AN OVERVIEW OF THE LIGHT WEIGHT COATED PAPERS MARKET. Research Specialist. Midland, MI Midland, MI Senior Specialist

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1 AN OVERVIEW OF THE LIGHT WEIGHT COATED PAPERS MARKET Linda H. Kim-Habermehl John A. Roper III Research Specialist Leader The Dow Chemical Co. The Dow Chemical Co. Midland, MI Midland, MI Dean DeWildt Sandra Jones Senior Specialist Leader The Dow Chemical Co. The Dow Chemical Co. Midland, MI Midland, MI ABSTRACT Demands on the light weight coated (LWC) papers market are ever increasing due in part to grade competition, changing market conditions, and processing advancements. Productivity, quality, and cost reduction are recurrent goal-related themes among mills as they strive to better serve their markets and sell into those markets in the most appropriate way. The LWC market is becoming increasingly competitive, due to cross competition from coated woodfree and value-added uncoated grades. This market is being driven by a continual need for improved product performance that is cost effective. Meeting the challenge of producing paper quicker, better, and cost effectively will be critical for LWC paper mills to survive in an industry that is mature. This paper reviews major trends associated with the LWC market which is currently in a dynamic state of development. INTRODUCTION Lighter and lower cost. The preferences of paper offerings at lower cost with equivalent quality, over that of improved quality at equivalent cost. Faster larger machines, new paper grades, jet coatings, industry consolidation, strategic alliances, waterless printing, distribution networks, fiber supply, internet surfing, new currencies, brand marketing, cluster rule regulations, and even debate of a paperless society...all in a maturing industry. It s a fast paced place in the world of paper coatings these days. This is especially true for the LWC market, which is commodity in nature. The definition of LWC papers is somewhat nebulous, but can be broadly referred to as coated groundwood papers that encompass No. 4 and No. 5 papers (typically contain at least 1% mechanical pulp). The coating weight for these light weight coated papers is typically 3% of total sheet weight [1]. In addition to lower basis weights, the use of lower coat weights, binder levels, and the high levels of starch in LWC formulations provide unique challenges for LWC producers to differentiate their papers other than by a cost basis. In short, more has to be done with less - quicker, better, and cost effectively. A brief review of the LWC market will be presented, followed by discussion of major LWC market trends. The following major industry trends associated with the LWC market will be discussed in this paper: mergers and acquisitions, reduced basis weights, new pigments, new application methods, new finishing methods, and grade evolution. To meet the challenges previously stated, companies have been consolidating on a global basis, the pace of which has been staggering. Basis weights have been decreasing, affecting both basepaper and coating, driven in part by increasing postal rates and efforts to attain higher yields. Binder levels have also been decreasing for both rotogravure and offset. Other trends associated with LWC include evaluation of changing pigment systems (i.e., new engineered pigments, talc, and increasing levels of calcium carbonate). On the processing side, advancements in coating application and finishing equipment have resulted in bigger, faster machines. Overall, the LWC market has been suffering from substitution both from No. 3 grades (falling coated woodfree prices) as well as from uncoated mechanical paper grades (relatively lower prices). The distinction between paper grades is becoming less clear with grade evolution. LWC paper quality, which is largely basestockdriven, will become more critical in an increasingly competitive marketplace. page 1

