Maine’s Competitive
Position
os t o In The
e
Pulp & Paper Industry
-- A Competitive Assessment -Th Current
The
C
t State
St t off Maine’s
M i ’ Pulp
P l & Paper
P
Industry
I d t
-- Challenges – Strengths – Opportunities -Orono Maine – April 4
Orono,
4, 2003
Jim McNutt
Center for Paper Business & Industry Studies -- CPBIS
1
OVERVIEW


Key Maine P&P Industry Competitive Issues
Primary Grades Review – Grade
Grade--by
by--Grade
 SC
 Directory
 CGW
 CFS
 UCFS
 Market Pulp

2
General Implications
p
for Maine’s P&P
& Industry
y
Key Competitiveness Issues


3
Maine s Pulp & Paper Industry is an Industry in Transition
Maine’s
 Older Infrastructure & Dated Technology
 Older Workforce With Age Structure Imbalance
 Higher
g
Factors of Production Costs

Labor, Energy, Fiber, Maintenance

Taxes, Worker Compensation . . . .
 Severe Manufacturing Cost Competitive Pressures
 Declining Capacity, Profitability, Balance Sheet Strengths
Markets In Transition & Under Pressure – Exacerbate the
Situation
 Escalated Global Competitiveness
 Constrained to Declining Demand Growth
 Increased Level of Competitive Imports
 Lost Export Markets and Opportunities
 Customers Are Stressed & More Demanding
Key Competitiveness Issues

In The Mind’s of Many – Maine’s Forest Products
Industry Has Entered The Beginning of The End – Much
Like Textiles & Steel –
 Lost Competitiveness Positioning
 Poor Image of Maine as A Competitive Place for Business
 Historical Inability to Secure Cooperative Attention of
Political, Labor and Industry for Common Path Forward

In Truth, Maine’s Pulp & Paper Industry Competitive
Positioning - Is Not Attractive – Which Is The Product of Many Factors
– Both Inside and Outside the Mills
 The Key Focus Here Is to Look Inside the Mills Only
 But Do Not Forget,
Forget The Issue Is Much More Involved
Than Looking Just Inside the Mills
4
Competitiveness Assessment Notes


All Mill Cost Competitive Data Have Been Provided
Explicitly For This Presentation By Paperloop’s Pulp
and Paper Benchmarking Services Group
All Data are:
 Fourth Quarter 2002 Basis In 2003 Dollars
 Mill Level Cash Manufacturing Costs
 Based on Publicly Available Information & Data
 Representative of Relative/Typical Operating
Configuration Assumptions at Each Mill Assessed
 Based on Regional Unit Cost Data Inputs
5
Competitiveness Assessment Approach

Brief Macro Overview of Key Factors of Production
 Focus on Fiber, Energy & Labor
 And Aggregate Cost Levels

Grade--by
Grade
by--Grade With Key Mills Review
 SC Grades
 Directory
 Coated Groundwood
 Coated Freesheet
 Uncoated Freesheet
 Market Pulp
6
Key Competitive Issues
Factors of Production Cost Comparisons For Maine Mills
[All Data in USD per Short Tom]
Cost
Element
7
Industry
Average
Mill
A
Mill
B
Mill
C
Mill
D
Mill
E
Mill
F
Mill
G
Mill
H
Mill
I
Mill
J
Mill
K
Mill
L
Mill
M
Mill
N
Mill
O
Fiber
156
180
134
101
93
104
150
93
78
78
159
134
70
97
202
384
Power
66
55
44
44
45
62
71
109
75
75
45
100
63
90
129
85
Manpower
71
81
88
125
138
164
114
118
137
137
161
198
178
198
192
139
All Other
123
137
195
218
216
169
168
183
300
241
225
162
299
229
211
206
Total
416
453
461
488
492
499
503
503
521
531
590
594
610
614
734
814
Maine’s SC Competitiveness



