Looking back at my predictions in the January/February edition of PaperAge last year, I was depressed to see that much of what I forecast came true. I used to think that a forecaster was little better than a snake-oil vendor. But the information overload we now absorb means that predictions will become more accurate. Therefore, I'm encouraged, but also uneasy. So what can the industry expect this year?

Last year I looked at four topics: the market, US performance, recycling and China.They still predominate. So once again, while some of you may be attending EXFOR 2005 and stopping by Montreal's salons, drinking tea, coffee, chasing orders or looking into the abyss, here's what I think.

The Market. Some, but no significant, lasting movement in prices. Over-capacity in most grades, fragmentation, closures, job losses, low-cost competition, high fuel and raw material prices and continuing regulatory pressures will continue to squeeze the industry. Mergers and acquisitions slowed and greenfield projects were few. The much hoped-for economic recovery has still not happened. I'll be interested to hear what the 'mutter from the gutter' is at Montreal. My view is that not much will change. It's another year for belt-tightening.

U.S. performance. This is deeply worrying. On top of a record $450 billion budget deficit, the US is still committed to Iraq's “democracy” and the global fight against Islamic terrorism. It is also a lead donor and participant in the apocalyptic consequences of the tsunami disaster in South Asia. These are very expensive commitments.

Additionally, the dollar continues to be is under heavy pressure on foreign exchanges as the world worries about the country's deficit, and there is a possibility that the G7 nations will try to intervene to support the dollar.

Against this background what chance is there for the US pulp and paper industry to grow? This year, none at all. In my view, the industry in the US is on a path of steady contraction.

Last October a close observer in the US and a player in the industry told me, “The US paper industry is a victim of doing business in what is the most highly-developed region in the world, where it faces astronomically high environmental compliance regulations, high wages, climbing insurance rates, legal fees, etc.”

“I think we look outside our borders and say, 'We work just as hard as our off-shore competitors, yet face extraordinary costs in this country, many of which we have no control over, all the while being held to a higher standard than the rest of the world,'” he added.

Another US observer, but based off-shore said, “US paper companies have long been less internationally-oriented than their competitors, with limited exceptions. If you look how far along US companies are in China, in comparison to their European competitors, it will take years to catch up. Many US companies have not even started this process.”

In an interview in the Nov/Dec 2004 issue of this magazine, Jukka Tiitinen, president of Metso Paper North America, said, “...investment in new machines in [the US] has dropped drastically in the last 10 years…” In the same article, the editor-in-chief pointed out that capital spending by the North American paper industry had fallen from an all-time high of nearly $20 billion in 1989-90 to some $3.5 to $5 billion each in the past five years. In response, Tiitinen replied, “We have conducted several studies on capital spending, all of which indicate that the assets of some of the larger paper companies are steadily declining as a result of reduced spending.”

So where is the new money for growth? Other than for tissue, it's not there.

Recycling. For the last few years recycling in North America has been dormant and the recovery system has stalled. Domestic demand has been flat and the only growth has been in exports to Asia. Is there any new capacity planned for recycling mills? Recently, the American Forest & Paper Association (AF&PA) brought forth initiatives by offering three awards for recycling efforts. Maybe these will help to kick-start this sector. Otherwise, Chinese demand will mop up all the wastepaper in North America.

China. The country now has a population of 1.3 billion. It dominates the market pulp and wastepaper markets and will continue to do so for many years. And in a decade, the yuan will compete with the dollar to be the world's reserve currency. It will certainly be the world's second strongest currency in less than a decade.

I'll re-visit these situations next year and see what happened.

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