The hard facts: recyclers need to help the U.S. paper industry survive in a competitive world, according to SP Newsprint's Dr. James Burke - Paper Consumer Focus

Recycling Today, Nov, 2002

Speaking as part of panel called "The Changing Face of Paper Recycling," Dr. James Burke had a sobering message for attendees of the Paper Recycling Conference & Trade Show, held in New Orleans this past June.

Burke is CEO and president of SP Newsprint Co. (formerly Southeast Paper). The company operates two mills, in Dublin, Ga., and Newburg, Ore. The company also has a large recycling division, SP Recycling. Burke has been employed with Mead Co. and Garden State Paper Co., operators of the first recycled newsprint mill in the U.S. Southeast Paper gained attention when it built a recycled newsprint mill in middle of the pine forests of Georgia.

What follows is a partial edited transcript of Burke's remarks at the keynote session of the 2002 Paper Recycling Conference & Trade Show.

TAPPING THE URBAN FOREST

By way of background, I should note that SP Newsprint currently produces more than 1 million tons of newsprint, ranking it among the top five producers of newsprint in North America. The mill in Dublin uses 100 percent recycled paper as its furnish, while the one in Newburg uses between 40 and 60 percent recycled content, depending upon the availability and some other factors between recovered fiber and wood chips.

The cornerstone of our operations is the fact that we've always been a very cost-competitive operation. Not too many folks make in excess of 1 million tons per year on four paper machines. Our number two paper machine in Dublin is far and away the fastest and most productive machine in North America, and is now number two in the world in the latest worldwide statistics. It runs 5,600 feet per minute, and we wonder if they're having difficulties if they don't produce 1,000 tons per day off that single machine.

We have historically worked very hard on being a cost leader and have also been very proud of the fact that we have been a leader in the use of recovered fiber in the manufacture of our product, newsprint.

I'm going to limit my remarks to two points. First, I'm going to talk about the condition of the customer for recycled material. And by that, I mean the paper and paperboard mills that you are selling recycled fiber to.

And secondly, those of us who are in the business always have a going concern about quality. But I'm going to talk about quality in terms of what are the requirements of the customers of the paper and paperboard mills and how does that impact raw material needs.

AN INDUSTRY CHALLENGED

First let's take a look at the overall state of the paper and paperboard industry. From 1991 to 2001 a total of 95 mills have been shut down, just in the U.S. Seventy-two of those mills have been shut down since 1997.

Employment in the pulp, paper and paperboard mills has declined by 34,000 jobs or 14 percent of the total pulp, paper and paperboard workforce since 1997. That is not a pretty picture. I'm going to be a little more specific about my industry, the newsprint manufacturing industry, and unfortunately the picture is similar. Since 1980, for North America in total, the number of newsprint mills has declined from 79 to 55 in the year 2000 and is forecast to decline to 48 by the year 2010.

Capacity, which was 14.8 million tons in 1980, is forecast to be 14.9 million tons in 2010. And this is a sharp decline from a capacity peak of 17.3 million tons in 2000. Newsprint consumption fell more than 11 percent from 2000 to 2001. So far in 2002, consumption is down another 6 percent over a disastrous 2001.

So even as capacity declines, North American consumption has declined precipitously from 13 million tons in 2000 to an estimated 10.7 million tons in 2002. There's still too much capacity available for the estimated newsprint required by the market.

I think another fact to note is that U.S. newsprint consumption last year was 83 pounds per capita. This was the highest in the world, and compares to Europe, which has about 55 pounds per capita and Asia, which has seven. But in the U.S., per capita consumption is down substantially from a 1988 peak of 111 pounds per person.

There were huge investments made in the North American newsprint industry in the late 1980s in wide, high-speed newsprint machines. For example, today if you were going to put in a single-machine newsprint mill in North America, you'd be looking at a price tag of one-half billion dollars.

I think it's worthy to note that there has been only one newsprint machine built in the last 10 years in North America, and that was a relatively small machine at Inland Empire, which replaced another machine at that site. The conclusions, at least for newsprint, but basically for all grades of paper and paperboard, are that the print on paper publishing business is in a long-term decline, at least in the U.S.

The reasons for this I'll let you speculate on, and I'll mention a couple of them. The paper industry has not earned its cost of capital in eight out of the last 10 years. So there is little investment incentive, especially considering growth markets domestically. Any of you that have contact with investment bankers or have heard the Deutschbank folks talk or Merrill Lynch or any of those folks, you'll know how they feel about the paper industry.