Printer Friendly

Industry adopts strategies to survive current downturn.

Industry adopts strategies to survive current downturn

With sales and revenue figures declining, pulp and paper producers are implementing a number of strategies to cope with the economic downturn.

Steve Hessian, resident manager at Domtar Inc.'s Red Rock operation, said Domtar officials have prepared a pair of plans, a rolling five-year plan and a yearly plan.

"It (the plans) gives us two kicks at the cat," said Hessian. "Between January and June we'll update the five-year plan and from June to December we'll plan for 1992."

The company's plan for 1991 emphasizes cash conservation by reducing raw material inventories, operating costs and capital expenditures.

The latter move includes pushing "any and all (capital) projects back into future years," according to Hessian.

Hessian declined to say what proposed projects are affected by the decision, but he said the company will strive to improve both product quality and customer service to help maintain its share of the market.

Officials at Domtar's Montreal headquarters have announced that the corporation will eliminate 1,300 salaried positions by the end of the year and will focus on its packaging facilities which can service demands for recycled material.

"Most of Eastern Canada's forest products industry is in for a severe and difficult 1991 and probably 1992," Hessian predicted. "There will be a great need to determine the direction each mill or company will take in the 1990s."

Hessian attributed the current downturn at Domtar to the recession, the strength of the Canadian dollar and the Canada/U.S. Free Trade Agreement.

"A 70-cent dollar would be great," he quipped.


What will help St. Marys Paper of Sault Ste. Marie during the coming months is that the company's new super-calendered paper machine is expected to reach full production as the market takes an upturn.

The machine, which was purchased in 1988, can produce 1,400 metres of paper per minute. According to Jim Withers, St. Marys' vice-president of operations, the machine is currently operating at 85-per-cent capacity.

"We're a little behind target, but increasing it steadily," he said.

"We expect that 1991 is going to be a very difficult year for us," Withers admitted. "We're continuing to operate at full capacity, but it is a depressed market."


A gloomy forecast has also led to a reduction of capital projects at Abitibi-Price Inc.

Mickey Devine, senior vice-president and general manager of the North American publishers business division for Abitibi-Price, said the company's overall spending has been reduced, but there are still large projects, such as the Fort William recycling project, in the works.

"There will be fewer projects, but we'll be spending more in Northern Ontario," he said.

The company recently received a $6.7-million grant from Ontario Hydro for the Fort William project.

In its annual forecast the Canadian Pulp and Paper Association predicted that shipments of pulp, paper and cardboard will increase 1.9 per cent this year to 24.6 million metric tons.

"It might be true for overall shipments," said Devine, "but for newsprint it could be overly optimistic."

Devine noted that if the association's forecast is correct, Abitibi-Price will probably be among the companies leading the increase.

"We export newsprint globally," he said. "We're heavily into Europe, especially Germany, and Japan."

Devine added that the wild card in any forecast for 1991 is the conflict in the Persian Gulf.

"With all the unknowns around it, there's bound to be a feeling of general conservatism," he said. "It will have a negative impact on sales.

"We're expecting an even year with 1990, which basically means no growth."

Many industry officials agree that the strength of the Canadian dollar hurt the industry in 1990.

"Obviously the lower the dollar the better, but I'd be a lot happier with an 80-cent dollar than with an 86-cent dollar," said Robert Chambers, president of the Great Lakes and Tahis Pacific Region for Canadian Pacific Forest Products.

Chambers also pointed to the recession south of the border as a factor contributing to the industry's woes.

"The forest industry usually leads the recession into the downturn, but we usually lead the upturn too," he said. "Most of our products are tied to the general level of the economy.

"Our newsprint is tied to advertising levels and lumber is tied to construction levels."

Withers said the strength of the dollar will hurt St. Marys competitiveness in its major market. Because approximately 98 per cent of the company's production is exported to the United States, Withers said St. Marys' health will depend on the strength of the U.S. economy.

"The strength of their economy influences demand, which dictates prices," he said. "We've heard general predictions that their economy will be weak for anywhere from six to 12 months."


If 1991 figures follow company expectations, it will be the second straight year of disappointing sales and revenue performance for Domtar. However, the downturn was anticipated by the company.

Domtar's Red Rock operation currently produces approximately 630 tons of liner board and 280 tons of newsprint per day. The totals represent five-and 12-per-cent increases over 1989 totals.

Last year the company registered a net loss of $294 million, a steep decline from the $33 million in net earnings reported in 1989.

While figures were down for Canadian Pacific as well, the addition of a white paper machine at its Dryden mill helped the company weather the downturn better than other pulp and paper producers.

"The white paper machine is operating at capacity," Chambers noted. "It's helped stabilize us a bit, since white papers aren't as prone to wild (price and demand) swings."

Canadian Pacific reported net earnings of $12.4 million for the first three quarters of 1990, down from $183.1 million in 1989. Sales for the first nine months totalled $1.9 million compared with $2.1 million in 1989.

The financial picture at Abitibi-Price was even bleaker during 1990. The company suffered a $700,000 loss for the first three quarters. Sales for the period totalled $59 million, down from $757 million in 1989.

Devine said the figures, as well as the company's overall performance in 1990, were affected by the strength of the dollar, declining demand for products and the lengthy strike by members of the Canadian Paperworkers Union early last fall.

PHOTO : The white paper machine operated at Canadian Pacific Forest Products' Dryden mill has helped the company weather the downturn better than pulp producers.

COPYRIGHT 1991 Laurentian Business Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Pulp and paper industries implement plans to cope with the economic downturn
Author:Krejlgaard, Chris
Publication:Northern Ontario Business
Date:Mar 1, 1991
Previous Article:Deadline extension available.
Next Article:Rewinding firm capitalizes on industry's need to cut costs.

Related Articles
Recession capitalized on by NorFab to negotiate an affordable expansion.
Survival tactics for a business slowdown; a financial contingency plan is valuable for coping with a sluggish economy's effects.
Forest industries tighten belts for pending recession.
Forestry companies challenged to match the restructuring of the mining industry.
Paper tiger.
Paper forests.
What Goes Down Must Come Up.
Home delivery still needed.
From red to black: rebuilding wounded companies; When faced with declines or disasters, a struggling company can cease operations or it can choose to...
Domtar to close mills, cut 1800 jobs.

Terms of use | Privacy policy | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters