Pulp and paper company Domtar (UFS:TSX) says its inability to compete globally with other pulp producers is behind the decision to shut down part of its Kamloops pulp mill.
The Montreal company announced it would shut down its A-line production line in mid December, a move that reduced its workforce from 425 to 300. The first wave of laid-off employees left in mid-April, with the entire process expected to be completed by the end of August 2013.
"Prevailing conditions in the global pulp market, together with deteriorated competitiveness of a small manufacturing line, forced Domtar to remove this pulp production capacity," Bonny Skene, a spokesperson for Domtar, told Business in Vancouver.
The A-line product, a shorter-fibre pulp prized for making soft tissues, competes with pulp from hardwoods like eucalyptus.
The company plans to continue to run the mill's second production line, known as the B-line. The product it produces, a longer fibre pulp used in paper products that need to be strong, like paper towel, does not face the same kind of competition.
But it's going to be tight: Skene said it would depend on the results of an ongoing program to cut costs, improve energy efficiency and improve mill performance. The Kamloops mill competes on the open market, unlike many of the company's other mills, which produce pulp that is solely used to make Domtar paper.
Workers at the mill feel betrayed after the union made concessions in 2008 in order for Domtar to keep operating the mill for the next 15-20 years, said Charlie Fraser, president of the Kamloops local of the Communications, Energy and Paperworks Union.
Fraser also believes the outcome might have been different had Domtar been willing to invest in the mill.
Skene said that several other Domtar mills had recently restructured to become more competitive. In its first quarter conference call, the company reported that its earnings had taken a hit as a result of changes to a South Carolina mill.
"We're very fortunate at Kamloops to have a path forward for the B-line," said Skene.
"Not all mills would have that opportunity."
Compared to the soaring price of lumber, pulp prices are flat, said PwC analyst Bruce McIntyre.
"It never seems that all parts of the industry are firing at the same time," he said.
The demand for newsprint and other specialty paper is declining precipitously, causing trouble for companies like Richmond-based Catalyst Paper (CYT:TSX).
But the market for products like tissues and paper towels is growing steadily, said James Olson, director of UBC's Pulp and Paper Centre. That translates into a fairly positive long-term market for many of B.C.'s pulp producers.
"[Our cold climate] means we make a very unique fibre that gets sold into specialty applications," said Olson.
