UPM Kymmene
• erratic paper and board demand

Recycling
In Europe and North America the industry and regulators are on a collision course over complex issues of recycling. At its simplest level, it is about how wastepaper and board is collected and sorted.

The industry prefers, for many practical reasons, that its waste be sorted into paper and board, ideally at the source—in the kitchen. The industry often subsidizes this system.

In Europe, the wastepaper recovery rate is stuck at about 56%. The industry would like to do better, but local authorities cannot, or will not, spend the money to establish sufficient municipal waste separation plants. Only a minority does so. It is simpler and cheaper for authorities to deploy one truck to collect it all, then dump it or burn it.

And in Europe, things are getting really hostile. The pan-European regulators classify wastepaper processing as a waste industry, along with sewage treatment, refuse collection and road-kill debris. Stora Enso's new 400,000tpy newsprint mill in Langerbrugge, Belgium, is classified as a waste treatment plant. The paper industry sees it differently.

So while the both sides are slugging it out, independent operators are mopping up mounds of paper and board and shipping the stuff to Asia.

A new technical issue is also worrying the industry. Some European newspaper owners are using new water-based inks that are difficult to de-ink by conventional means, leaving the industry to spend more money it hasn't got on additional chemical solvents and processes.

So the year ahead will see:

• continued industry/government arguments over recycling
• stagnant progress in recycling
• more technical demands, which will push up costs
• more waste paper and board exported from North America and Europe to Asia

Russia
Fifteen years ago it was a communist dictatorship and a lot has now changed. Its economy is beginning to buzz. Its oil production will exceed that of Saudi Arabia and its gold and diamond reserves already dominate the markets. For our industry, what matters is the long-term competitiveness of it softwood pulp production. In a Jaakko Poyry league table of 16 pulp producers (top/expensive, bottom/cheap), Russia is 15th, one above Brazil (the cheapest).

So, watch for:

• large shipments of cheap Russian softwood pulp
• similarly for sawn wood and wood-based panels
• growing investment in Russia by North American and European pulp and paper companies