RISI News

A proposed U.S. tax credit for "green" printing that was unveiled this week could lead to some interesting arguments among environmentalists, printers, paper mills, and print-buying organizations.As Dead Tree Edition reported last month in Federal Subsidy For Green Printing To Be Proposed, Print Buyers Online revealed the proposed legislation at a conference this week as scheduled. The legislation would be good news for paper mills using recycled fiber and the Sustainable Forestry Initiative but bad news for big printers and overseas paper manufacturers.To be declared "a qualified sustainable print project" must meet 13 of 15 criteria, including (with my comments in Italics):

There was a time, not long ago, when economists and government officials dismissed out of hand the possibility of a double-dip recession. After all, real GDP growth accelerated considerably toward the end of 2009 and posted an annualized advance of 5.6% in 4Q09. Then came the final number for first quarter growth that showed a slower 2.7% annual advance. A few people started talking more seriously about the possibility, especially since final sales (which excludes the contribution from inventory adjustments) slowed from a mere 1.7% annual rate in 4Q09 to 0.8% in 1Q10. Is a double-dip really possible? Or, dare we say, is it likely?

Reading Mark Rushton's excellent recent series of articles on the threat posed by Information Communication Technology (ICT) to the industry, one comment in particular - from Dr Peter Arnfalk, associate professor at Lund University in Sweden - jumped out at me: "ICT communicates the [environmentally-friendly] message at every opportunity. The paper industry needs to do the same; identify the areas where it could be the most environmentally effective alternative to ICT and communicate the message to the end user."

Poor operating rates and a fight over market shares led to severe price declines in all paper grades in Europe during the second half of 2009 and in the beginning of 2010. The drop in demand and exports was more severe than ever before. In 2010 the price of pulp has increased by 50% in euros, the price of recovered paper has doubled and transport costs are close to the levels seen before the recession. Despite a clear recovery in demand and export figures, operating rates were still between 79% (for SC paper) to 90% (for UWF) in May and from 79-88% when measured on a six-month average level. Profitability is poor among all producers except net sellers of pulp.

The vetting of a wood biomass energy plant or wood pellet mill proposal can, in no small terms, be a rigorous and frustrating process. As wave after wave of project announcements have appeared over the past couple years, more than a few have fallen by the wayside, having failed to survive scrutiny.

The past two years were very tough for the printing and writing industry as a cooling economic climate resulted in a deceleration in Brazil's demand growth. After presenting 7.4% annual increases in 2005-2007, demand dropped 6% in 2009, reflecting the local market downturn. Brazil is the largest market in Latin America for printing and writing grades, accounting for 38% of total printing and writing paper demand in the region in 2009. In terms of per capita consumption, while overall Latin America totaled about 9.6 kg per habitant, Brazil accounted for slightly higher figures, 10.7 kg per person, as economic growth and income are more essential than population as key drivers of paper demand.

Uncoated groundwood paper has less than half the carbon footprint of uncoated freesheet paper with the same purpose, a recent study by Canadian researchers suggests.Not only does groundwood paper use fewer trees, but it also requires virtually no harmful chemicals to make and releases far less methane -- a greenhouse gas - when landfilled, the two Université de Montréal researchers found.The researchers conducted a "cradle-to-grave" environmental assessment of AbitibiBowater's Equal Offset groundwood paper in comparison with similar-quality uncoated freesheet (UFS) papers made at mills in Quebec and the U.S. South. None of the products studied contained recycled content.The research report and accompanying fact sheet said that life cycle assessments of Abitibi's other UFS-substitute products would probably yield similar results as Equal Offset. Abitibi markets the products as a lower-cost replacement for freesheet papers in such uses as direct mail and books.Abitibi commissioned the independent, peer-reviewed research. Abitibi's involvement may lead to charges of bias, but the notion that papers made with mechanical pulp are greener than those made with kraft pulp is not exactly a novel concept "It was found that Equal Offset emits only about 38% of the greenhouse gases associated with the production of UFS over its life cycle," the report says. "EO is made with mechanical pulp, which has a high yield, and is bulkier than freesheet made from chemical pulp, thus using fewer trees for the same area of paper."