2 DISCUSSION The Light Weight Coated (LWC) Market Global paper demand is increasing with an annual forecasted growth rate of 2.8% from 1993 to 21, as shown in Figure 1 [2]. The global growth demand for LWC papers in 1998 was 3.3%, versus 5.8% for coated woodfree papers, as shown in Figure 2. [3]. The global demand and capacity of LWC papers in 1996 was 13.5 million tons and 15 million tons, respectively [4]. North America, Western Europe, and Japan accounted for approximately 9% of global LWC consumption. Capacity significantly exceeded demand for LWC in Western Europe, while demand exceeded capacity in North America, Japan, and other countries. Figures 3 and 4 show 1996 capacity structures for mechanical printing papers for several countries [5]. The strongest capacity structure is in Finland, where 51% of the total production capacity consists of units with an annual production over 2, tons per year (versus 16% for the US). The primary exporters and importers of coated mechanical papers are shown in Figures 5 and 6, respectively [6]. The top five exporters share of global demand is 41%. Imports represent a significant and increasing portion of US coated groundwood consumption as shown in Figure 7 [7]. US coated groundwood production levels are shown in Figure 8; these levels are forecasted to reach 4.5 million tons by 21 [8]. Demand for LWC paper end-use sectors in North America is dominated by magazines (55%) and catalogs (3%), followed by coupons (7%) [9]. Consumption of magazines is predicted to hold constant through 21, while that for catalogs is expected to grow due to less available leisure time for adults, development of new markets, and introduction of new products (i.e., computers and telecommunication technologies). Consumption of coupons, however, is predicted to decline because of alternative promotional products and the trend to lighter basis weight, which gives an apparent reduction in market size when measured in tonnage. Figure 9 shows that No. 5 grade papers represent the largest volume of forecasted demand in the US through 22 [1]. Approximately 4% of the total US coated paper produced is comprised of No. 5 papers. No. 5 papers that range in basis weight from 32 to 4 lb/ream represent more than 8% of coated groundwood papers [11]. Figures 1 and 11 show the percentage of total industry shipments by basis weight for No. 4 and No. 5 papers, respectively. Most LWC papers have a glossy finish (Figures 12 and 13) and are printed in roll form (Figure 14). Figure 15 shows that slightly more LWC paper is sold by direct sales than through distribution. Trends of LWC Papers Mergers and acquisitions. Although there is continued worldwide growth in coated papers as stated earlier, weak profitability is a concern in all aspects of papermaking. Only two pulp and paper companies outperformed the stock market average during the last decade [12]. Efficiency is now the name of the game, where business as usual rules don t quite apply anymore. In trying to restore profitability, coated paper producers have been divesting non-core assets, limiting capital expenditures, and consolidating to obtain efficiencies of scale. Consolidation on a global basis has been prevalent, as mills strive to become as cost effective as possible regarding issues such as capacity additions, raw material supply, capital effectiveness, customer base consolidation, quick delivery, new product development cycle times, etc. Figure 16 illustrates merger and acquisition activity that occurred among the top 1 companies in the global forest industry between 1975 and 1994 [13]. The average number of sales, mergers, and acquisitions was 3 to 4 during , versus 1 to 2 during 1975 to Figure 17 shows values associated with this consolidation activity, which is shown to have closely followed market pulp prices [14]. Between 1995 and 1997, the volume of mergers and acquisitions reached $8 billion for the paper and forest products industry worldwide [15]. In North America, the fifteen largest paper companies had restructuring charges of $2.7 billion in 1997, compared with $644 million in 1996 [16]. This trend of consolidation certainly page 2

3 implies increasing cost pressures for smaller producers. Industry consolidation has been occurring not only among paper mills, but also among printers and ink manufacturers. Table I shows changes in the list of the twenty largest pulp and paper companies in the world from 1986 to 1994 [17]. Consolidation activity has resulted in the emergence of European pulp and paper super producers, as seven European companies made this top twenty listing in 1994, versus only two in The largest companies in Europe have grown significantly faster than those in North America, as shown in Figure 18 [18]. This data illustrates the share of regional capacity of the top ten and twenty producers in North America and Europe. During 199 to 1996, the increase in share of the top ten producers in western Europe was 3%, while that for the comparable North American producers was minimal. Consolidation of two types seems to be occurring with paper companies. The merging of paper companies seems to be occuring such that the resultant mills offer the full gamut of paper grades, or such that they specialize in a given type of grade or a few key grades to suit their competitive strengths. Although this trend has mostly been seen in the fine paper and newsprint markets, consolidation of LWC mills has started [(i.e., Mead (Rumford), Consolidated (Interlake), and UPM-Kymmene (Blandin)] and is expected to continue. Although no integrated producer of pulp and paper in the world has much more than approximately 3% total market share today [19], much speculation abounds as to where this consolidation activity will lead, regarding who the powerhouses will be in a much-narrowed field. Table I: Emergence of European Pulp and Paper Super Producers 2 Largest Pulp and Paper Companies James River International Paper International Paper 2 International paper James River Nippon Paper 3 Kimberly-Clark Kimberly-Clark Kimberly-Clark/Scott 4 Scott Paper Stone container Jefferson Smurfit Group 5 Champion International Scott Paper New Oji Paper 6 Oji Paper Georgia-Pacific KNP BT 7 Weyerhauser Champion International James River 8 Georgia-Pacific Great Northern Nekoosa SCA/PWA 9 Jujo paper Weyerhauser Stone container 1 Honshu Paper Oji Paper Repola/Kymmene 11 Great Northern Nekoosa Jumo Paper Georgia-Pacific 12 Stone Container SCA Stora 13 Mead Stora Mead 14 Daishowa paper Honshu Paper Arjo Wiggins Appleton 15 Container Corporation MoDo Honshu Paper 16 Westvaco Wiggins Teape Appleton Champion International 17 Union Camp Feldmuhle Weyerhauser 18 Wiggins Teape Daishowa paper Enso-Gutzeit/Veitsiluoto 19 Boise Cascade Noranda Forest Sappi 2 SCA Boise Cascade Amcor Source: Economics of the Pulp and Paper Industry Reduced basis weight. There has been a global trend towards reduction of basis weights [2]. Figure 19 shows this trend for Europe and how it relates to the percentage of the LWC market represented [21]. A higher yield (or surface area per ton) can be achieved by going to a lower basis weight, if quality is held constant, i.e.,if there s no difference in feel. This trend of reduced basis weight started earlier in Europe relative to North America during the 1973 to 1983 timeframe, as shown in Figure 2. Differing cost structures for page 3

