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Business North - Around The Region - Duluth & Superior Newspaper
Forest products industries face mixed outlook
The year 2012 was one of mixed news for the region’s forest products industries.
Verso Paper Mill in Sartell, Minn., became another on a long list of casualties when the company announced in early August that it would permanently close the mill that had been idled following an explosion and fire earlier in the year. Shortly after the Verso announcement came more bad news. Georgia-Pacific would quickly close Duluth’s hardboard plant. Declining demand was key in Georgia-Pacific’s decision. Combined, the two closures would result in about 400 lost jobs and even further erosion in potential markets for loggers.
The storyline has become all too familiar in this region during the last decade. New technologies and a lack of new construction co-conspired with a net result of multiple closures or downsizing decisions. Some coated paper producers have been further troubled by imports from the Far East, which both unions and company executives have characterized as “dumped and subsidized.”
Since 2006, Ainsworth closed three oriented strand board facilities in Minnesota. NewPage closed paper mills in Kimberly and Whiting, Wis. Earlier, in 2003, Blandin Paper Mill in Grand Rapids stopped production on two paper machines, resulting in a loss of about 300 jobs. And, residents of Grand Rapids might consider themselves lucky by comparison. In 2007, Blandin’s parent company, UPM, permanently closed the Miramichi mill in Canada and one of its machines was very similar to a still-operational machine (No. 6) located in Grand Rapids.
Employment numbers have remained relatively steady at Blandin since the 2003 contraction.
“We haven’t announced any big layoffs,” said Joe Maher, the mill’s general manager.
Maher added, however, that falling demand for the coated magazine paper produced by the Grand Rapids mill will make conditions difficult, at least in the short-term. It will remain “very competitive into the future,” he said.
Difficult market conditions also led to a recent downsizing just across the border in Fort Francis, Ontario. On Nov. 20, executives announced Resolute Forest Products would indefinitely idle its kraft mill and No. 5 paper machine. Company executives cited weak markets, uncompetitive equipment and the strong Canadian dollar as key factors in its decision. Approximately 240 employees were impacted by the idling, which was completed at the end of November.
Despite closures, downsizing and falling demand for some products, however, the year did bring a few bright spots for the long-struggling forest products industries.
In February, the Sappi pulp and paper mill in Cloquet announced a new direction. The company will produce cellulose fiber used in the manufacturing of rayon in addition to its paper production. Sappi broke ground on the expansion in June. While the move will not likely increase employment numbers, according to company executives, it will secure the pulp mill’s continued operations into the immediate future.
The expansion is a $170 million investment in its 114-year-old Cloquet property and the end product will be exported worldwide with an anticipated output of 330,000 metric tons.
“This will raise Sappi’s overall cellulous capacity to 1.3 million metric tons, making us the largest cellulous manufacturer in the world,” said President and CEO Mark Gardner at the June groundbreaking. At the same event, however, union leaders voiced concerns about the long term future of paper production in Cloquet.
Later in the year, Louisiana-Pacific announced expansion plans of its own. The company was approved for an Iron Range Resources and Rehabilitation loan for $2 million. That low-interest loan will help provide the needed funding for a $7 million expansion. Currently, the company produces siding used in the construction and remodeling industry. The expansion would rebuild an existing press at the plant and increase capacity while reducing costs.
L-P Two Harbors Plant Manager Steve Twining did not return phone calls for comment. However, Wayne Brandt, executive director of Minnesota Forest Industries, said “rebuilding a press is a big deal. It shows the owners have confidence in the facilities.”
Prospects for the forest products industries were further bolstered in October when Itasca Economic Development Corp. (IEDC) in Grand Rapids announced it had a negotiated a purchase agreement for the former Ainsworth site there. Shuttered permanently in 2008, IEDC purchased the facilities in 2009 with hopes of converting them to an Eco-Industrial Park, perhaps with a bio-fuels producer as the anchor tenant.
The buyer, J.M. Longyear LLC based in Marquette, Mich. has, thus far, been tight-lipped about its intended use. However, the company’s natural resource focus has led to some speculation that it involves biofuel production.
The company is already invested in a $232 million cellulosic ethanol plant sited in Michigan and scheduled to open in 2014. However, the company’s lack of disclosure combined with considerable interests in mining mean the use of the site is far from a foregone conclusion.
Further, the ownership change isn’t scheduled until the end of 2014. IEDC executives conceded the transaction was n’t yet closed.
“This is a big step, but it is still just one more step on what we’ve always known would be a long journey,” said IEDC President and CEO Mark Zimmerman.
In Duluth, economic developers have received multiple inquiries about the Georgia-Pacific facilities. Given the plant’s large footprint plus its rail and truck access, they’re guardedly confident another forest products company will put the site back into production, although probably for a somewhat different product.
Many in the industry agree that producers need to find new products and markets to remain viable for years to come. That transition is proceeding, albeit slowly, with expansions like Sappi. And while it remains to be seen if the Ainsworth property will join the movement toward next generation forest products manufacturing, there’s still reason in the more immediate future for guarded optimism.
“We’ve seen some strengthening of the national economy,” Brandt said.
Nationally, U.S. housing starts reached the highest level of the past four years. Data released for Oct. 2012 indicated an annual rate of 894,000 – a 3.6 percent increase from the previous month. Some slowdown may occur in the coming months due to a 2.7 decline in new permits. Still, recent numbers have prompted several economists to declare the industry is in a sustainable recovery.
Brandt characterized the housing news as welcome. During the height of the recession, U.S. housing starts fell to an annual rate below 500,000. But although housing numbers have improved dramatically since 2009, they still fall far short of the 1.5 million often considered a sign of economic health.Previous Around the Region Articles:
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