Brazil is currently investing to become the third pulp producer worldwide. The economy's promising outlook and the emerging markets' increase in demand - such as in China - led the pulp and paper industry to resume its investment programs of the past months, postponed in 2009 due to the international financial crisis. In the next seven years - which corresponds to the new planted forest cycle, currently just beginning - approximately US$ 20 billion will be invested in the country's forest-base and in the construction of new mills.

Two types of government policies in China could have important impacts on the Chinese pulp and paper industry: capacity closures and tax rebates.

Two types of government policies in China could have important impacts on the Chinese pulp and paper industry: capacity closures and tax rebates.

A prominent print-buying organization is about to propose legislation that would provide U.S. government subsidies for "green" printing - an interesting idea that could lead to even more interesting debates.

These days we talk a lot about minimizing the impact of the greenhouse effect but we don't really delve any deeper. We need a more holistic approach to the environment which involves using less of the planet's limited resources. In 1987, we used up our annual quota of the world's resources on 27 December. In 2009, we'd used them up by 25 September. What is going to happen when the developing world starts to live as we do? Half of all Swedes own two cars - if every second Indian owned a car, we'd see 2.3 billion more cars on the road from one country's economic growth alone.

The last time we published a Viewpoint about developments in the South American pulp industry was in September 2008, just a few days before the announced Lehman Brothers collapse. At that time, the long capacity expansion list was comprised of two mills per year coming online from 2010 to 2015, or 2.5 million tonnes of market pulp per year. Of course there were doubts if all of those projects would come to fruition; however, the list served as an indicator of the optimistic climate among the local industry.

All of the RISI economists are currently deep into our long-term forecast cycle. This always proves to be a fascinating and challenging process, since it requires all of us to step back from our monthly focus on current market conditions and the prospects for the next two years. Instead, we shift our concentration to the long-term historical trends for the market and how well our five- and fifteen-year forecasts match up with these trends.

There has been a lot of speculation lately about the Russian log export tax and how China's search for alternative log sources will soon mean greatly increased volumes of softwood log exports from the US West Coast to that market. Exports of logs from the Pacific Northwest (PNW) to China have increased rapidly over the past year, and log export activity has spread to more ports in the PNW than at any time in the past decade. However, China is still only the third largest market for log exports from this region, and total volumes through first quarter 2010 are only marginally higher due to continued weakness in the Korean and Japanese markets. Despite the relatively lackluster performance so far, we do expect that log export volumes from the Pacific Northwest will hit their highest level in at least 10 years in 2010.

