Paper

Last updated: April 2008

Overview

The paper industry is cyclical. The industry experienced a down cycle beginning in 2001 and, during this period, many producers cut back operations and closed mills. Recovery began in 2003 and improvement continued through 2006, the fourth consecutive year of production expansion, rising 0.9% over 2005. Numbers for 2007 show similar modest growth. Now, with energy and pulp prices high, economic conditions deteriorating, and overall excess capacity in the industry, there is concern of another downturn in the cycle.

According to the Global Corrugated Forecast 2007-2011 released by The International Corrugated Case Association, over the period 2001 to 2006, global corrugated production grew by an average 4.2% per year. During the period 2004 to 2006, growth averaged around 4.9% per year. Over the next five years, corrugated growth will be marginally lower and is forecast to grow at an average rate of 4.4% per year, reflecting lower growth in worldwide manufacturing activity. In other emerging markets, China in particular, growth will continue to be robust. In this forecast period, China will overtake the U.S. as the largest corrugated producer in 2009. Fifty-six percent of the new world demand will be generated by China.

Industry Condition –Average to Good

Mergers & Acquisitions

• Weyerhaeuser is currently undergoing the sale of its containerboard unit to International Paper.
• Brookfield Asset Management announced in February of 2007 that it would purgeantares Longview Fibre Co. for about $2.15 billion, including assumed debt.

Key Industry Indicators

• Raw Material Prices
  • Producer Price Index - Pulp
    
    
    
    
    
    
    
  • Waste Paper Prices, specifically Old Corrugated Container (OCC)
    Pricing is up 23.80% in the New York market and 27.78% in the Texas market. A price spike has remained constant since March 2007 in both markets.
    
    

    New York

    Texas

• Energy Costs
  The continual rising costs of both raw material and energy costs have sparked product price increases, averaging $40 per ton.
  
• Production Rates
  As of March 1^st, Corrugated Medium is down 6.6% from one year ago. Corrugated shipments are the highest since October 2006 amounting to a current rate of 35,070 tons/month; a 12.5% increase from one year ago. U.S. containerboard mills, in general, operated at 97.1% of capacity for the month of February and produced 2.79 million tons.

Overview

The market for paper-making machinery and the associated converting equipment used to make corrugated material is difficult to predict. Since there is an adequate supply of equipment, buyers are very selective about what they will purgeantares. Newer, wider, high-speed equipment is most desirable. Older, narrower, slower equipment might only be salable as components, if at all. Most sales of complete paper machines are going offshore with the majority going to India. A working mill was recently sold to continue in operation but with most of the capacity committed to export to India. This transaction was driven, in part, by the weak U.S. dollar.

The secondary market for finishing equipment that converts corrugated material into boxes is more stable and predictable. Historically, this machinery has retained value well. Since there is a direct correlation between economic conditions and the demand for packaging and shipping materials, the demand for box board and corrugated shipping materials is expected to decrease. This could impact the value of older corrugators and finishing equipment, but there no trends suggesting a lost in value of used equipment evident in the market currently. Notably, some of the older equipment sold in the early 2000's to dealers on speculation is still available for sale. Dealers of used equipment are reporting that pricing is holding steady despite the fact that the volume of inquiries has declined.

Used Equipment Values – Fair

Papermaking machinery

• Supply of used equipment – Increasing
• Demand for used equipment – Decreasing

Finishing equipment

• Supply of used equipment – Stable
• Demand for used equipment – Stable

Liquidation Monitor

• Recent bankruptcy filings
  • Port Townsend Paper filed on January 29, 2007
  • Earthshell Corporation filed on January 19, 2007

Valuation Monitor

AccuVal routinely provides appraisal, consulting, and asset management services to the Pulp & Paper industry including all related converting equipment. View industries serviced >>

Representative Clients Our Associates Have Served

• Caraustar Industries, Inc.
• Port Townsend Paper Corporation
• Longview Fibre
• Calpine Corrugated
• Beresford Box Company Inc.

Success Stories

• Buyer Found for Bankrupt Paper Mill, Environmental Liabilities Averted, Jobs Saved
• Billions Lent in Every Segment of the Paper Industry Based on AccuVal Appraisals
• AccuVal Foils Attempt to Secure Asset Based Financing Based on Suspicious Documentation
• Outcome of Machinery Disposition Improved by $1.2 Million while Also Securing the Seller a Complete Environmental Indemnification Worth Millions
• Secured Lender Protected from Environmental Exposure in Mill Disaster
• View all Success Stories