Funds On Hold
April 1, 2009 By Pulp & Paper Canada
In the midst of a global economic crisis, the idling of paper machines across Canada, and out-and-out mill closures, pulp and paper companies from coast to coast report a dramatic reduction in capital…
In the midst of a global economic crisis, the idling of paper machines across Canada, and out-and-out mill closures, pulp and paper companies from coast to coast report a dramatic reduction in capital spending this year.
Last October, Minas Basin Pulp and Power was poised to begin building a $20-million, 110,000 lb./hr. hog fuel boiler. This was to be its fifth-largest capital project since Roy A. Jodrey founded the company in 1927. With the market downturn and the drop in the price of Bunker C fuel from 70 cents down to the low thirties however, the company put the project, which will take 12-16 months to complete, on hold.
“All the engineering and studies were done, the vendors were chosen, and the environmental permitting is in progress,” says Terry Gerhardt, vice-president of operations for Minas Basin. “We are still continuing the engineering and site preparation. But at this point we are not spending on the labour or equipment.”
The paperboard mill in Nova Scotia burns 14.5 million litres of Bunker C a year. “This year we need to get off fossil fuels,” Gerhardt acknowledges. “The project will go ahead, but we are not certain when.”
Also on hold is $500,000 worth of work to make the mill more of a closed loop; e. g., installing more equipment for recycling waste process water. “This will go ahead sometime in 2009. When you do projects that affect the environment, you have to do them. Projects to improve product costing or machine efficiencies are still being considered, but additional tonnage capacity in the current market conditions is not in our plans,” Gerhardt says.
The company will continue to spend smaller amounts on some environmental, procedural, and safety projects. As well, some government-funded studies on electrical consumption may result in additional projects this year.
Daishowa-Marubeni International reports that this year’s capital spending is just 30-35% of what it was in 2007 and 2008. Its plans were whipsawed between the higher cost of capital in Alberta’s hot oil boom market and the subsequent need to conserve cash in the current recession. For the next couple of years capital plans will focus on replacing worn out and obsolete equipment, according to Stu Dornbierer, general manager, human resources, and director of corporate communications. “Examples in 2009 include ClO2 absorption tower replacement ($812,000), evaporator impingement plate and nozzle replacement ($500,000), 980 loader replacement ($588,000), digester scraper arm replacement (500,000), boiler tube replacement ($300,000), and control equipment obsolescence ($289,000).”
Also in Alberta, Weyerhaeuser reports that no capital expenditures are in progress or planned for its Grande Prairie mill.
Exceptions to the rule
This January Cascades announced it would spend $5 million at its Norampac plant in Kingsey Falls, Que., the first stage of a $20-million investment over the next three to five years. The unit that manufactures linerboard from 100% recycled fibre will be streamlined.
The building expansion that is required to replace the winder and create additional space for future investments has been completed. Equipment will be installed this year.
“The way to compete and stay alive is to continue to invest in the quality of the product and the future of the mill,” says Alain Lemaire, president and CEO of Cascades. That said, he notes that capital expenditures this year will be below $100 million, down from an average outlay of $170 million a year for the past five years.
“We have cancelled and postponed different programs because of the market uncertainty, but we hope that we will be able to spend enough money. But if you are cutting just to improve the bottom line, that is not a good decision. We try and rationalize our units, and invest in the units that we think will be the best,” Lemaire explains.
The company is also finishing up many projects it began in 2008, including a $15-million acquisition of a high-tech conversion line for its Lachute tissue paper plant and a $20-million biomass plant in Trenton, scheduled to begin operating by the end of 2009; the boiler will be able to produce 100,000 tonnes of steam an hour. Cascades is also spending $10 million a year on other energy reduction projects.
Irving’s Pulp & Paper Division is also continuing with planning and engineering on various initiatives.
Having already spent $100 million since purchasing the Port Alice, B. C. pulp mill from Domtar Industries in 2005, Neucel Specialty Cellulose plans to invest $10 million to $15 million on capital projects this year. These include $2 million on two hog boilers and two oil-fired boilers, $1 million to $2 million on the liner and associated equipment for its number ten digester (Neucel relined other digester liners last year), and an undetermined amount of money on the evaporators (Neucel spent $2 million on the evaporators in 2008). In 2010 Neucel may build a new $15-million wood plant.
The mill produces 500 tonnes a day of chemical-grade cellulose feedstock for products such as paints, plastics and explosives. It has been relatively immune to the market turmoil experienced by mills that produce pulp for paper products. “Some of our major customers are in major expansions,” says Robert Barbour, manager of engineering. “We had customers that used to switch back and forth between pulp and oil but they got so burned [by high oil prices] that they switched to pulp and are staying. We see nothing but a positive future.”
Energy conservation projects move ahead
Fraser Papers senior vice-president and chief financial officer Glen McMillan reports that there are no capital expenditures of significance to report at its pulp and paper mills. In a June 25, 2008 press release however, Fraser announced a $40 million loan from the New Brunswick government to support the upgrade of its facilities in the province, to “improve energy efficiency, increase throughput, upgrade technology, and enhance environmental performance.”
