Reason to worry, reason to hope

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Some say the worst is over. Others worry more paper mill closings will follow last week’s Bucksport announcement. A look at what the future could hold for Jay and Rumford.

When news broke 10 days ago that Bucksport’s paper mill would close, Ron Hemingway took to Facebook.

“This could be us and we know that,” he wrote.

The union president, who has worked at Rumford’s paper mill for 37 years under a succession of different owners, has worried about his own mill since January.

That’s when Verso, owner of the mills in Bucksport and Jay, announced plans to buy NewPage, owner of the paper mill in Rumford. Hemingway has seen too many mills close after mergers.

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The $1.4 billion sale is currently held up by a Department of Justice anti-trust review, which could find the proposed new company too big and force it to dump one or more mills as a condition of the sale.

At Rumford, the equipment is good. The workers are great.

Hemingway’s trying to be optimistic.

There’s a school of thought that the Bucksport closing might have bought them some time.

Industry watchers say there’s reason to worry and reason to hope.

In the past 10 years, six paper mills have closed in Maine and a seventh isn’t making paper anymore. However, that seventh is adding tissue, a growing market.

And the three that have closed this year are either for sale or in play. They could — could — reopen.

“I think we’re seeing a plateauing,” said Chip Dillon, a partner at Vertical Research Partners in New York and a longtime paper and packaging industry analyst. “It’s not like stagecoach body factories, where they went to zero.”

Paper trail

Maine and paper go way back.

The state’s first mill opened in the 1730s in Westbrook. Back then, paper was made from rags. By 1877, Maine had 35 mills. Employment was as high as 18,000 people until the mid-1980s.

Fewer than 6,000 papermaking jobs remain, according to the Department of Labor’s Center for Workforce Research. 

“Paper, as a whole, is now approximately the size of Maine Medical Center or Wal-Mart (based on number of employees),” said former Maine state economist and University of Maine professor Charles Colgan. “(But) don’t kid yourself — papermaking makes a hell of a lot more money for the economy than Wal-Mart.”

The average weekly wage is $1,287, almost double the statewide average of $746 for all jobs here. Pulp and paper remains one of the state’s top 10 largest industries measured by production. 

Each of the three mills to fold this year had their own reasons, Colgan said.

“Great Northern has been on the rocks for quite a while,” he said.

The East Millinocket mill made newspaper, among other things. Old Town Fuel & Fiber was a pulp mill trying to break into biofuels, but the timing wasn’t right. Bucksport, which Verso plans to shutter in December — putting roughly 500 out of work — faced rising natural-gas bills.

Bucksport lost more than $20 million in one winter due to natural gas prices and “the projection for this winter is even worse,” Verso spokesman Bill Cohen said. (The mill plans to keep its power plant and about 50 people working after December.)

“We are right now caught between a Canadian gas supply that is diminishing and an American gas supply that has yet to arrive in sufficient quantities,” Colgan said. “In the Bucksport case, I think management just decided it couldn’t wait for New England to get its act together to get more gas in and lower prices.”

Maine has eight traditional pulp and paper mills left.

Rumford’s NewPage mill, built in 1901, is among the oldest. It employs about 800 people. Without a half-billion-dollar investment 30 years ago from former owners Boise Cascade, it probably would have closed already, Hemingway said.

Verso’s Androscoggin Mill in Jay, built in 1965, is the second-newest paper mill, and second-largest, according to John Williams, president of the Maine Pulp and Paper Association. The mill in Jay employs about 850 people.

Both specialize in coated paper, the same as Bucksport. Maine’s slower-growing softwoods offer a fiber strength and weight that give it an advantage over Southern softwoods in the publishing industry. Think magazine covers, glossy ads and catalogs.

Then think about the wallop those industries have taken from the Internet.

“That’s where the news gets bad: Nobody needs to read Newsweek anymore,” Dillon said. “They can go online and find out what’s happening every five minutes. That’s why Maine is kind of in the cross hairs.”

Of the paper industry’s three broad specialties — tissue, packaging and communication paper — technology has most affected the latter.

“Technology will not change the fact that kids spill milk, so we need paper towels,” Dillon said. “Until we get into a world of Mr. Spock and Captain Kirk where they beam up, we’re going to need packaging.”

Wisconsin has historically led the country in paper production, ahead of Maine. Jeff Landin, president of the Wisconsin Paper Council, said his mills have a strong mix of tissue and specialty packaging. Fewer than 20 percent specialize in coated paper anymore.

NewPage closed three coated paper mills there in the past five years.

“Even though the market has declined greatly, and I think that it’s half the production in coated to what it was 10 years ago, what we have now is maybe right-sized for where the market is,” Landin said. “It’s been painful, no doubt, for the communities in Maine and Wisconsin that have lost mills; the hope is that the ones that are left … will be able to compete in the economy going forward. They’re part of the survivors.”

