Resolute looks to block Mercer purchase of Fibrek

AbitibiBowater Inc., doing business as Resolute Forest Products, has applied to the Bureau de décision et de révision (Québec), the administrative tribunal with statutory jurisdiction in securities law and regulatory matters in Quebec, for an order to cease trade the proposed offer by Mercer International Inc. to acquire all of the issued and outstanding common shares of Fibrek Inc.

Fibrek and Mercer announced the offer on February 10.

A Resolute offer to purchase all of Fibrek’s common stock was to expire today, but, three days after the announced purchase by Mercer, Fibrek announced that it would extend its offer until February 23. A source at Phoenix Advisory Partners, Fibrek’s information agent, told The Paper Stock Report this afternoon that Resolute’s offer was off the table.

“They were outbid (by Mercer),” he said.

A call to Resolute was not returned.

In its application, Resolute requested that the Bureau exercise its public interest jurisdiction to cease trade the offer on the basis, among other things, that it includes an improperly discounted and dilutive private placement of warrants and an unreasonable break fee.  Resolute requested that the Bureau hear its application on an expedited basis, and will argue that these measures are unlawful and inappropriate defensive measures to Resolute's offer.

Mercer announced on February 10 that it had entered into a support agreement with Fibrek through which Mercer will acquire all of the issued and outstanding common shares of Fibrek by way of a take-over bid. Pursuant to the Offer, Fibrek shareholders will have the ability, on an individual basis, to elect to receive:
C$1.30 in cash per Fibrek Share;
0.1540 of a share of Mercer's common stock per Fibrek Share; or
C$0.54 in cash plus 0.0903 of a Mercer Share per Fibrek Share, subject to proration necessary to effect maximum aggregate cash consideration of C$70 million and maximum aggregate share consideration of 11,741,496 Mercer Shares.

The offer provides for consideration of C$1.30 per Fibrek Share or total consideration of about C$170 million for the Fibrek Shares, representing a premium of 30 percent over the unsolicited insider bid made by AbitibiBowater Inc., 81 percent over the closing price of the Fibrek Shares on November 28, 2011, the date of announcement of the Abitibi Bid, and 70 percent over the volumeweighted average trading price of the Fibrek Shares on the Toronto Stock Exchange for the 20 trading days ending on such date.

The board of directors of Fibrek, after consulting with its financial and legal advisers, has unanimously approved entering into the Support Agreement and unanimously recommends that Fibrek shareholders tender to the offer. Fibrek's board of directors has received a fairness opinion from Fibrek's financial advisor, TD Securities Inc., that the consideration offered by Mercer for the Fibrek Shares under the Offer is fair, from a financial point of view, to the Fibrek shareholders (other than shareholders that entered lock-up agreements in connection with the Abitibi Bid). In addition, in conjunction with the Support Agreement, certain directors and officers of Fibrek have entered into lock-up agreements with Mercer.

"We are pleased to have the full support of Fibrek's board of directors for a transaction that we believe will deliver significant benefits to both companies' customers, employees and shareholders,” said Jimmy S.H. Lee, president and CEO of Mercer. “The acquisition of Fibrek clearly fits within our strategy of focusing on world-class production assets that produce high quality pulp.

Additionally, the ability of Fibrek's St. Felicien mill to produce and sell surplus renewable energy is in line with our goal of increasing our revenues from energy sales. We believe that Fibrek's mills are complementary to our existing operations and we feel that, through active management, the acquisition of Fibrek will generate increased value for our shareholders."

The Support Agreement provides for, among other things, a non-solicitation covenant on the part of Fibrek, subject to customary "fiduciary out" provisions, a right in favor of Mercer to match any superior proposal and a termination fee of C$8.5 million payable to Mercer in certain circumstances, including if Fibrek accepts a superior proposal. The offer is expected to be made pursuant to a take-over bid circular and related documents to be mailed to Fibrek shareholders in accordance with applicable laws.

The Mercer Shares to be issued under the Offer will be registered pursuant to a registration statement on Form S-4 (the "Registration Statement") to be filed with the U.S. Securities and Exchange Commission (the "SEC"). The offer will be open for acceptance for a period of not less than 35 days from its commencement and may be extended from time to time. The offer will be subject to customary conditions, including, among other things, there being deposited under the offer, and not withdrawn at the expiry date, at least 50.1 percent of the Fibrek Shares, receipt of requisite regulatory consents, the Registration Statement being declared effective by the SEC and the absence of a material adverse change with respect to Fibrek.

