Pulp and Paper Canada

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CAPITAL SPENDING IN CANADA


June 1, 2003
By Pulp & Paper Canada

The year 2003 has witnessed a war, the SARS-scare, and the rise of reality TV. How much worse can it be?The above tragedies affected the industry in unimaginable ways. The war affected the Canadian do…

The year 2003 has witnessed a war, the SARS-scare, and the rise of reality TV. How much worse can it be?

The above tragedies affected the industry in unimaginable ways. The war affected the Canadian dollar and investor confidence. Industry events and conferences were postponed and cancelled altogether because of SARS. And with reality TV, well, the industry is still a survivor, isn’t it?

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Indeed, Canada’s pulp and paper industry is still surviving, despite being forced to make-do with little available funds for modernization and upgrades. The total projected 2003 spending in Canada for the mills responding to the survey has decreased by 34.66% compared to last year, from $655 million last year down to $428 million this year. Total projected cost for the projects suffered a 27% decrease, from $1.1 billion last year, to $801 million this year.

Eastern Canada shows aggressive activity this year (see Quebec: Let the good times roll). The world’s largest newsprint producer, Abitibi-Consolidated, once again leads this year’s biggest spenders with $142 million devoted to modernization projects. An overall budget of $477 million is allocated for mill production. More than $87 million, out of the total projected cost of $182 million, is allotted this year to convert the newsprint machine to Equal Offset at the mill in Alma, QC. The year’s first quarter saw the completion of Abitibi’s TMP modernization project in Baie-Comeau, QC.

Tembec is investing a total of $104 million this year, a big chunk ($20 million) of which will go towards start-up and upgrade of the recently acquired Chetwynd high yield pulp mill in British Columbia, which was restarted in February. Tembec is also allotting $24 million towards pollution control and energy conservation at Chetwynd, with $19 million towards anaerobic treatment and $5 million towards effluent management.

Is the answer in the strong dollar?

As if the challenges are not enough, the Canadian dollar gained more than 12 cents US within a 16-month period, after dipping to record low values in 2002.

The dollar recovery resulted in fewer foreign orders. The downturn sales meant cost-cutting. Cost-cutting meant slowdown and mill closures. The slowdown lead to job losses. But industry analysts say this event will force the industry to spend money on upgrades and boost efficiency, which is good for the long-term. One analyst explained that with a low Canadian dollar, most manufacturers had plenty of orders to keep profits up and not focussing much on efficiency.

However, now is the time, they say, to put more money on upgrades since Canadian manufacturers have more leverage with a stronger Canadian dollar.

Hoping for better times ahead

For the past five years, people in the industry have been anticipating a brighter, more positive year not only in terms of bright economic forecast, but also with actual improvement projects and revitalization of aging Canadian facilities.

Industry insiders are hoping that the money that are not being used this year for mill facility improvement are being saved up for next year for the industry to shift into a more optimistic mode.

Quebec: Let the good times roll

Eastern Canada, particularly Quebec is where the action is this year.

A major spender is Kruger with its $416-million Wayagamack project (new LWC paper machine) in Trois-Rivires. This year, a big chunk of the overall budget will be allocated for modernization projects.

The Papiers Gaspesia mill in Chandler has a major modernization project — converting the facility to a high quality coated paper grade production from newsprint. Total budget for the project amounts to about $493 million.

Scott Paper is investing $116.4 million in its mills in Crabtree, in the Lanaudire region, and Lennoxville, in the Eastern Townships. A tissue paper machine is being installed along with two conversion lines at the Crabtree mill, near Joliette.

Abitibi-Consolidated is spending more than $87 million this year, out of the total projected cost of $182 million, to convert the newsprint machine to Equal Offset at the mill in Alma, QC. Ab-Con already invested $42 million in the first quarter of the year for projects such as the TMP modernization at the Baie-Comeau mill.

This year, Quebec mills are leading the pack in spending more for the future and responding to calls from industry insiders to seek optimization from their aging facilities.#text2#


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