If you want to understand that once-obscure, now infamous pulp byproduct known as black liquor, you can turn to an unlikely source -- the lawyers at the Internal Revenue Service.In its recent ruling about the water and inorganic content of black liquor (See IRS Ruling Helps Pulp Makers Keep Black Liquor Billions), the IRS' Office of Chief Counsel presented a pretty clear explanation of how black liquor is created, what it contains, and how it is used in the kraft-pulping process.The ruling's reference to mixing in diesel fuel is not a usual part of the process but was a trick U.S. pulp makers used to qualify for alternative fuel mixture credits last year. (For the record, I've seen paper-company executives handle plenty of liquor, and I've never known them to add diesel to it. Tonic water, maybe; diesel, never.)Anyway, here's how the IRS describes the process that resulted in at least $8 billion in tax credits for the pulp and paper industry last year and $23.6 billion in alleged "savings" that helped pay for Obamacare (See ObamaCare's Black Liquor Tab: $23.6 Billion.): To make black liquor, wood chips from debarked tree logs are pulped by using inorganic pulping chemicals ("white liquor"), process water, heat, and pressure to separate lignin and other components of the wood from the cellulose fibers in the wood chips ("kraft milling process"). The wood chips consist of approximately 50 percent water ("chip water") and 50 percent wood, by weight. The process water is added at one or more stages during the kraft milling process. White liquor andprocess water are necessary to create black liquor. The resulting weak black liquor (including the lignin, spent chemicals, and water) is an aqueous solution. The weak black liquor is concentrated into heavy black liquor by removing much of the water. The removed water (including both chip water and process water) is generally recycled back into the kraft milling process. After being concentrated, the resulting heavy black liquor has a molasses-like consistency and its chemical composition includes organic matter, inorganic solids, and water. At this stage, heavy black liquor is approximately 60 percent dissolved solids and 40 percent water, by volume. The producer then adds a small amount of diesel fuel to the black liquor to produce an alternative fuel mixture, as described in § 6426(e) of the Code. In the recovery boiler, the diesel fuel, organic matter, and water are burned away from the alternative fuel mixture, generating steam to produce electrical energy that powers the paper mill. The inorganic solids, however, are not burned away but remain in the recovery boiler as smelt (sometimes called "green liquor"). The chemical transformation that changes the inorganic solids into smelt/green liquor consumes energy in the recovery boiler. Despite this energy consumption, however, burning black liquor results in a net production of energy. Originally, the recovery boilers were explicitly designed to recapture the inorganic solids. Currently, the industry recaptures and reuses more than 95 percent of the inorganic solids. Through additional processing, the chemical composition of the green liquor is changed into white liquor, which in turn is recycled into the pulping process.

Expansion, expansion and expansion, in almost all paper grades, was the word that was heard most in talks among industry CEOs and executives during the recently held Metso Summit at the Finland pavilion at the Shanghai World EXPO. The Chinese market seems to be fully recovered from earlier economic down turns and players are gearing up for new growth.

When I first started forecasting copy paper markets more than 30 years ago, it was the easiest thing in the world to predict. The market would grow 5% every year, maybe a little more when the economy was booming, maybe a tad less during a recession. Offshore imports were virtually nonexistent, and there were even tariffs in place to prevent much trade between the USA and Canada. Producers would pull out a yardstick and slap it alongside the historical trend of demand, and draw a line to a point in the future where more capacity would be needed, and proceed with plans to expand.

A recent IRS ruling means that pulp and paper companies will not have to pay back several billion dollars in black liquor tax credits.In fact, as a result of the ruling, at least six companies booked additional credits for First Quarter 2010 even though the controversial eco-credits expired on December 31. The Feb. 12 decision from the IRS' Office of Chief Counsel, which apparently became public in late April, states that all of black liquor, not just the portion that is burned to generate electricity at kraft pulp mills, is eligible for the 50-cent-per-gallon "alternative fuel mixture credit." Black liquor, a molasses-like pulp byproduct, is 40% water and also contains some inorganic compounds that have negative energy value, the ruling noted.Pulp manufacturers exploited a loophole in an alternative fuel program to garner approximately $8 to $9 billion last year in tax credits for burning black liquor as fuel. With nearly half of black liquor consisting of water or inorganic compounds, an unfavorable ruling on the water content could have negated about $4 billion worth of credits.Black liquor is a liquid fuel

In North America, which can be described as a mature tissue market based on slow growth and established patterns, it is surprising to see that the business continues to be very dynamic. This may not be good news to the dominating players but it is a fact that the dominance of the main players (G-P, K-C, P&G and SCA) has left room for other business participants. Independent converters -- which is probably not the correct expression today after backward integration of many players -- have taken a much more important role in the supply chain than before. This has partly been supported by the big four by their outsourcing and/or sub-contracting practices. But it is the name of the game -- profitability is the main driver of the business pattern and this has clearly created opportunities for smaller players to jump in, even if only as sub-contractors. I find this as an interesting business development, giving chances for smaller companies which do their job properly if not excellently.