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Paper Survey Shows 2001 and 2002 Capacity Falloff

Washington, DC - U.S. paper and paperboard capacity fell in 2001 and 2002, the first time that total industry capacity declined in consecutive years, according to the 43rd Annual Capacity Survey of the American Forest & Paper Association (AF&PA).

The survey showed declines of paper and paperboard capacity of 1.9% in 2001 and 1.3% in 2002. "The contraction reflects the industry's efforts to adjust to stiff foreign competition and a period of cyclically weak paper and paperboard demand," the survey said.

Total 2002 paper and paperboard capacity of 100.5 million tons has been revised downward by 2.5% from the projection of the prior survey. Two factors accounted for the revision: (1) removal of capacity that closed in 2001, but had not yet met the "one year rule," which was still in effect at the time of the survey; and (2), removal of capacity that permanently closed in 2002 and was immediately removed from the survey under its new ground rules.

Under prior ground rules, unless shuttered mills were immediately dismantled, they had to remain closed for one year before their capacity was removed from the survey. Current rules call for AF&PA to remove immediately from capacity those shut machines where the owner's intention to close them permanently has been clearly stated in a public announcement.

As a result, two years of capacity closures have been removed from this survey. A total of 40 mills and 104 machines were permanently closed in the 2001-2002 period.

Looking ahead, the survey indicates that paper and paperboard capacity will remain essentially unchanged in the next three years, declining by 0.5% in 2003, and then increasing 0.8% in 2004 and 0.4% in 2005.

The flatline projection for paper and paperboard capacity can be partially countered by Congress' passage of the President's economic growth plan, with its elimination of double taxation on dividends, said W. Henson Moore, AF&PA President and CEO. "It will make our industry more competitive globally and fuel a lasting economic recovery with increases in business, jobs and modern plants and equipment" he said.

Paper Grades

Newsprint capacity fell from almost 7.5 million tons in 2000 to just over 7.0 million tons in 2002. The decline reflects a change in capacity from newsprint to ground wood grades and the shutdown of several machines, according to the survey. Newsprint capacity is projected to fall another 4% to 6.7 million tons by 2004, mainly due to this year's major newsprint-to-groundwood conversion projects.

Printing-writing paper capacity, now at 27.3 million tons, fell about 2.1 million tons in 2001 and 2002, according to the survey. This is the lowest level for this grade since 1994. Capacity is scheduled to remain unchanged in 2003 before climbing 1.6% next year and 0.5% in 2005.

Capacity for uncoated groundwood rose 10.3% in 2002 to 2.0 million tons, and is projected to grow another 5.4% in 2003 and 3.4% in 2004 and remain unchanged in 2005. Coated groundwood capacity grew 2% in 2002 to 5.04 million tons.

Coated freshet capacity declined last year to about 5.0 million tons, or about 7%. Another 2.4% drop is expected this year, at which time capacity will have fallen by about 12.6% below its peak in 2000. The unprecedented plunge can be attributed to more than half a dozen machine and mill closures, according to the survey.

Capacity for uncoated freshet fell to 13.6 million tons in 2002, the lowest level in almost 10 years. Capacity is expected to increase to 14.0 million tons by 2004, with no appreciable change in 2005. The increase stems from the startup of a new machine that is replacing several smaller machines.

Tissue paper capacity continues to grow, but at a slower rate than in previous years. One new tissue machine is scheduled to come on line in 2003, and four new machines have been announced for 2004. As a result, capacity is slated to grow at an average annual rate of 1.9% in the 2003-2005 period, compared with a 2.2% average annual growth rate in the 1992 to 2002 period.

The survey showed that kraft paper capacity will continue is pattern of decline due to plastics penetration. Unbleached kraft paper capacity is projected to fall at an average annual rate of 0.9% in the 2003-2005 period. Bleached kraft paper capacity is expected to decline by 5.4% in 2003 and remain stable the next two years.