Fraser is supporting its Edmunston paper mill indirectly through a $17.5-million project to install a biomass boiler and modernize its Plaster Rock sawmill. The continued viability of the sawmill will ensure a continued supply of wood chips to the paper mill.
Noting that AbitibiBowater is quite “restricted” in its capital expenditures, Alain Bourdages did comment that the company is currently investigating biofuels. Bourdages is director of energy development and strategy for AbitibiBowater.
“We are on a fact-finding mission about biofuels. We are trying to understand everything about them – the technology and end products – and are looking at what Abitibi has for hardware, infrastructure, and assets, and what we can use for fuel. The key there is the value of access to feedstock and avoiding capital exposure. We have some [biofuels] projects under development, but nothing I can talk about now.”
Mercer in a January 30 press release it announced that its Celgar mill had, “commenced upgrades to its generation facilities, which will include the installation of a 48 MW condensing turbine, that will bring Celgar’s installed generating capacity up to 100 MW.”
Cost reduction projects worth the investment
In spite of reduced capital budgets, several companies are pursuing projects that promise to lower production costs.
Alberta Pacific Forest Industries spent $54 million on capital projects in 2007, well above its annual average of $20 million. This year the figure is just $13 million, targeted for projects that will yield cost reductions, according to Al Ward, president and chief operating officer. The biggest project is a major, $4-million rebuild of the 13-MW backup turbine, which was due to be completed by the end of March.
Another is a metal spray of a recovery boiler, due to be carried out in May. Worth $6 million over five y
ears, it is an example of a cost-reduction move: waiting until the tubes needed replacement would cost $25-30 million. Al-Pac will spend $1.2 million to pave some existing roads and $800,000 to build new roads. This will reduce maintenance costs and increase truck cycle times.
Ward cited one deferred purchase: a $1 million-plus chip caterpillar. “We decided to keep the old spare, and use the other old one and the new one Al-Pac bought last year.”
Catalyst spent $42 million on capital projects in 2008, about half of its 2007 level of $80-$100 million. This year, says Lyn Brown, company vice-president, corporate relations and social responsibility, “We are concentrating purely on maintenance and business-required capex for maintenance. No big projects are on the horizon at this stage.”
That said, its February, 2009 Management’s Discussion and Analysis notes that a $12-million capital upgrade to Port Alberni’s thermomechanical pulp facility, announced a year earlier, is expected to be completed by May 2009. The upgrade will “increase TMP capacity and displace recycled de-inked pulp, further improving the cost competitiveness of the Port Alberni mill.”
The 2009 capital expenditure program at Howe Sound Pulp & Paper includes upgrading the bleaching capacity on its TMP lines. This project began in January and should be completed by May. “It will allow us to make sure we meet the brightness requirements of our customers, even when we use darker wood,” explains Al Strang, manager of environment and external relations. He did not provide a dollar figure for this project, but did say that the mill will be spending $2 million to continue the expansion of its landfill for ash from the power boiler and other process waste, begun last year and due for completion in 2010.
The rest of this year’s capital expansion program is minimal; e. g., $80,000 to complete the replacement of the halon in the fire suppression system in the motor control centre rooms, and unspecified expenditures to upgrade the controls in the lime kiln to reduce natural gas use and improve lime quality.
There’s interest in going green
Kruger announced in November that it would implement a biomass gasification system at its New Westminster, B. C., facility. The system will reduce its greenhouse gas emissions by 22,000 tonnes annually and reduce its natural gas consumption by 445,000 GJ per year. Kruger, Vancouver-based Nexterra Energy, and FPInnovations formed a consortium to build the new system. (For more details on the system, see “Power Play”, page 10.)
The project is valued at $13 million, $7 million-plus of which comes from Kruger, $1.7 million from National Research Canada, and $1.5 million from the Innovative Clean Energy Fund (B. C.). The plant is in the final design stages and the site selection is being finalized. It will use fuel such as sawdust and shavings, to be delivered to the plant from various sources. Construction will begin in 2009, and it will be finished and ready to operate by September 2010, according to FPInnovations executive vice-president Jim Dangerfield.
FPInnovations will gather benchmark data and do the post-performance aspects of the project; e. g., energy efficiency, economics, and carbon footprint.
Other pulp and paper companies have expressed interest in the technology. Nexterra Energy director of communications, Raymond McAllister, says, “There is a lot of interest in the technology that Kruger purchased. But with the state of the economy and the lack of capital, a lot of projects are on hold.”
Positive Steps Encourage Investment
“In the current economic circumstances [P&P] companies in general are trying to conserve cash until conditions improve. The 2009 federal budget extended the straight line accelerated Capital Cost Allowance to 2011. This CCA increase from 30% to 50% was introduced in the 2007 budget. This is a measure that will be helpful to companies that are investing, but I expect that it will be swamped by the current economic conditions.
“The biggest issue for our members vis vis the budget was the availability of credit. The budget announced a number of measures to expand financing through Export Development Canada, expand its mandate, and improve its ability to fill gaps in the credit market. These are positive initiatives that go some way to addressing the primary concerns of our members, which is access to credit.” — Marta Morgan, vice-president trade and competitiveness, Forest Products Association of Canada
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