The Duluth paper mill owned by Verso Corp. will be idled indefinitely, the corporation (NYSE: VRS) announced last month, affecting more than 200 good-paying jobs.
If the Duluth mill closes, the impact will not be confined to Verso but will trigger other financial trauma in the regional forest products industry, loggers fear.
Verso buys steam and electricity from Minnesota Power Co.’s adjacent Hibbard plant. Hibbard burns biofuel in the form of wood waste to generate that energy. Much of that waste (known as “residuals” within the industry) originates from Verso, while other biofuel is provided by other large forest industry plants. If those other manufacturers don’t have a user for residuals including branches and bark, they could face disposal costs that would make their operations unprofitable.
“There is no logical reason Hibbard would be there without the mill,” said Chris Fleege, city of Duluth director of planning and economic development. “It would definitely affect the logging industry – that’s for sure.”
Duluth’s paper mill, which has had several owners since its 1987 opening, was built adjacent to Hibbard in West Duluth because of the affordable energy it could obtain from the power plant. Back then, biofuel was gaining popularity, and it was believed that its usage would continue to grow. But much has changed in the energy market, said Peter Wood, a board member of the Associated Contract Loggers and Truckers of Minnesota.
“When solar, wind and cheap gas became available, many companies stopped using waste wood,” he said, “so if the paper mill goes away, there’s a high chance that Hibbard will go away as well.”
If that happens, forest industry players would need to find a way to dispose of residuals.
“It could possibly come to the point where they couldn’t get rid of it or they’d have to landfill it, which is very expensive. There are lots of things that could go really go sour here. There’s a ripple effect,” Wood said.
Meanwhile, Verso did not tell loggers in advance about the possible closure. Many had already signed contracts and made downpayments to harvest public and private lands to provide balsam and spruce to the Duluth paper mill.
“Loggers will be penalized” because those contracts can’t be reversed, said Scott Dane, executive director of the Associated Contract Loggers and Truckers of Minnesota.
“Existing (logging) permits are the top concern, then future permits, and then how contracts are structured in the future,” Dane said.
His third point references the long-time practice of requiring loggers to take all species that grow on each timber stand. If Verso and Hibbard leave the market, loggers would be left harvesting species for which there is no buyer.
Verso said the decision to shutter its Duluth plant was made to “offset unprecedented market decline due to the COVID-19 pandemic and to reposition the company for future success.” Much of the paper made in the Duluth mill is used for retail advertising flyers, such as newspaper inserts. With so many retailers fully or partially closed by the pandemic, and consumers told to stay at home, stores sharply cut their advertising during the first quarter. Additionally, newspapers across the region and nationwide cut back on the days they publish a print edition, shrinking the distribution chain for advertising inserts.
According to the industry publication Fastmarkets RISI, North American printing and writing demand fell by 38 percent year-over-year in April, and operating rates are expected to drop well below 70 percent during the second quarter.
“It is critical that we maintain a healthy balance sheet and focus on cash flow, while balancing our supply of products and our customers’ demand,” Verso President and CEO Adam St. John said in the company’s announcement. “We expect the idling of these facilities to improve our free cash flow. The sell-through of inventory is expected to offset the cash costs of idling the mills.”
Regional economic developers are hoping Verso can receive government incentives to keep the mill operating. Options to save the mill include finding a new owner or converting existing equipment to produce brown packing products, said Nancy Norr, director of regional development at Minnesota Power Co. With other area developers, she is working to help the mill obtain legislative support to make that happen. The process began two years ago, when Verso unveiled a plan to convert its Duluth recycling mill to process packaging-grade scrap paper into pulp. That pulp would then be used on Verso’s paper machine to manufacture bag, packing medium, liner and specialty paper grades. Its effort, however, hit a barrier in the legislature regarding the minimum number of employees Verso would have to retain as part of a tax credit deal. Since then, Verso has negotiated with state officials to find a mutually agreeable staffing level.
Verso said it would idle the Duluth mill by the end of June and its Wisconsin Rapids mill by the end of July, resulting in a combined layoff of approximately 1,000 employees. The papermaker said its future options include restarting the mills, selling them or closing them permanently.
Late in April, UPM Blandin of Grand Rapids announced a temporary closure, also citing impacts related to COVID-19. According to the Minneapolis Star Tribune, Sappi in Cloquet has instituted temporary rotating layoffs.
Beyond the temporary impact of idling paper mills, “The ripple effects are very concerning,” said Mike Birkeland, executive vice president of Minnesota Forest Industries (MFI) and the Minnesota Timber Producers Association (TPA).
“It creates problems for suppliers – the loggers who provide wood to the mills. They’re going to have to make adjustments,” he said.
Minnesota’s forest products industry employs 30,000 people and has a $1.8 billion annual payroll. Nationwide, the payroll is $9.1 billion each year.
“We’re still a region that’s dependent on natural resource-based industries,” he said. “When issues like this arise that are beyond our control, it certainly has impacts.”
The Verso mill previously was owned by New Page, Pentair, Consolidated Papers and Stora Enso during its 28-year history.