Mercer intends to hold a special meeting of its shareholders in order to obtain shareholder approval of the issuance of the Mercer Shares, as required under the rules of the NASDAQ Global Market. In connection with such approval, Mercer has entered into voting support agreements with two institutional shareholders and its president and CEO, who collectively hold, directly or indirectly, about 44 percent of the outstanding Mercer Shares, to vote all of their Mercer Shares in favor of the Shareholder Approval.

IP to sell three mills, Mercer makes offer for Fibrek

International Paper will divest three containerboard mills in California and Tennessee as part of an agreement with the U.S. Department of Justice (DOJ) over the acquisition of Temple-Inland. The three mills have a combined containerboard production capacity of 970,000 tons. The agreement calls for the sale of the mills within four months, with the possibility of two 30-day extensions.

Meanwhile, the president and CEO of Fibrek Inc. has endorsed a takeover offer from Mercer International Inc. Fibrek suitor Resolute Forest Products responded by upping its previous offer for the company. Along with a paper mill in Quebec, Fibrek operates two recycled pulp mills in Michigan and West Virginia.

Fibrek also has announced five weeks of downtime at its Fairmont, W. Va. mill.

For complete details, visit Paper Recycling Online.

Scrap paper exports top 23 million tons in 2011

As projected by The Paper Stock Report, U.S. exports of recovered paper set a new record in 2011, approaching 23.2 million tons, based on trade data released today by the U.S. Commerce Department, Bureau of the Census. Following a slackening in export volume during November, U.S. exporters shipped more than 2 million tons of scrap paper in December, falling just shy of the record monthly volume shipped in April 2011.
Exports in 2011 topped 2010 exports by about 12 percent. Shipments to China, which accounted for about 62 percent of the total, were up 22.8 percent, meaning that taking Chinese-bound tonnage out of the equation, exports to all other markets were down compared to 2010.
Scrap paper export sales in 2011 totaled almost $3.8 billion.
Full details and analysis will be published soon in The Paper Stock Report.

November scrap paper exports lowest since February 2011; annual record still broken

U.S. scrap paper exports in November reached the lowest volume since February 2011, while the average price of the material shipped was the lowest since September 2010, based on trade data from the U.S. Department of Commerce, Bureau of the Census. Despite that, the 21.1 million tons of scrap paper shipped through November was enough to break at the annual record of 21 million tons exported during the full year of 2009.

At the pace set through November, exports for December are projected to exceed 23 million tons. The Census Bureau is expected to publish final 2011 data by mid-February.

The drop in price and export volume came a month after traders reported a massive plunge in domestic prices and weak export demand.

Find out more about the current market for recovered paper from The Paper Stock Report.

October scrap paper export numbers surprisingly strong

By Ken McEntee

Recovered paper export statistics from the U.S. Department of Commerce fly in the face of reports of a weak export market in October. Traders in October cited declining exports as a partial cause of eroding prices, including a massive drop of $100 per ton for Sorted Office Paper (SOP) within a month and a milder drop in Old Corrugated (OCC) prices.

October trade data from the Commerce Department’s Census Bureau show a 30 percent increase exports of chemical deinking grades compared to September shipments, along with a flat month-to-month average price.

Overall, exports in October were up almost 4 percent, to 1.9 million tons, while the average price for all grades were up 2.6 percent, to an average of $165.68 per ton. For the first 10 months of the year, exports were up 13.4 percent, to 19.3 million tons, while the average price was up 4 percent. Sales for the year were up 18 percent, to almost $3.2 billion.

October surprise

While the October free-fall was mainly attributed to domestic markets, a weak export market also was cited.

Traders in October attributed the whopping drop in SOP prices mainly to Georgia Pacific, which first announced at mid-month that it was dropping its SOP and Coated Book Stock (CBS) prices to $150 a ton, representing a drop of about $100 per ton within a four-week period. Other mills followed. Canadian buyers like Kruger and Cascade were the only holdouts, reportedly holding their prices closer to $200 per ton until later in the month. Up to the GP announcement, other mills were already buying at levels $30 to $50 below their September prices.