4 fiber, as well as differences in quality demands, may explain why the trend of reduced basis weight has been more significant in Europe. Data in Figure 21 shows that softwood market prices were more expensive in Europe than North America prior to 1982 [22]. This timing correlates to the decreases in average European LWC basis weights that occurred by1983. In 1993, softwood prices were more expensive in North America relative to Europe, the timing of which correlates to the decrease in average NA basis weights that occurred between 1993 and 1998 as seen in Figure 2. The rise in postal rates (Figure 22) and shipping costs have been one of the primary driving forces for reduction in basis weights in the US. Figure 23 shows the decrease in average finished weights for No. 5 papers since 197. The percentage of LWC paper under 51 g / m2 is expected to be 35% in 22, versus 18% in 1992 [23]. The startup of short dwell coaters (which peaked in the mid 198 s) facilitated this trend towards lighter weights. More recently, the metering size press (to be discussed) and soft nip calendering developments have allowed for higher sheet opacity and bulk at a given grammage. A reduction in basis weights can allow for either a direct mailing cost savings, or enable a circulation increase without extra mailing costs. Lower basis weight papers, however, are typically associated with poorer machine runnability. Web breaks are more likely to occur with these weaker basepapers, especially with the higher coating speeds used to produce LWC grades. Poorer print quality can also be a disadvantage, along with lower opacity, opticals, and stiffness due to the lower bulk of lighter weight papers (see Figures 24-26). Runnability and printability are key considerations. As the same print quality and appearance is desired with lower basis weight papers, paper and ink manufacturers alike are working on providing the same holdout [24]. Ink manufacturers point out that significant cost savings may not be realized if more ink is required on press with a switch to a lower basis weight paper. Pigments. Brightness is a performance attribute that has historically been promoted more in Europe, relative to North America. Data in Table II shows the differences in brightness and opacity of European and North American LWC papers [25]. The higher brightness of European papers is due to the use of higher brightness base papers and the higher use of calcium carbonate there. Many coating mills have moved towards neutral papermaking so that carbonates can be used for filling and coating. Figure 27 shows the higher consumption of calcium carbonate in Europe relative to North America in 1996 [26]. The growth of neutral LWC in NA from 1987 to 1996 is shown in Figure 28 [27]. By 22, approximately 4% of all groundwood papermaking in North America will be neutral [28]. The changeover to the alkaline papermaking process occurred much earlier in Europe (197 s) due to the presence of inexpensive and readily available ground calcium carbonate [29]. This move to neutral/alkaline papermaking conditions and the development of alkaline sizing materials was also prompted by paper embrittlement problems (resulting from oxidation of cellulose fibers attributed mostly to residuals from rosin-acid sizing) that libraries and archival groups experienced in the 194s. The growth in neutral LWC has facilitated the use of increasing calcium carbonate levels in NA LWC formulations. The levels of ground calcium carbonate used in LWC offset papers can be as high as 5 6%, while some LWC mills in Europe already use 2% carbonate in their rotogravure formulations [3]. In addition to brightness, other advantages of formulating with increased calcium carbonate levels are lower binder demand and excellent rheological behavior (due to rhombohedral crystal structure, which allows for increased solids) as seen in Figures 29 and 3. However, reduced stiffness and lower gloss at equivalent solids represent drawbacks (Figures 31 and 32). The trend towards running neutral or slightly alkaline is expected to continue on a global basis, especially as use of recycled paper (which often contains carbonate) gains prominence [31]. Figure 33 shows coating pigment consumption on a global basis [32]. There has also been an increase in the development and evaluation of structured pigments in LWC formulations, some advantages of which are increased coverage (i.e., opacity, roughness) as shown in Figures and the potential ability to tailor make or produce a customized pigment system. Selective aggregation of the ultra fine particles present in kaolin clays, via thermal or chemical means, enhances light scattering. These structured or engineered pigments increase the coating bulk due to their greater pore volume. Some of these pigments have a bulk density as low as 1 12 pounds per cubic foot [33]. Historically, however, specialty page 4