Product Quality Is Rated as Very Good
Mill Cash Cost Competitiveness = 4th Quartile
Key Cost Issues Are:
 Labor = Very High – Unit Costs & Efficiency
 Chemicals = Relatively High
 Fiber & Materials = Competitive
 Energy = Very Competitive
8
SC Cost/Supply Curve
9
SC Cost Curve
10
Maine’s Directory Competitiveness



Product Quality Is Rated as Very Good
Mill Cash Cost Competitiveness = Very High
in The 4th Quartile
Key Cost Issues Are:
 Labor = Very High – Unit Costs & Efficiency
 Materials = High
 Fiber & Chemicals = Competitive
 Energy = Very Competitive
11
Directory Cost/Supply Curve
12
Directory Cost Curve
13
Maine’s CGW Competitiveness



Product Quality Is Rated as Good To Very
Good
Mill Cash Cost Competitiveness = Varied,
Varied
Ranging Across 1st to 3rd and 4th Quartiles
Key Cost Issues Are:
 Labor = Somewhat High – Unit Costs &
Efficiency
 Materials & Chemicals = Competitive
 Fiber = Competitive to High
 Energy
E
= Very
V
Competitive
C
titi
14
CGW Cost/Supply Curve
15
CGW Cost Curve
16
CGW Cost Curve
17
LWC Cost Curve
18
Maine’s CFS Competitiveness



Product Quality Is Rated as Very Good
Mill Cash
C h Cost
C
Competitiveness
C
ii
= Good,
G d
Mostly in 1st and 2nd Quartiles
K C
Key
Costt IIssues A
Are:
 Labor, Energy, Materials, Chemicals, & Fiber =
All Competitive
19
CFS Cost/Supply Curve
20
CFS Cost Curve
21
CFS 60# No. 3 & 4 Cost Curve
22
CFS--One Sided Cost Curve
CFS
23
CFS--Premium Cost Curve
CFS
24
Maine’s UCFS Competitiveness



Product Quality Is Rated as Competitive
Mill Cash Cost Competitiveness = Very High,
4th Quartile
Key Cost Issues Are:
 Labor = High – Unit Costs & Efficiency
 Energy = Very High
 Materials & Chemicals = Generally Competitive
 Fiber = Very Competitive
25
UCFS Cost/Supply Curve
26
UCFS Cost Curve
27
UCFS--Value Added Cost Curve
UCFS
28
Maine’s Market Pulp Competitiveness



Product Quality Is Rated as Competitive
Mill Cash Cost Competitiveness = Very High,
4th Quartile
Key Cost Issues Are:
 Labor = Very High – Unit Costs & Efficiency
 Energy = Competitive
 Materials & Chemicals = Generally
Competitive
 Fiber
Fib = Very
V
Competitive
C
titi
29
BSKP Cost/Supply Curve
30
BSKP Cost Curve
31
BHKP Cost/Supply Curve
32
BHKP Cost Curve
33
Implications for Maine’s P&P Industry

M i Not
Maine
N Vi
Viewed
d As
A Premium
P
i
Place
Pl
For
F Basic
B i
Industry Operations & Investment
 Past Political, Labor & Industry Management Polarization
 Tax Structures & Systems
 State Regulations & Regulatory Processes
 Site Permitting Requirements
 Environmental Arena
 Timberlands & Multiple Use Needs Balancing . . . .

Industry
y Attention Seriously
y Strained
 Management Focus On Maine’s Operations
 Investment History And Patterns

34
Special Interest Groups Public Conflicts . . . .
Implications for Maine’s P&P Industry



However Maine Is Blessed With Tremendous Potential . . .
However,
 Abundant Natural Resources
 Wonderful Logistics Infrastructure
 Superb Location To Largest Global Market
 Very Experienced & Motivated Work Force
The Future Has Great Opportunities To Enhance The Competitive
Position of Maine’s
Maine s Pulp & Paper Mills
However - This Will Not Be Easy
 It Will Require The Combined Attention of Government
Government, Labor
& Industry Working Closely Together
 Many Critical Factors Need Change . . . And That Time Is Now
 Or Maybe Never.
Never. . . All Involved Must Choose Wisely And With
A Dedicated Sense of Urgency
35