Resolute focused on cutting costs

Duane Hicks

As the pulp and paper industry continues to face challenges, the local mill remains committed to reducing costs in order to survive.
That’s the message André Bernier, general manager of Resolute Forest Products’ pulp and paper mill here, delivered to Fort Frances Chamber of Commerce members during their spring meeting Monday at Moss Yoga Studio.
“Our strategy remains very simple . . . there is no real magical solution,” said Bernier. “If we want to survive, if we want to continue to operate, we have to be the low-cost producer and we need to consciously work at it. . . .
“Because if we’re stuck, we’re going to be beaten by our competitors and we’re going to have to shut down—it’s that simple,” he warned.
Bernier said corporate continues to pay down its debt, spending capital with a “rigorous approach trying to make sure that we’re not spending money for nothing, and first, to concentrate on really reducing our debt.”
He explained 38 percent of Resolute’s sales is newsprint, 38 percent is commercial printing (i.e., paper for books, magazines, etc.), 14 percent is market pulp, and 10 percent is wood products.
The local mill makes commercial printing paper and market pulp.
Bernier said the problem is the demand for graphic paper (newsprint, uncoated mechanical, coated mechanical, etc.) has dropped drastically over the past 12 years, plunging from 48 million tons in 2000 to 30 million tons as of October, 2011.
“And somewhere below 30 million by the end of that year,” he noted.
“When you think about it, that’s 18 million tons, and it’s about four mills for every
million tons that you have to shut down,” Bernier remarked.
“That is the wave, the tsunami, we have been facing in our industry.
“[There’s] many other issues, the Canadian dollar and everything, but fundamentally what makes a difference [for] us from any other business that had to go through the crisis is our market is going away, it’s shrinking,” he stressed.
“Every single year we’re selling less and less pulp and paper.”
Every year, the demand for paper goes down as the public turns to electronic media, like the Internet and e-books, for their reading material and away from newspapers, magazines, paperbacks, and other printed matter.
Accessing the Internet is easier than ever with mobile devices like Blackberries and tablet computers, and electronic book sales accounted for 22 percent of all book sales in North America in 2011, noted Bernier.
E-book sales grew 123 percent in 2011.
Of course, commercial grade paper for books is one of the grades made here in Fort Frances.
But while the market situation is grim, Bernier said there still are opportunities. For example, there is a market of five million tons of uncoated mechanical paper.
“That’s a lot of tons, and we’re very small in that market, so there is a lot of room for us,” he remarked. “We just have to find a way to get our price low enough so we’re going to get the order.
“Because one part of the strategy of the company is we are not taking any more orders if we know that we’re going to lose money.
“If we can reduce our costs and reduce them low enough to get the right orders, we’ll have orders and we’ll be able to run,” he reasoned.
“This is how we have to look at our challenge on the paper side—making all the necessary changes to reduce our cost,” Bernier continued. “You’ve probably heard a lot of rumours about changes that we’ve done at the mill—well, these changes are necessary for that.
“The choice is easy: we reduce our costs and stay alive, or we’re going to go down, and then all of the community is going to lose.”
On the pulp side of the industry, the market demand has dropped in recent years in North American, Latin America, and Europe. There was a slight increase in demand in Japan after the 2011 tsunami, but the real market growth is in China.
The country that has benefitted most from this demand is Canada, but the problem for the local mill is how difficult it is to deliver pulp from here to China.
Being located in the middle of Canada, Bernier said shipping to China would cost more than $150 a ton. Pulp would have to sent via rail car either to Vancouver or Montreal and then onto a ship.
He noted the best option for the short-term is to rely on selling pulp in North America.
“But again, to survive in that market, we have got to be low-cost because everybody is trying to sell in North America, not having to pay for the transportation costs to China,” stressed Bernier.
Even within North America, transportation of pulp and paper is expensive due to the high price of oil.
One person at Monday’s meeting asked about the possibility of changing the local mill operation to produce toilet paper, tissues, and paper towels.
Bernier replied while it’s true that particular industry is stable, and the mill here has the right pulp for the job, about 50 percent of all tissue paper produced is made with recycled content, which it does not have.
The mill here also doesn’t have the right paper machine. As well, the facility has to be located near a large centre, like Chicago, Montreal, or Toronto, so that once the tissue paper is made, it can be shipped cost-effectively.
“Our mill would not be suited to that,” admitted Bernier.
When asked about what the paper market will be like in the future, Bernier said it’s certain that e-books and other electronics are going to become more common, thus further reducing the demand for paper.
He still believes there will be a market for paper products in North America, it’s just not going to be a large as before. The reality is, the market is going to shrink and some mills are going to have to close.
The ones that close are the ones that are not efficient.
“It’s not wait-and-see,” Bernier warned. “We are convinced that if you want to survive, you have to be low-cost.”