Mill inventories were reportedly very high, but traders also noted that lackluster overseas demand was contributing to declining prices.

Traders also reported weakness in Chinese buying of OCC in October. Reportedly, after placing orders early in the month Ralison International, which buys for China’s Lee and Man Paper, reportedly has told suppliers not to ship any more tonnage. Meanwhile, America Chung Nam, which supplies China’s giant Nine Dragons Paper, was reportedly issuing purchase order with the price “to be determined.”

Commerce statistics show a 2 percent decline in OCC exports to China during October, along with a 4 percent increase in the average price of OCC shipped to China. Judging by traders’ reports, November trade data should indicate a much larger reduction in exports to China, along with a heavy drop in price.

Traders reported that OCC was moving to China from Los Angeles for about $245 per short ton, delivered to major Chinese ports. After a weeklong Chinese holiday at the beginning of October, the price was reported at about $220 per ton including shipping.

According to what appear to be undervalued prices reported by the Commerce Department, OCC exports to China averaged $130.81 per ton in September and $136.07 per ton in October. Commerce trade data indicates FAS value, including the value of recovered paper to the dock and transportation to the dock, but not including costs of loading and handling at the port, nor ocean freight.

October exports

According to Commerce Department data, all major grade categories of recovered paper improved from September to October except old newspapers (ONP). Meanwhile, prices were up for all grades except mixed paper, which dropped 2.6 percent, and chemical deinking grades, which remained just a quarter dollar below September levels.

* Despite chaos in the U.S. market, commerce reported a 30 percent increase in exports of chemical deinking grades, from 41,000 tons in September to 54,000 tons in October. The average price if deinking grades was at an average of $254.25 per ton in October. A 42 percent, 4,300-ton drop in deinking grade exports to China was more than offset by a 136 percent gain in shipments to India, from 6,100 tons in September to 15,000 tons in October. Exports to Canada were up 56 percent, from 6,000 tons in September to 9,300 tons in October. Exports to Mexico were relatively flat, falling 1.4 percent in October, to 3,800 tons. Among moderately-sized markets ranging between 2,300 and 3,300 tons, exports to the Netherlands were up 109 percent; El Salvador up 116 percent; South Korea up 68 percent, Italy up 31 percent, and Japan up 37 percent.

* Along with the 30 percent increase in deinking grade exports, October shipments of pulp substitutes were up 2.2 percent, with a 1.2 percent increase in price, to an average of $232.92 per ton. Exports to Mexico tanked, dropping 20 percent, from 44,200 tons in September to 35,400 tons in October. However, that 8,900-ton drop was offset by an 8,900-ton improvement in shipments to China, from 85,300 tons in September to 94,200 tons in October. Exports to El Salvador were up 78 percent, from 2,800 tons in September to 5,000 tons in October.



* OCC exports in October were up 1.2 percent, with a 5 percent improvement in price, to an average of $155.09 per ton. Exports to China were down 1.7 percent, from 696,000 tons in September to 684,000 tons in October, a difference of 12,000 tons. However, that loss was offset by increased exports to India, Indonesia and Vietnam. Exports to India were up 10 percent, or 5,000 tons, to 56,000 tons. Exports to Indonesia were up 79 percent, or 3,400 tons, to 7,800 tons. Shipments to Vietnam were up 97 percent, from 3,100 tons in September to 6,100 tons in October.

* Following deinking grades, mixed paper exports showed the greatest improvement in October, at 13 percent above the September number. Mixed paper prices, however, were down 2.6 percent, to an average of $158.80 per ton. Shipments boomed in October to China, India and South Korea. Exports to China were up 10 percent, or 20,000 tons, to 218,000 tons. Exports to India were up 52 percent, or 12,500 tons, to 37,000 tons. Exports to South Korea were up 39 percent, or 11,500 tons, to 41,000 tons. On the downside, exports to Indonesia were down 41 percent, or 7,700 tons, to 11,200 tons.

* Exports of groundwood, overall, were down less than 1 percent in October. While ONP exports were down 6.4 percent, exports of other groundwood grades were up 4.2 percent. ONP prices were up 3.8 percent, to an average of $163.45 per ton, while prices of other groundwood were up 1.8 percent, to an average of $151.86 per ton.