5 pigments have also been associated with high costs and rheology issues (Figures 37-38). Other new pigments include Brazilian clays which have a narrow particle size distribution and provide bulk. Hollow sphere plastic pigments have also been utilized to impart scattering and coating bulk. These are low density pigments and are expected to have increased use especially in LWC grades, as basis weights decrease. Other trends in which pigments are expected to have a prominent role include further increases in coating solids, more rapid immobilization of the applied coating, and higher filler levels in the raw stock [34]. Table II: Brightness and Opacity of European and NA LWC Papers At 57 gsm: At 7 gsm: BRIGHTNESS OPACITY Delta Delta European C2S No European C2S No C2S No Source: McAuley, D., 1994 TAPPI International Printing and Graphic Arts Conference Proceedings Evaluation of pigments with higher aspect ratios such as talc is increasing. The use of talc for rotogravure is widespread in Europe, where patented technology allows for good dispersion and wetting of talc, which is hydrophobic. The advantages of talc have been reported to be smoothness, gloss, opacity, printability, and rollability (coefficient of friction) when used at addition levels up to approximately 4%, as shown in Figure 39. However, dispersion has been an issue in using talc, along with stability and cost. The pigment markets have not been significantly affected by the trend towards use of higher levels of synthetic binders (i.e., increasing latex / starch ratios) in LWC formulations. Faster coating speeds, higher coating solids, lower overall binder levels, higher sheet and ink gloss, and print mottle issues from starch use have all driven this trend. Overall binder levels have decreased since 1991 for both rotogravure (approximately 1-12 parts to 6-8 parts) and offset (approximately 15-2 parts to parts) [35]. New application methods. Coating application methods have evolved from adaptation and enhancement of previous application technologies. The continual desire for higher productivity has driven the development of advanced coating technologies. The production capacity of paper machines has tripled during the past 3 years [36], via both increasing machine widths and higher coating speeds. Data in Figure 4 shows that trim widths steadily increased prior to 198, afterwhich they remained constant at 8.5 meters until the next increase occurred during the early 199 s [37]. (Trim widths regarding both complete machines as well as major rebuilds, encompassed by the band illustrated, are included in the data shown in Figure 4.) Coating speeds have doubled during 1955 to 1995, as shown in Figure 41 [38]. Both the trends of higher coating speeds and reduced basis weights for LWC papers created a need for modified short dwell coaters. Improved short dwell, metered size press, and jet application represent some of the recent processing advancements for coating paper. Improved short dwell. Improved short dwell technologies are now being offered, with improvements coming primarily from quality in the pond where coating is applied to the web. Quality limitations from coating at high speeds with short dwell application have often been attributed to strong vortices in the application pond. page 5

6 Advancements regarding pond flow considerations have resulted in improved runnability (reduced web breaks, as a result of more uniform stresses being applied to the web, and reduced pumping rates) and quality (streaks, coating holdout, and coating profiles). Metered size press (MSP). MSP technology has emerged as a versatile coating process, providing a popular alternative to conventional blade coating. MSP coating differs from blade coating in that a film split of the coating color occurs in the exit of the application nip and both sides of the web can be coated simultaneously. MSP coating offers the advantages of applying less stress to the sheet so that weaker base paper can be used with fewer problems of web breaks. This allows for reduced levels of bleached softwood kraft content, which represents cost savings. Productivity advantages can also be realized because both sides of the web are coated at the same time. MSP coating also represents a low cost option to convert a noncoating machine to a coating machine. Although the resultant contour type of coating translates to improved coverage, this often leads to deficiencies in gloss and smoothness development. Also, runnability and quality issues associated with MSP originate from film splitting of the coating color in the application nip. This can lead to orange peel formation at high coat weights. Jet applicator. High coating speed (greater than 15 m/min) application of coating colors using conventional flooded nip systems have typically been limited by inferior coating quality and runnability, as exhibited by ribbing and splashing of coating color resulting from various effects related to filmsplitting. High speed coating via free jet coating application has been used successfully in Japan for many years, and market success of this coating technology has recently been seen in Europe and North America. Advantages of jet coating application are higher productivity and runnability via higher coating speeds and ease of operation. Recent studies have shown that higher coating solids can often be applied, due to less water penetration into the base paper [39]. Potential cost savings may also be realized by removal of thickeners from the formulation, because of the higher solids attainable. To a lesser extent, jet coating application can also provide quality advantages, but primarily at speeds greater than 15 m/min. De-aeration and nozzle plugging represent two disadvantages of jet coating application. New finishing methods. Soft nip calendering (SNC) offers a speed advantage over supercalendering, while achieving similar sheet gloss. This necessitates operation of the calender at the upper end of its temperature and pressure range, but MSP with on-line SNC has enabled upgrading of newsprint machines to produce grades competitive with conventional LWC. Because there is less compression of the sheet, less opacity and brightness losses occur upon finishing. Thus, this can result either in higher opacity at equal basis weight, or equal opacity at lower basis weight [4]. High temperature multinip calendars also represent an active area of new development. Advancements regarding extended dwell times, more uniform loadings (even distribution of stresses), and individually driven rolls have resulted in more pressure without added input energy. However, because of the longer residence time, development of new binder systems may be required due to potential sticking issues resulting from the extended nips. These developments represent an evolution towards high temperature, high pressure finishing - a combination of supercalendering and thermal finishing. Grade evolution. Against the backdrop of increasing quality / cost ratios, as customers become ever more discriminating, supercalendered (SC) papers (SCB, SCA, SCA+) represent offerings that weren t available before - alternatives between newsprint and light weight coated (LWC). These uncoated, supercalendered papers, page 6

