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April 2004

Paper Industry Continues Decline Trend

Washington— Reversing the positive growth trend of the last two decades of the 20th Century, U.S. paper and paperboard capacity declined annually from 2001 to 2003 and is expected to remain unchanged during the 2004 to 2006 period, according to the 44th Annual Capacity Survey of the American Forest & Paper Association (AF&PA).

The survey said that capacity rose at average annual rates of 2.1% a year in the 1980s and 2.2% in the 1990s, but declined 1.9% in 2001, 1.3% in 2002 and 0.4% in 2003.

Increased foreign competition, maturing domestic markets, and competition from plastics and electronic media were cited as among the factors that may have contributed to the lack of capacity growth.

Paper
Newsprint capacity fell 1.3% to 6.9 million tons in 2003, and is expected to decline another 2.8% in 2004 to 6.75 million tons. At that level, it will have dropped by almost 10% from its peak in 1997, and will be at its lowest level since 1989. Newsprint capacity is expected to remain relatively unchanged in 2005 and 2006.

Capacity for printing-writing paper declined by 174,000 tons in 2003, or by 0.6%. Among the four major grades of printing-writing paper, only coated groundwood registered an increase in capacity since 2000, growing by 2.6%. All the other major grades experienced significant declines during the same period.

Uncoated groundwood capacity fell by about 144,000 tons in 2003 to less than 1.9 million tons. It is now almost 20% under its 1996 peak and close to its 1993 level. Capacity for this grade is expected to rise about 2.3% this year, and then remain unchanged in 2005 and 2006.

Capacity for coated groundwood, at nearly 5.0 million tons today, dropped by 1.3% last year from its all-time high in 2002. The survey projected capacity to remain essentially unchanged through 2006.

Coated free sheet capacity, at 4.8 million tons in 2003, was down 4.2% from 2002. Capacity is now 14.2% below its 2000 peak, and is expected to rise at 2.1% annually during the forecast period.

Uncoated free sheet capacity was the only printing-writing grade to show an increase in this year’s Survey between 2002 and 2003, to about 13.9 million tons. The increase stemmed from the impact of producer changes resulting from de-bottlenecking projects, machine shutdowns and grade swings into and out of uncoated free sheet. Capacity for this grade is expected to remain unchanged during the survey forecast period of 2004-2006.

Capacity for unbleached kraft paper dropped 1.2% in 2003, to almost 1.8 million tons, and is expected to decline an additional 3.5% in 2004 and rise 1.7% in 2005, and remain unchanged in 2006.

Bleached kraft paper capacity rose 1.6% in 2003 and is expected to grow 0.7% in 2004 to 383,000 tons, according to the survey. It will remain stable in 2005 and 2006.

Tissue paper is one of the more dynamic grades of the paper industry in terms of capacity changes. Capacity for tissue rose 1.6% in 2003 to 8.1 million tons and is expected to increase 1.1% in 2004, 2.6% in 2005 and 0.1% in 2006.

Paperboard
Linerboard capacity, at 25.5 million tons in 2003, showed no change and is projected to remain flat during the next three years. No new machines are coming on line, and while a previously closed machine is being restarted, capacity will be offset by the swing of linerboard capacity to unbleached kraft paper production.

Capacity for corrugating medium fell 2.1% in 2003 and is expected to drop another 1.5% in 2004. These declines reflect the permanent shutdown of a recycled medium machine during the fourth quarter of 2003. Medium capacity is expected to edge up by 0.3% in 2005 and 0.4% in 2006.

Bleached board capacity (folding boxboard, milk carton and food service, and other) rose 1.7% in 2003 to 5.8 million tons, reflecting capacity swings from other grades and efficiency improvements. Domestic capacity to produce bleached board is projected to remain unchanged through 2006.

Recycled paperboard (excluding recycled containerboard) fell 2.0% in 2003, and is expected to contract another 1.9% in 2004. The declines are attributable to the closure of eight recycled paperboard machines in 2003 and the shutdown of another facility in 2004. Capacity for this grade is expected to rise 0.5% in 2005 and hold stable in 2006.

Recycled folding boxboard capacity fell 3.4% in 2003 and is projected to decline another 4.4% in 2004. Capacity for unbleached kraft folding boxboard declined 1.2% in 2003 to 2.4 million tons, but is projected to remain level during the three-year forecast period.

Market Pulp
Market wood pulp capacity in this year’s survey totaled about 10.6 million tons in 2003, and is expected to fall by about 285,000 tons through 2006. Major changes in subgrades include strong declines in dissolving pulp capacity, growth in bleached softwood sulfate market pulp and declines in bleached hardwood sulfate market pulp.


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