* ONP exports to China, the dominant market for the grade, were up less than 1 percent, to 120,000 tons. Shipments to Mexico strengthened in October, improving by 28 percent, or 3,400 tons, to 15,000 tons. However, the grade was hurt by a 23 percent, 7,900-ton decline in exports to Canada.

* China’s imports of other groundwood grades were up 7 percent, or 14,000 tons, to 216,000 tons. After China, the next largest market was South Korea, at 14,600 tons, a 12 percent decline compared to September. Exports to Canada were down 26 percent, or 2,400 tons, to 6,900 tons.

* Improved shipments to China and India were responsible for the overall improvement in October exports. Exports of all grades to China were up 2 percent, or 28,000 tons, to 1.3 million tons. Exports to India were up 24 percent, or 24,000 tons, to 125,000 tons, making India the second largest market for the month. Canada showed the largest September-to-October reduction in tonnage, at 7,600 tons, an 8 percent decline to a total of 88,000 tons.

Year through October

At almost 19.3 million tons shipped, the annual record of 20,975,455 tons shipped in 2009 may have been surpassed during November. The average FAS price of $162.63 per ton for all grades will most likely top last year’s record of $157.99 per ton. Through October, exports of all grades were up significantly except for mixed paper and ONP. Meanwhile, prices were better for all grades except OCC and groundwood other than ONP.

* Led by China, OCC exports were up 34 percent in 2011 relative to the same time in 2010. Shipments to China were up 54 percent, or 2.3 million tons, to 6.7 million tons for the year, representing 78 percent of all OCC shipped, and equating to 29,000 shipping containers per month. Through October 2010, China accounted for 67 percent of all OCC exports. Subtracting tonnage to China, OCC exports to all other markets through October would be down 9 percent.

The next largest market after China was India, at 538,000 tons, representing a 1 percent increase compared to the same time in 2010. Following China, the strongest growth has been in exports to Vietnam, which were up 69 percent, or 24,000 tons, to a total of 60,000 tons. On the downside, OCC exports to Ecuador were down 76 percent, or 71,000 tons, from 93,000 tons through October 2010 to 22,000 tons through October 2011. Exports to Mexico were down 12 percent, or 53,000 tons, to 400,000 tons, while shipments to Indonesia were down 50 percent, to 46,000 tons. Shipments to Argentina and Chile were down about 18,000 tons each. OCC accounted for 44.6 percent of all scrap paper exports, up from 37.9 percent a year earlier.

* Mixed paper exports through October were down 10 percent, while the average price jumped 14 percent, to $159.11 per ton. The drop was due to a 16 percent, 384,000-ton reduction on mixed paper shipments to China, from 2.6 million tons through October 2010 to 2.1 million tons in 2011, as Chinese mills tended to buy more OCC instead of attempting to sort contaminated residential mixed paper. Exports to Italy also were down heavily for the year – a drop of 62 percent, from 91,000 tons through October 2010 to 34,000 tons. Exports to South Korea, the second largest market for mixed paper, were down 6 percent, or 31,000 tons, to 501,000 tons. Shipments to Mexico were up 18 percent, or 27,000 tons, for a total of 176,000 tons, while exports to Thailand were up 36 percent, or 26,000 tons, for a total of 97,000 tons. Mixed paper accounted for 19.6 percent of all exports, down from 24.6 percent a year earlier.

* ONP exports were down 13 percent through October, with a 10 percent increase in price, to an average of $159.43 per ton. ONP exports to China, the largest market for the grade, were up 11 percent, to almost 1.2 million tons. But that 114,000-ton gain was a fraction of the reduced volume shipped to Mexico, Canada and Indonesia. ONP exports to Mexico were down 63 percent, or 351,000 tons, from 555,000 tons through October 2011 to 204,000 tons through October 2011. Exports to Canada were down 32 percent, or 119,000 tons, to 251,000 tons, while shipments to Indonesia were down 73 percent, or 92,000 tons, to 34,000 tons. ONP accounted for 10 percent of all scrap paper shipped, down from 13.1 percent a year earlier.