7 which are differentiated by the amount of filler level and surface treatment, are used for inserts, flyers, and select catalogs and mass market magazines. There is an overlap in SC and LWC basis weights in the 45 gsm vicinity. Although SC papers were generally regarded in the past as an upgrade from newsprint, SCA+ papers are now aimed directly at the current buyers of LWC. The historical quality and cost gap between SC papers and LWC No. 5 grades has been steadily decreasing since the 198 s, as shown in Figure 42 [41, 42]. Quality levels for SC papers have steadily grown relative to LWC, the quality of which has remained for the most part unchanged during the past decade. New gap former technology in the wet papermaking end, which enabled elimination of the twosidedness of paper, was key in achieving the new SC quality. This represents an example of where equipment innovations spurred on evolutionary grade development. All European producers have an SCA+ product (which has become the standard there) in contrast to the US market, which contains a larger mix of SC grades [43]. SCA products are not as mature a product in North America as they are in Europe. For example, data shown in Figure 43 illustrates the increased use of uncoated groundwood papers for magazines in Europe relative to the U.S. [44]. The competitive response from producers of LWC papers may well result in a raising of the quality bar for LWC papers. The global compound average annual growth rates for LWC, fine, and SCA paper (1985 to 1997) were 2%, 4.9%, and 5.6%, respectively [45]. The amount of SC paper used in NA has grown significantly over the last 2 years, with annual consumption now approaching 2 million tons, as shown in Figure 44 [46]. What s more, the price differential between SCA+ and LWC is approximately 1 15%, and cost is a key issue for the LWC market. For retailers, paper represents half the cost of flyers and inserts, while for publishers, paper and postage together account for one-third the cost of a magazine or catalog [47]. However, printers who are starting to use SC to print offset may up their charges rather than passing savings on to publishers, because of runnability and strength (water absorption issues often result in higher waste and ink consumption) [48]. The debate between SC and LWC papers centers around cost and quality, and the quality issue is an open battle (i.e., advantages of LWC are promoted as print gloss, stiffness, bulk, opacity, printability, offset and roto while advantages of SC+ are promoted as brightness and sheet gloss properties similar to LWC at lower price). As producers of both paper types prepare for the impending market share battle, the final choice will be that of the consumer. Although the impact of SCA+ on buying behavior (shifts) is unclear, the development of trends in the advertising industry will be critical for consumer markets of the future, as advertising touches almost 5% of the total production of paper products [49]. The current grade evolution that is occurring in the paper industry is not just between SC and LWC papers. Cross competition between grades is prevalent, especially for the LWC market which is also receiving competition at the other end from No. 3 papers. This has been through substitution of LWC by coated woodfree papers, which has seen a decline in price over the past decade. For example, data illustrated in Figure 45 shows that the share of the magazine market represented by coated woodfree papers has increased since 1993, both in the U.S. as well as Europe [5]. Thus, fine papers, LWC papers, and value added uncoated papers are all competing in the same market. Grade substitution will most likely be determined by the relative quality, availability, and price differential between paper types. The demand growth rates for US LWC and No. 3 papers from 199 to 1996 were approximately -1% and 1%, respectively [51]. Forecasted growth for coated mechanical papers is expected to be low, as shown in Figure 46, due to share losses to these other grade papers [52]. Because of the decreasing price trend of No. 3 papers, increasing quality / cost ratio of these papers can be realized even without any performance improvements. The apparent consumption for coated groundwood is currently decreasing (Figure 47), due in part to inventory reduction efforts [53]. Price increases announced in July of 1998 spurred inventory buildups, though these increases were not subsequently implemented. In August of 1998, coated groundwood mill inventories reached their highest level since 1997 [54]. The forecasted demand for coated groundwood is in contrast to that for coated freesheet (Figure 48), which is expected to increase page 7

