The European industry is beginning to have the same problems as those of North America. Last month CEPI published its “wish list” of the top 10 factors that affect its competitiveness.

by David Price

Visitors to AF&PA's Paper Week may have read the last issue of PaperAge in which the problems of North American industry were analyzed. Similar problems are emerging in Europe. The Confederation of European Paper Industries' (CEPI) analysis started by saying “…despite the challenging business climate and global competitors whose production costs can be substantially lower than those in Europe, the paper industry has managed to maintain its position as a competitive and sustainable industry in the region and as a global leader in its field.” No surprise there.

But the detail includes: energy, wood resources, recovered paper, labor, regulatory framework, chemicals, capital costs, transportation, taxation, and ability to innovate.

European firms produce about 100 million tonnes of paper and 45 million tonnes of pulp, and represents 29% of the world production of paper-850 companies and 1,250 mills employ 275,000 people directly and about 1.8 million indirectly.

ENERGY

As I write, the price of a gallon of gasoline here in the UK has risen to $7. Natural gas prices are also rising as Russia and Algeria begin to dominate the gas market. I may be hurting, but it's much worse for industry. A 250,000 tpy board mill will close this month because its energy bill is simply unaffordable.

Europe's energy market is an oligopoly and, in parts, monopolistic. Prices have now reached a level where biodiesel, corn-based ethanol, shale oil and tar sands are now economically viable to exploit. The pulp and paper industry does a lot to generate its own energy from its own raw material, but it still needs conventional oil and gas, and that's a problem.

RECOVERED PAPER

Most of the quality paper in Europe is already being collected and recycled. Even so, collection rates need to improve. But new legislation is promoting biofuels, which means valuable raw materials will be burnt.

WOOD RESOURCES

Wood is expensive in Europe and this is unlikely to change. Wood production is hampered by fragmented ownership, increasing numbers of areas are barred to industrial use, and transportation costs are rising. And subsidized wood is being considered for use only as bio-energy.

LABOR

There's not much to say here except that a mill worker in Brazil, Russia, Indonesia, Chile and China is cheaper than one in Europe or North America.

CHEMICALS

It follows that as the price of oil rises so does that of chemicals. But a bigger problem is looming legislation which will penalize the recovered paper sector by compelling it to source and identify all chemicals used in that stream. This will be expensive, protracted, and in some cases, impossible.

CAPITAL COSTS

The financial markets have become cautious about business fundamentals in Europe such as environmental and socio-economic issues. In other words, it's cheaper—with less hassle-to build a pulp mill in Uruguay than in Finland.

REGULATORY FRAMEWORK

Red tape, inconsistency and the sheer volume of regulations are now excessive. The legislators have adopted a “one size fits all” approach. They also see the recovered paper sector as a waste industry.

TRANSPORTATION

The bulky nature of pulp and paper products makes it expensive to move them around. If you add in labor costs, oil prices, road tolls and security, then costs are rising. Europe's roads, rail network, rivers and canals are getting congested.

TAXATION

No one has a good word for it—the average European corporate tax is 26.8%. The capital intensive nature of our industry means that it is often penalized by heavier taxation and excessive administration.

ABILITY TO INNOVATE

Europe, generally, has a technological lead over competing regions, but R&D is being cut and a skilled workforce is getting harder to find and train. The one hope is that the Forest-Based Sector Technology Platform (FTP), set up in 2005 by the industry, will focus and coordinate research throughout the forest industry chain. This has successfully pulled in the woodworking industries, pulp and papermakers, paper converters, printers, packers, fillers and distributors. One long term goal is to exploit opportunities in areas such as wireless, biotechnology, nanotechnology and IT.

As I re-read this comment I am struck by the hostile business climate in which our industry operates. My only consolation is that as the price of energy rises the low cost- producers will also be hit by these rises. So, the cost of energy may be the great equalizer between the regions. And when that happens, will the technological edge of Europe and North America make it competitive to manufacture pulp and paper in the northern hemisphere once again?

PaperAge. Copyright © O'Brien Publications, Inc. All rights reserved.