* Meanwhile, exports of groundwood other than ONP were up 30 percent, with a 1 percent drop in price, to an average of $144.99 per ton. Like for ONP, China is the dominant market for other groundwood, pulling in 83 percent of the total. Exports to China through October were up 45 percent, from 1.5 million tons through October 2010 to 2.1 million tons in 2011. Exports to South Korea were up 77 percent, or 76,000 tons, from 98,000 tons to 173,000 tons. Shipments to Mexico were down 57 percent, from 201,000 tons through October 2010 to 86,000 tons, while exports to Canada were down 27 percent, from 120,000 tons to 88,000 tons. Groundwood grades accounted for 13.3 percent of all exports, up from 11.7 percent a year earlier.

* Exports of chemical deinking grades through October were up 15 percent, while showing a 2 percent gain in price, to an average of $259.80 per ton. India, Italy and Japan mainly led the surge. Deinking grade exports to India were up 37 percent, or 27,000 tons, to 99,000 tons, making India the leading market for the grade. Shipments to Italy were up 126 percent, from 12,000 tons through October 2010 to 27,000 tons. Exports to Japan were up 86 percent, from 12,000 tons to 22,000 tons. Exports to Canada, the largest market for deinking grades at the same time a year earlier, were down 15 percent, or 15,000 tons, to 86,000 tons. Exports to Vietnam and the Philippines also were down significantly. Deinking grades accounted for 2.8 percent of all exports, the same as a year earlier.

* Exports of pulp substitutes were up 10 percent through October, while the average price was up 7.8 percent, to $216.12 per ton. Like for deinking grades, shipments to India were the main driver. Exports to India were up 145 percent, from 73,000 tons through October 2010 to 178,000 tons. Shipments to Italy were up from 10,500 tons to 92,000 tons. While deinking grade exports to Mexico were down through October, shipments of pulp subs south of the border were up 15 percent, or 51,000 tons, for a total of 400,000 tons. Improved volumes to those markets more than offset a 5.4 percent, 55,000-tons reduction in shipments of pulp subs to China, the largest market for the grade, at 958,000 tons. Exports to Canada were down 51 percent, from 49,000 tons to 24,000 tons. Pulp subs accounted for 9.6 percent of all scrap paper exports, down from 9.9 percent a year earlier.

Back to Paper Recycling Online News page

The Market: $150 SOP shocks traders

Published by The Paper Stock Report - www.recycle.cc

By Ken McEntee

October 14, 2011

Sources on October 14 confirmed that Georgia Pacific is dropping its price of non-contract sorted office paper (SOP) and coated book stock (CBS) to $150 a ton effective on October 17 for its Eastern and Midwestern mills. Information was unclear whether that price also would include mills that draw from the west, such as the Muskogee, Okla. mill.

That price, which no other company has reportedly matched as of October 14, represents a decrease of more than $100 a ton for SOP in less than a month.

That free fall in prices trivialized a $30 to $50 per ton drop in SOP prices reportedly being paid in the Northeast U.S. and Eastern Canada – a decline that otherwise would have been described as astonishing.

“The Canadian mills are still paying in the $220 to $230 range,” said one broker.

Meanwhile, traders speculated on how much lower SOP prices might go as early as next week.

Prices at the Green Bay mill dropped from $250 in September to $200 on October 1 to $150 in mid-October..

“If Georgia Pacific is paying $150 for prime material, there is no telling where Fibrek and Kimberly Clark are going to be for the lower quality of fiber they buy,” said one. “I see this as a very strong statement about the state of the market. I anticipate a continuing erosion of pricing.”

The timing of Georgia Pacific’s announcement sets up an interesting pricing sheet in this issue of The Paper Stock Report. As of the close of business on October 14, sources said Canadian producers Cascades and Kruger had not yet responded to GP’s drop. But they anticipated a nationwide free fall in SOP prices during the week of October 17. As this issue stands, Eastern mill prices are still listed at $200 to $220, while other Southeast and Midwest prices reflect the $15o price being paid by GP mills.

Traders said domestic mills that use SOP and CBS are loaded with inventory, while export demand also is lackluster.

“CBS and SOP are very ugly,” said an East Coast broker before the word spread about GP’s price drop. “Coated book is at 200 or well under. South America has been out of the market for the last three months. SOP at the NY pier was $230 on October 1 and it is down to $210 today.”