8 sharply due to availability and attractive pricing [55]. The outlook for coated groundwood in Europe is not much different - Figures 49 and 5 annual percent changes in demand growth for printing and writing papers in NA and Europe, respectively [56]. LWC papers are also expected to receive competition from newsprint mills that are converting to film coated offset production due to the weak newsprint market. Competition from imports should also be noted, especially in light of recent currency exchange rates. Increased import penetration has significantly affected the LWC market for example, coated groundwood imports from Asia increased 4% from May of 1997 to May of 1998 [57]. The collapse in Asian markets has also diverted paper to the US and Europe. Any long term demand growth will be supplied by imports as there most likely will not be much capacity growth in the US. Production capacity of printing and writing grades is estimated to increase by only.8% per year; the projected overall annual growth for is.9% which would be below the prior low growth years of [58]. All of these factors, in addition to the current tight market conditions, make the LWC marketplace a very competitive one indeed. OUTLOOK So, what will the future of LWC look like? For starters, the trend of grade evolution has led to a blurring of paper grades that are not quite so distinct as the historical brightness definitions of 74-78% for No. 4 papers and 68-73% for No. 5 papers. With the increasing levels of calcium carbonate usage, will the resultant brighter papers still be considered No. 4 and No. 5 papers - not if based strictly on historical definitions of brightness and gloss. How will our current grade system accommodate this? Perhaps it will evolve towards that of the European grade structure, which is based more on rawstock composition, groundwood content, and grammage. Perhaps paper products will be defined more by specific customer printing applications and less by grade structure categories. Perhaps this diversification of grades will open up new markets for the future. Cost effectiveness. The pace of industry consolidation on a global basis is expected to continue unabated, as efficiency and economies of scale will continue to be prevalent concepts. Basis weights are expected to decrease further, driven by such factors as increasing postal rates and shipping costs, and efforts to attain higher yield. Major changes in coating application and finishing are expected to occur first, relative to those regarding raw materials. All this in the face of ever increasing cost pressure, in a mature industry. If achieving profitability in the LWC market is difficult today, most likely it will only get worse as the dawn of the new millenium approaches. Substitution from above and below LWC, in a market that is being weakened by imports, imply dynamic challenges and issues. The ability of coated paper producers to determine what the future market will demand of its products ahead of their competition will be key in gaining a competitive advantage in the global marketplace. Equally important will be their real time response to these ever changing demands. It s all about producing the highest quality paper at the lowest possible cost. Quicker, better, and cost effectively. More with less. ACKNOWLEDGEMENTS The authors would like to acknowledge the following people of The Dow Chemical Co. for helpful discussions: Hector Audette, Marco Barsacchi, Tyler Jeffrey, Mauro Gregorio, Jim Galloway, Andre Hebling, Randy Kloes, Femi Kotoye, Paul Macefield, Chuck Mallard, Christian Page, Pekka Salminen, Mario Seixas, Dave Smith, Joann Surma, Ron VanGilder, Greg Welsch, and Dave Wolfe. page 8

9 Figure 1: World Total Paper and Board Demand, World Total Paper and Board Demand Tons (Million) 4 35 Rest of World Asia 15 1 Western Europe 5 North America Source: Economics of the Pulp and Paper Industry Figure 2: Global Paper Demand Growth in Global Paper Demand Growth 5.8 Coated Woodfree 3.8 Uncoated Mechanical 3.3 Coated Mechanical 2.7 Uncoated Woodfree 2.5 Newsprint Source: PIMA s Papermaker Percent Growth page 9

10 Figure 3: 1996 Capacity Distribution for Mechanical Printing Papers by Region 1996 Machine Capacity Distribution for Mechanical Printing Papers Capacity Distribution (%) < > 25 Finland Sweden USA Canada Machine Capacity (1 t/a) Source: Economics of the Pulp and Paper Industry Figure 4: 1996 Paper Machine Distribution for Mechanical Printing Papers by Region 1996 Paper Machine Distribution for Mechanical Printing Papers No. of Paper Machines Finland Sweden USA Canada < > 25 Machine Capacity (1 t/a) Source: Economics of the Pulp and Paper Industry page 1

11 Figure 5: 1993 Main Exporters of Coated Mechanical Papers 1993 Top 5 Exporters of Coated Mechanical Papers 2. Tons (Million) Finland Germany Italy France Belgium Source: Economics of the Pulp and Paper Industry Figure 6: 1993 Main Importers of Coated Mechanical Papers 1993 Top 5 Importers of Coated Mechanical Papers 1. Tons (Million) USA Germany UK France Spain Source: Economics of the Pulp and Paper Industry page 11

12 Figure 7: US Coated Groundwood Imports and Exports U.S. Imports and Exports of Coated Groundwood Papers 15 Thousand Tons 1 5 Imports Exports e Source: Impact Marketing Consultants Figure 8: US Production of Coated Paper U.S. Production of Coated Groundwood Paper 45 Thousand Tons e Source: Impact Marketing Consultants page 12