‘It could happen anywhere’

Williams shares that optimism, on the whole, though he wouldn’t be surprised to see a Verso-NewPage merger result in a paper line going down somewhere within the new company.

“I have no doubt we’ll have a number of strong mills moving forward for some time into the future,” Williams said. “We probably also will have mills that shut down temporarily or possibly even permanently, but I think that will be a small number.”

Colgan said there were too many factors to forecast job numbers: “Overall, there is a downward trend for the products that Maine makes; overall there is an upward trend on the cost of doing these things in Maine. Those two things suggest that there’s more to come, but the fact that we know where these trends are going means there’s plenty of time to take action to counter them. To shift to new markets, to reinvent technologies. One shouldn’t assume from the trends that the outcome is inevitable. The outcome is inevitable if nobody does anything.”

Rumford and Jay in particular, he said, benefit from hydropower resources, which Bucksport didn’t have, and they burn wood waste for energy.

“They still face the same problem, but they’ve got a little more cushion to sit on than did Bucksport,” Colgan said.

Jay Town Manager Shiloh LaFreniere said her town has to think about economic development in the future and expanding its tax base, which is very reliant on the Androscoggin mill.

Last week’s news won’t affect an ongoing tax dispute between the mill and the town. Verso is looking to significantly lower its tax bill. Jay hired a consultant to offer another opinion on its value and will factor in the state of the industry, LaFreniere said.

Her husband, father and brother-in-law all work at the Jay mill.

“It is very scary to think Bucksport didn’t know it was coming imminently,” she said. “I think everybody thought it might have happened after the merger or there was a possibility down the road. To get the announcement that day and not to have any idea it was coming is a very scary perspective that kind of makes you think, ‘Well, it could happen anywhere.'”

There were broad hints, Cohen said. Several times over several years in front of the Legislature, testifying for different proposals, he said he referred to Bucksport as an “at-risk” mill.

“One of the things that concerned me all along was never to threaten that we would close the mill if something didn’t happen; so by choice, we just used the words ‘at risk,'” he said.

Asked if Jay was “at risk,” or whether workers should be nervous, he considered his words carefully.

“At this point, I would say, ‘Stay focused on your work. Just stay focused on your work and making quality paper,'” Cohen said. “I would not characterize Jay ‘at risk’ today, but I want to be very careful (to say) that I am not familiar with what the Department of Justice is looking at.”

Rumors aside, Verso did not close Bucksport because of the impending sale, he said.

After its closure, some of Bucksport’s work may move over to Jay. And the Androscoggin Mill has to find a new home for the pulp it had been supplying to the Bucksport mill.

In quarterly calls with investors, company officials had made reference to Bucksport losing money, Cohen said. There have been no references in those calls to Jay losing money.

Hemingway, president of Local 900 of the United Steel Workers, said he feels “great sorrow” for workers in Bucksport.

“It’s not just devastating for the families,” he said. “There’s probably six towns around the paper mill that suffer greatly when one of those go down.”

Right now, all of the machines are running at Rumford, and he’s been told orders are decent — both encouraging signs, Hemingway said. However, he still worries about its post-merger fate.

“They typically need to take some paper off the market,” he said. “By taking paper off the market, we know that one or two mills are going to go down. So with Bucksport going down, we just don’t know or trust that this is the end of it. There could be another one. It could be here or it could it be in Wisconsin or Maryland. I’m optimistic we can do well, but I just realize, and I think a lot of people realize, the state of the industry and the market is putting a lot of pressure on us.”

As long as there is mail, coated paper won’t go away, analyst Dillon said. 

Every time he orders something from L.L.Bean, a few pages of specialty inserts fall out of the box, he said. When he doesn’t order for a stretch, a catalog will hit his mailbox. 

“I think those mills are going to be survivors,” Dillon said. “I think that merger (deal) closes. The only real hitch has always been what the DOJ would say. My best guess is the DOJ might make them sell one mill. There will be a willing buyer.”

He and Mark Wilde, a senior analyst covering paper, packaging and forest products for the Bank of Montreal, both said conversion, while costly, may be a partial option for some mills that are shifting to pellet production, pulp-only or tissue.

Dillon saw good news in the Woodland Pulp mill, which stopped making paper and invested in tissue.

“The reality is the trees in Maine are good for making the communication papers that nobody reads anymore. Sorry. That’s how life has evolved,” he said. “The good news for Maine is you do have something completely out of left field happening in the cleaning world. Maine’s trees are also good for tissue; thank goodness people need tissue.”

Wilde cautioned that long term, the trend for coated paper doesn’t look great.

“If demand keeps shrinking, it’s a safe bet that supply is going to have to shrink,” he said.

Looking at Maine mills, he picked Sappi in Skowhegan as “probably about the biggest, newest mill in North America. If you’re looking for the last man standing, that’s probably one of the last guys standing.” 

kskelton@sunjournal.com

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