The drop in prices of sorted white ledger (SWL), so far, have not been as dramatic as SOP. One reason, sources said, is that there is not a lot of SWL available on the market.

“I had a hard time putting five loads together this week,” one broker reported.

At the same time, though, large Southern consumers like International Paper and Boise reportedly were turning the grade away.

Nevertheless, with a huge price difference between SOP and SWL, packers are expected to start sorting more ledgers out of their office paper.

There may be a small window of time for that strategy to work, but in a sort time you can expect ledger prices to drop in line with the other white grades, traders said. Along with drops in deinking grades, pulp substitutes also continued to weaken this month in line with wood pulp prices.

According to a broker in the Northwest, Waste Management and GP Harmon Recycling, which have indexed contracts with large document destruction companies, stand to take huge hits on SOP.

“They are paying $270 a ton for paper and selling into Mexico for $210,” the broker said.

Before GP’s announcement, traders noted a “chaotic” market, but many described is as a large market correction and no reason to panic. Afterward, all bets were off.

“In the long term, we’re still in a fiber-short world,” said one broker. “Demand will continue to outstrip supply. My suppliers are in shock right now, but I think were going to find a balance in the next few weeks. Last time I checked people were still using toilet paper.”

Another broker questioned low prices would actually go.

“Mills understand that they need a supply network,” he said. “It is not good to shock the market.”

OCC

With SOP making the biggest news, the fall of old corrugated has almost gone unnoticed.

“The worm has turned on OCC,” said an east Coast broker. “I’m not sure why. All of my suppliers are busier with OCC than they have been in a while. Although none of the mills seem to be in the market to buy extra tonnage, the market is not horrifyingly out of balance. I just visited 10 to 15 suppliers and nobody was backed up with OCC.”

Regardless, domestic and Chinese mills have stopped buying and some traders were bracing for a price tumble.

According to one source, International Paper’s Cedar Rapids mill in Iowa has told its suppliers to sell its tonnage off elsewhere through the end of November. If you have to ship OCC to the mill in November, you’ll get $100 a ton, the source said.

On the export market, Ralison International, which buys for China’s Lee and Man Paper, reportedly has told suppliers not to ship any more tonnage this month.

According to one broker, American Chung Nam, which supplies China’s giant Nine Dragons Paper, is issuing purchase order with the price “to be determined.”

“You can ship, but the containers will be on the water before you know what you’re getting paid,” he said.

An East Coast exporter described the OCC market as “unglued.”

Traders said some of the market weakness predated China’s annual National Day holiday that starts on October 1. But there was some panic when buyers returned to the office after a week off.

“It’s not something that suppliers shouldn’t anticipate,” said one broker. “But there is anxiety when you’re trying to call your customers and they are not answering the phone. Then when the buyer gets back to the office he is bombarded with 15 people panicking to reach him on the phone. I don’t blame the buyers for wanting to step back and take a breath.”

Before the holiday week, U.S. OCC was reportedly moving to China from Los Angeles for $271 per metric tonne, delivered to major Chinese ports. After the holiday prices were around $242. Exporters at mid month were paying suppliers about $210 per ton FAS in Los Angeles and around $190 in Seattle, traders reported.

“The Chinese buyers aren’t really aren’t saying very much right now,” said one broker. “And some of them are not placing orders or releasing prices.”

According to an East Coast broker, “America Chung Nam is staying out of the market as an attempt to bring prices down.”

Domestically, traders said, board mills are generally sticking to contracts and taking virtually nothing else.

“There is a lot of downtime in China and the price of OCC was too high for too long,” said a West Coast broker. “Now mills are waiting for prices to come down. The mills we’re selling to figure that if the CIF price is $240 today, if they wait a week it will be down to $215 maybe. The CIF price has fallen $35 a ton since the end of September.”

Traders noted the Chinese government’s tighter control of credit as another factor in reducing containerboard demand.

“How is a box shop going to buy from a linerboard mill when they can’t get the credit?” asked one exporter. “Inflation in China is a lot higher than the government is reporting. Normal people with college degrees can’t afford the basic necessities. Nine Dragons has a huge debt to equity ratio. That’s bad. After all that expansion the mills are running very slow.”

Import licensing also has been cited as a factor to watch over the next two months. Chinese mills need to apply for licenses to import recovered paper for 2012. Under current licenses, tonnage needs to arrive before December 20, one exporter said.