13 Figure 9: US Coated Paper Demand Summary % APPARENT CONSUMPTION No. 1 No. 2 No. 3 No. 4 No Source: RISI Figure 1: Percentage of Total US Industry Shipments by Basis Weight-No. 4 Estimates of Total Industry Shipments by Basis Weight - No. 4 % of Estimated Total Industry Shipments > Basis Weight (g/m 2 ) Source: American Forest and Paper Association page 13

14 Figure 11: Percentage of Total US Industry Shipments by Basis Weight No. 5 % of Estimated Total Industry Shipments Estimates of Total Industry Shipments by Basis Weight - No > 15 Basis Weight (g/m 2 ) Source: American Forest and Paper Association Figure 12: Estimate of Total US Industry Shipments by Finish - No. 4 Estimates of Total Industry Shipments by Finish - No. 4 % of Estimated Total Industry Shipments Gloss Dull Matte Source: American Forest and Paper Association page 14

15 Figure 13: Estimate of Total US Industry Shipments by Finish - No. 5 Estimates of Total Industry Shipments by Finish - No. 5 % of Estimated Total Industry Shipments Gloss Dull Matte Source: American Forest and Paper Association Figure 14: Estimate of Total US Industry Shipments by Form Estimates of Total Industry Shipments by Form - Coated Groundwood Printing Papers % of Estimated Total Industry Shipments Rolls Sheets Source: American Forest and Paper Association page 15

16 Figure15: US Sales Volume by Type of Distribution Sales Volume by Type of Distribution - Coated Groundwood % of Estimated Total Industry Shipments Direct Sales Sales Through Distributor Source: American Forest and Paper Association Figure 16: Merger Activity Among the Top 1 Global Pulp, Paper, and Board Companies, Merger Activity Among the Top 1 Global Pulp, Paper, and Board Companies ( ) Number of Sales, Mergers, Acquisitions Source: Economics of the Pulp and Paper Industry page 16

17 Figure 17: Global Merger and Acquisition Activity, Global Mergers and Acquisition Activity $ (1 Million) $ (1 Million) Pulp Price ($ per metric ton delivered) Pulp Price Source: Economics of the Pulp and Paper Industry Figure 18: Concentration Level of the Paper and Board Industry Concentration Level of the Paper and Board Industry % of Regional Capacity Top 2 Top 2 Top 2 Top 2 Top 1 Top 1 Top 1 Top NA Western Europe NA Western Europe Source: Economics of the Pulp and Paper Industry page 17

18 Figure 19: Paper Grammage Trend in Europe Paper Grammage Trend in Europe % of total LWC Source: PTS (Munich) Figure 2: Average LWC Weight Trends 62 6 Average LWC Weight Trends g/m N. America W. Europe Source: Temanex page 18

19 Figure 21: Comparison of European and NA Softwood Market Price 2 Softwood Market Price Delta Europe - NA 1 $ / Ton Source: RISI Figure 22: U.S. 3rd Class Mail Postal Rates Vs. Inflation 3rd Class Mail Postal Rates vs. Inflation Cumulative % Change 14 Percent Change, Cumulative Inflation (CPI) 3rd Class Mail Postal Rate 3rd Class Mail Postal Rate (Estimate) Source: Dow Chemical page 19

20 Figure 23: Reduction in Average Finished Weights for No. 5 Papers (US) # 5 Average Finished Weights (US) 61 6 g / m Source: RISI Figure 24: Trend - Reduced Basis Weight 92. Trend - Reduced Basis Weight Disadvantage - Lower Opacity OPACITY # 3 # 86. Source: The Dow Chemical Co. page 2

21 Figure 25: Trend - Reduced Basis Weight Trend - Reduced Basis Weight Disadvantage - Poorer Print Quality 61 INK GLOSS # 3 # 51 Source: The Dow Chemical Co. Figure 26: Trend - Reduced Coat Weight Trend - Reduced Coat Weight Disadvantage - Lower Stiffness CD STIFFNESS Coat Weight / Side (g / m2) Source: The Dow Chemical Co. page 21

22 Figure 27: 1996 Coating Pigment Consumption North America - 4. MM tons Europe MM tons % of Total Pigment Consumption Kaolin Natural CaCO3 Other North America Europe Source: Personal Communication, 1/99 Figure 28: Growth of Neutral LWC in NA Paper Tons (1) / Day Source: Personal Communication, 1/99 page 22

23 Figure 29: Trend - New Pigments Trend - New Pigments (CaCO 3 ) Advantage - Brightness Brightness Parts Calcium Carbonate Source: Personal Communication, 1/99 Figure 3: Trend - New Pigments Trend - New Pigments (CaCO 3 ) Advantage - Rheology (increased solids) Coating Solids Parts Calcium Carbonate Source: The Dow Chemical Co. page 23

