US Paper Companies in Focus: International Paper and Domtar

International Paper's supply chain will struggle in the second half of 2021

On July 29, executives of International Paper said that for the remainder of 2021 the company will struggle with supply chain disruptions while restocking inventory and working to increase output.

International Paper CFO Timothy Nicholls said on the company's second-quarter 2021 earnings call that the company's raw material costs rose in the second quarter; although this was offset by higher product prices, supply chains - from raw material supply to product sales - are expected to continue facing challenges in the coming months.

"While some of the cost pressure may be temporary, such as the impact of heavy rain in the US Gulf on our wood costs, the extremely tight transportation environment will continue to put pressure on all inbound raw materials. Because every mode of transport is tight, we expect this tightness to persist through the second half of the year."

Caustic soda supply tight

These input materials include pulp and caustic soda, a key raw material for the pulp and paper industry. Caustic soda supply in the US and Europe has been tight since deep frost weather hit the US Gulf Coast in mid-February. In mid-June, persistent heavy rain from a tropical storm and operational problems temporarily disrupted production in the US and Europe.

In 2021, US caustic soda export and domestic spot prices were $225 per dry metric ton (FOB US Gulf) and $245 per dry short ton (ex-works), respectively.

As of July 27, the two prices were $475 per dry ton (FOB US Gulf) and $650 (ex-works), respectively.

After weak demand in 2019 and 2020, US caustic soda began to recover in 2021, and global caustic soda prices also rose similarly. The main reason is that the COVID-19 pandemic was initially brought under control and global economic activity began to pick up, while caustic soda supply tightened. The FOB Northwest Europe price of caustic soda rose from $245 per dry metric ton on January 5 to $650 per dry metric ton on July 27.

Platts data shows that the FOB Northeast Asia price of caustic soda rose 50% from $240 per dry metric ton on January 5 to $360 per dry metric ton on July 27, while the CFR Southeast Asia price rose 47% from $265 per dry metric ton to $390 per dry ton.

Low raw material inventories

International Paper CEO Mark Sutton said on July 29 that in the second quarter, because the aftermath of the frost damage and mill maintenance shutdowns lingered, the company's linerboard inventory used to make corrugated cartons was "extremely low."

The frost damage forced petrochemical plants to shut down on a large scale. International Paper saw raw material supply squeezed, and some of its own mills were also shut down. Record-high freight rates, container shortages and tight truck capacity continued to aggravate the impact.

Sutton pointed out: "Cost and freight are among the biggest headwinds. Recycled fiber costs in North America and Europe have risen sharply, which will certainly have a significant impact on costs, but it is also another sign of a strong demand environment."

The company's second-quarter net earnings were $432 million, up 62% year on year (last year's second quarter was the peak of COVID-19 shutdowns). Net sales rose 15.4% to $5.6 billion from $4.86 billion a year earlier.

Woodfree paper demand recovers as Domtar restarts 655,000 tonnes of capacity

At present, the US woodfree paper market appears to be recovering. In mid-July, Domtar decided to restart the woodfree paper capacity it cut during the COVID-19 pandemic last year.

Since April 2020, Domtar has cut 655,000 tonnes of uncoated printing and writing paper capacity, and is now taking a step in the opposite direction. The company has announced the restart of the uncoated printing and writing paper machine at its Ashdown mill in Arkansas, USA. The machine has a capacity of 16.8 tonnes and is expected to return to full operation in January 2022 after a period of ramp-up. Domtar has earmarked $10 million as startup funding.

Since April 2020, several paper machines at the Ashdown mill have been idle. Domtar said at the time that it had to respond to continuously declining demand in the graphic paper market, withdrawing a total of 655,000 tonnes of woodfree uncoated paper capacity last year, involving machines at the Kingsport, Port Huron and Ashdown mills.

Now the woodfree paper market environment has improved, and Domtar decided to restart production at Ashdown. Rob Melton, Domtar's senior vice president of pulp and paper operations, said: "The pandemic is under control, the economy is recovering, and paper demand is recovering too. Our customers' businesses are growing steadily, so we are responding."

It is reported that in addition to the woodfree paper line, the Ashdown mill also has 3 other pulp lines, with softwood pulp and fluff pulp capacity reaching 775,000 tonnes per year.

Restarting the woodfree paper capacity at the Ashdown mill will reduce its southern bleached softwood kraft (SBSK) pulp capacity by 185,000 tonnes per year, but fluff pulp production will not be affected.

Domtar said it will also increase the capacity of thermal coated paper at its West Carrolton mill in Ohio to meet growing demand for its thermal paper sales.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-377987.html