“There is no doubt the big players like Nine Dragons, Lee and Man and Asian Pulp and Paper are going to get their licenses,” he said. “But the government is really cracking down on the smaller guys.”

Some traders say that while OCC prices are dropping now, Chinese mills will want to be sure to get orders received by December 20.

That’s one reason why U.S. scrap paper exports generally see an upward bump in volume between October and December.

“We’re always very strong in the fourth quarter,” one export says. “Normally the Chinese buyers know that prices are down from the summer and they come in pretty strong.”

That’s what one brokerage is expecting.

“We’re betting that by November the OCC price is going to start back up due to increased export demand,” said an exporter there. “I am looking for bump up in the beginning of November, then some downward movement for the next several months.

Nine Dragons threw another fly into the ointment last month with the announcement that the start-up of six new paper machines has the delayed. Nine Dragons brought on substantial new capacity this year, bringing the company’s total capacity to 11.5 million tons per year. The six new machines, which were scheduled to start up this year, would have added about 2.4 million tons of new capacity.

Cascades invests in New York containerboard mill

Cascades invests in New York containerboard mill
June 27, 2011
Cascades Inc. said its Norampac division will invest in Greenpac Mill LLC, a corporation created with the Caisse de dépôt et placement du Québec, Jamestown Container and one other industry partner for the purpose of constructing and operating a state of the art containerboard mill to be located in New York state.

The Greenpac mill will be constructed for a total cost of $430 million on property located adjacent to an existing Norampac facility in Niagara Falls, N.Y. Greenpac will manufacture a light weight linerboard, made with 100 percent recycled fibers, on a single machine having a width of 328 inches, with an annual production capacity of 540,000 short tons. This machine will be one of the largest of its kind in North America.

Fiber supply will be carried out by Cascades and its recovery operations. Sources of old corrugated containers are numerous and significant in the region where the mill will be built, which will impact favorably Greenpac's raw material procurement, the company said. With regards to sales, customers have already been secured for more than 80 percent – or 435,000 short tons - of production. Norampac converting operations will purchase 170,000 short tons of the production.

"The investment that we are announcing today is the result of the combined efforts of Cascades and its partners and is consistent with our development strategy which aims to position the company amongst the leaders in terms of productivity and profitability in the packaging and tissue sectors," said Alain Lemaire, president and CEO of Cascades. "As we have stated in the past, we strongly believe that Cascades' future success will be dependent on our ability to offer high performance innovative products which will better meet the needs of our customers, at a cost that will be amongst the lowest in the industry. Moreover, the innovative structure of this partnership will allow us to reach this objective while maintaining the financial flexibility achieved through recent divestitures. We are also confident in regards to industry's mid and long-term perspectives and we strongly believe that Greenpac will contribute positively to our net profitability once full ramp-up is achieved."

Marc-André Dépin, president and CEO of Norampac, said the Greenpac mill will include numerous technological advances, making it a unique project of its kind in North America.

“In particular, the linerboard that will be produced on the new machine will be able to achieve optimal strength while maintaining a low basis weight thereby allowing our customers to better respond to the growing trend towards lightweight packaging," Depin said.

Moreover, the building and the machinery will be designed for optimal energy efficiency and many operations will be automated. Process water will be treated and reused in order to reduce consumption as much as possible and the state of the art management system for recycled fibers will have a positive effect on the environmental performance of the mill.

The paper machine will be manufactured by Metso, Voith will provide the stock preparation equipment and anaerobic effluent treatment plant and Siemens will provide the power and control technology.

Financing and Partnership

The $430 million cost of the project will be financed by a $140 million equity investment in Greenpac of, which $83.6 million will be invested by Cascades, $28.3 million will be invested by the Caisse and $28.1 million will be invested by Jamestown Container and another industry partner. The remainder of the financing will be in the form of debt, including senior debt in the amount of $228.9 million, which was led by GE Capital, and subordinated debt in the amount of $61 million.

Senior debt will be provided by an international banking syndicate managed by GE Capital. The subordinated debt will be provided by the Caisse and will serve to bridge expected refundable tax credits.

The construction of the mill will create 108 new jobs in the State of New York, as well as contribute to the economical development of the region.