24 Figure 31: Trend - New Pigments Trend - New Pigments (CaCO 3 ) Disadvantage - Lower Stiffness CD Stiffness / 75 / 25 Ratio of (6 Delam/4 No. 2) to Calcium Carbonate Source: The Dow Chemical Co. Figure 32: Trend - New Pigments Trend - New Pigments (CaCO 3 ) Disadvantage - Lower Gloss at Equal Solids Sheet Gloss Parts Calcium Carbonate Source: The Dow Chemical Co. page 24

25 Figure 33: Global Coating Pigment Consumption 1996 Global Coating Pigment Consumption 12 Million Tons Asia 19% Rest of World 5% Europe 43% North America 33% Source: Personal Communication, 1/99 Figure 34: Trend - New Pigments Trend - New Pigments (Engineered Pigments) Advantage - Improved Coverage 84 OPACITY / 12 / / 12 / 88 Parts of Clay: Delaminated / Calcined / Eng. Pigment Source: The Dow Chemical Co. page 25

26 Figure 35: Trend - New Pigments Trend - New Pigments (Engineered Pigments) Advantage - Improved Coverage 1.2 Roughness / 12 / / 12 / 88 Parts of Clay: Delaminated / Calcined / Eng. Pigment Source: The Dow Chemical Co. Figure 36: Trend - New Pigments Trend - New Pigments (Engineered Pigments) Advantage - Improved Print Quality 78. Brightness / 12 / / 12 / 88 Parts of Clay: Delaminated / Calcined / Eng. Pigment Source: The Dow Chemical Co. page 26

27 Figure 37: Trend - New Pigments Trend - New Pigments (Engineered Pigments) Disadvantage - Rheology Brookfield Viscosity (2RPM) / 12 / / 12 / 88 Parts of Clay: Delaminated / Calcined / Eng. Pigment Source: The Dow Chemical Co. Figure 38: Trend - New Pigments Hercules Viscosity (Max RPM) Trend - New Pigments (Engineered Pigments) Disadvantage - Rheology / 12 / / 12 / 88 Parts of Clay: Delaminated / Calcined / Eng. Pigment Source: The Dow Chemical Co. page 27

28 Figure 39: Trend - New Pigments Trend - New Pigments (Talc) Advantages - Print quality, smoothness, coverage, COF % Talc 4% Talc Coating Coating COF, static COF, dynamic Brightness Smoothness Sheet gloss Printability Opacity Source: Polar Minerals Figure 4: Paper Machine Trim Widths, Historical Machine Trim Widths 1 8 Trim (m) Source: Gron, J. (Ph.D. Thesis) / Kerttula page 28

29 Figure 41: Machine Development of Coaters Machine Speed Development of Coaters 35 Speed (m/min) LWC Base Paper Speeds Coater Normal Speeds Coater Design Speeds Coater Pilot Speeds Source: Gron, J. (Ph.D. Thesis) / Valmet Corporation Figure 42: Evolution of Quality Evolution of Supercalendered Quality Best NA SCA+ Stora LWC SCA introduced PM2 #5 Brightness Sheet gloss Smoothness Source: High Volume Printing page 29

30 Figure 43: Market Share of Paper Used in Magazines Market Share of Paper Used in Magazines Uncoated Mechanical Coated Mechanical U.S. Europe U.S. Europe Source: RISI Figure 44: Supercal's Growth Spurt Supercal s Growth Spurt TONS (M) P P SCA / SCA+ LWC Source: American Printer page 3

31 Figure 45: Coated Woodfree Share of the Magazine Market Coated Woodfree Share of the Magazine Market 25% 2% 15% 1% U.S. Europe 5% % Source: RISI Figure 46: Coated Mechanical Growth Source: RISI Coated Mechanical Growth Apparent Consumption (Quarterly, Tons) U.S. Europe page 31

32 Figure 47: U.S. Coated Groundwood Demand Source: RISI U.S. Coated Groundwood Demand Tons per Quarter Consumption Apparent Consumption Figure 48: Coated Freesheet Demand Coated Freesheet Demand Apparent Consumption (Quarterly, Tons) U.S. Europe Source: RISI page 32

33 Figure 49: NA P&W Demand Growth NA P&W Demand Growth (Year-Over-Year % Change) Coated Freesheet Coated Groundwood Uncoated Groundwood S.C. Unctd. Grwd Source: RISI Figure 5: European P&W Demand Growth European P&W Demand Growth (Year-Over-Year % Change) Coated Freesheet Coated Groundwood Uncoated Groundwood Source: RISI page 33

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