Nothing is for ever—except bad news. Industry experts and wise men in the AF&PA, venerable observers like Jack O'Brien, Ken Patrick and Harold Cody, CEOs who are globally-aware, and suppliers like Voith and Metso, all know that the traditional US paper industry is contracting. Read any issue of this magazine and the pattern of closure, merger and contraction is unmistakable.
The last issue of this magazine (July/August) illustrates precisely what's happening. The good news was in the editor's note, “PIMA's June conference was nearly 100% up on the previous year and there was a better ratio of papermakers to suppliers.” So is the industry conference making a comeback? I'd prefer to wait until the winter and spring conferences have been counted.
More significant was the feature on SCA's first greenfield tissue mill. SCA is a Swedish company which has its origins in mid-Sweden around Sundsvall. It was a pulp and office paper specialist. It's now into tissue and packaging grades. SCA has always grown by acquisition-mainly in Europe. Yet its first and historic greenfield project in its 75-year history was in northwest Alabama-about 6000 miles from Sundsvall. Also, in the news pages of the last issue was a story that UPM of Finland is thinking of a new paper machine at its Blandin mill in Minnesota (also about 6000 miles from its Helsinki base). And Ahlstrom, also Finnish, bought a US filtration plant. Yet US companies, Caraustar Industries and Rock-Tenn, were closing plants. Is it only foreign companies that can modernize the US paper industry?
I'm intrigued by the prospect of AF&PA's membership becoming largely foreign by the year 2010. If that were to be the case, would AF&PA still have a role to play? Should it lobby the US government on behalf of its mainly foreign-owned members?
The third item in the issue that was most ominous for US industry was Frank Perkowski's wake-up call. One paragraph says it all… “It is well documented that North American companies have fallen behind other regions of the world in terms of investment, technology and overall cost structure. This has made North American companies vulnerable to further erosion of their competitive position in domestic and international markets. In the light of these demand and supply dynamics, it would appear that unless unforeseen changes take place, there is likely to be little if any improvement in the basic fundamentals of the North American paper business in the years ahead.”
The worrying bit here is that, to me, “unforeseen” means no one knows what it's going to take to stop or slow the gradual contraction of the industry. He makes several recommendations the industry should adopt, but some are much too radical and expensive for such a traditional industry.
A part of my summer reading was catching up on industry forecasts and some less reliable “guesstimates.” The best, by PIRA (UK), predicted that in 10 years' time, industry consolidation could result in just 15 paper groups and 15 big pulp producers to cover 80 percent of the global market. My question is: how many of them will be American? Certainly IP and maybe GP will be there, but who else?
Readers of this column will be familiar with some of my views on globalization. For example, none of the leisure clothes I'm wearing as I write were made in the UK. The entire ensemble was made in Sri Lanka, Vietnam, Morocco and Guatemala. My PC was made in China, my printer is Japanese, the ink cartridges are US-made and my paper is Spanish.
So why shouldn't the US paper industry also be dispersed, come under foreign ownership in the US or start manufacturing off-shore?
I can see, with some confidence, US paper companies relocating to Brazil, Chile, Russia and China-but only if the latter can develop and maintain its raw materials of forests and waste paper. There are major political problems for US paper companies operating in Russia and China, and then exporting to the US domestic market despite transport costs. But what if they find it more profitable to make paper AND sell it in its foreign locations?
The US paper industry has a historic and traditional legacy which deserves to be recognized. But there is now a clear lack of traditional growth opportunities in the US and it may now be time for bits of it to move off-shore, merge or close. US oil, gas, mining companies and car makers seem to have responded and adapted satisfactorily to new challenges and new locations.
Can the US paper industry see and seize alternative growth possibilities? I hope so.
