|Proceedings of the FAO Advisory Committee on Paper and Wood Products (1997)|
|THE STATE OF THE INDUSTRY|
Henson W. Moore
American Pulp and Paper Association, Washington D.C.
The business environment
The current US economic expansion is six years old and already the third longest since the end of the second world war. The duration of this expansion has some analysts concerned that the risk of a recession has increased. However, all prior post-war US recessions have been associated with rising inflation or external shocks to the economy such as the OPEC oil embargo and the Persian Gulf War.
The US inflation is currently running at about 3 percent a year with few signs of a pickup. Commodity prices have remained restrained and, although wages have accelerated during the past year or so, the impact has been muted by a slowing rate of increase in fringe benefit costs, largely as the result of the spread of managed health care services. The strong dollar and excess manufacturing capacity overseas are also restraining domestic inflation pressures.
Current risks to the US economy include record high levels of consumer debt, which could become particularly problematic if the stock market were to decline sharply.
The US economic outlook
The consensus view among US economists is that GDP will increase approximately 2-2.5 percent in 1997, or about in line with last year's performance. However, the uncertainties associated with such a forecast are higher than they were a year ago.
Pulp and paper industry's performance
The US paper and paperboard production rose for the eleventh consecutive year in 1996 to 81.8 million tonnes. However, the gains of the past two years - 0.5 percent in 1995 and 0.8 percent in 1996 - ranged below long-term historical norms as mills and customers worked off excess inventories. Paper and paperboard production growth averaged 2.9 percent a year in the ten-year period from 1985 to 1995.
Paperboard production, which advanced 2.3 percent in 1996, has rebounded more appreciably than paper sector production, which was down nearly 1 percent last year. Still, production of both these major grade categories significantly exceeded year-ago levels in the fourth quarter of 1996 and in January of 1997.
Exports have been an important growth engine for the US paper industry during recent years. In particular, US exports of paper and paperboard rose 10.8 percent (1.1 million tonnes) in 1996 to reach 11 million tonnes. Imports, on the other hand, contracted 8.2 percent (1.2 million tonnes) to a level of 12.9 million tonnes. Taking a longer-term perspective, exports of paper and paperboard rose at a 10 percent average annual rate from 1990 to 1996, while imports trended up 1.5 percent a year.
The US newsprint shipments eased 0.8 percent in 1996 to 6.2 million tonnes, as weak domestic demand was partly offset by an export surge. Shipments of newsprint from US mills to the domestic market declined 6.2 percent last year, while overseas demand for US newsprint jumped 35 percent. Exports accounted for 15.1 percent of US newsprint shipments in 1996. Total newsprint shipments to domestic customers - from US, Canadian, and overseas mills - declined 7.8 percent in 1996 to 10.7 million metric tonnes. Inventory trimming by publishers contributed to lower domestic shipments.
Long-term printing-writing paper growth patterns have been highly positive, with shipments expanding at an average annual rate of 3.6 percent a year from 1985 to 1995. In 1996, however, shipments of printing-writing papers declined 2.1 percent, while domestic purchases (US shipments plus imports less exports) were off 4.8 percent. Market indicators, such as white collar employment growth, commercial printing activity, and mail volume, suggest that printing-writing paper consumption probably held its own in 1996, implying that buyer inventories were being drawn down.
While the year-over-year performance was negative, printing-writing paper shipments finished 1996 on a high note, with the fourth quarter seasonally adjusted level averaging 3.6 percent above the full-year average. Trade developed as a highly positive factor for the US printing-writing paper sector in 1996, with exports posting a 10.6 percent advance and imports falling 8.6 percent.
Unbleached kraft paper shipments declined 3.5 percent in 1996, to 1.77 million tonnes, with most of the slippage attributable to a reduction in multiwall sack demand. Long subject to competition from plastics, the grocers bag and sack category reversed course in 1996 to score a solid gain following a sharp contraction in 1995. Bleached kraft paper shipments fell 2.7 percent in 1996.
Tissue paper production advanced 0.9 percent in 1996 to 5.7 million tonnes, after rising 1.8 percent in 1995. These increases compare favourably with US population growth of about 0.9 percent a year, but range below long-term growth trends for tissue paper production of 2.2 percent a year (1986-95).
Containerboard production rose a brisk 3.9 percent in 1996, as export-related production surged 35 percent, with much of the gain coming from increased kraft linerboard exports. Domestic demand for containerboard registered less momentum, however, rising just 0.4 percent. The fractional increase reflected a 1.4 percent increase in fibre box shipments in conjunction with a partially offsetting decline in inventories.
Boxboard production declined 1.1 percent to 13.1 million tonnes in 1996 following a 3.4 percent increase in 1995. The decline was rooted in three broad product categories: milk carton stock for domestic use, set-up board, and export-related production. Folding boxboard production for domestic use - the largest of the major boxboard categories - rose 1.6 percent in 1996.
The US production of chemical paper grade market pulp declined 8.2 percent in 1996 as mills worked off inventory. Shipments of chemical paper grade market pulp declined by 2.4 percent in 1996, with US mill shipments to the domestic market down 14.3 percent and exports up 3.3 percent.
Preliminary data indicate that the US recovery rate for paper and paperboard measured 44.8 percent (38.4 million tonnes) in 1996, up from 33.5 percent in 1990 and from a revised 44.3 percent in 1995. The US mill consumption of recovered paper rose a vigorous 9.2 percent in 1996, bringing average annual growth for the six-year period since 1990 to 7.9 percent.
Exports of recovered paper, which absorbed 17 percent of total US recovered paper last year, have traditionally been characterized by sharp volatility. Recently, for instance, US recovered paper exports surged from 7.0 million tonnes in 1994 to 9.4 million tonnes in 1995 and then retrenched to 6.5 million tonnes last year. Leading importers of US recovered paper include Canada, South Korea, Mexico, and China.
Pulp and paper capacity growth
The paper industry's commitment to meeting its customers' needs for high quality products is demonstrated by its continuing investment in capacity modernization and expansion. AF&PA's most recent Capacity Survey, released in December, indicates that US paper and paperboard capacity rose 3.5 percent in 1996 and is slated to expanded at a 1.5 percent average annual rate during the next three years. More than half - 55 percent - of the capacity expansions anticipated by the survey will derive from efficiency improvements from existing machines. On a tonnage basis, capacity is expected to rise from 89.9 million tonnes in 1996 to 94.1 million tonnes in 1999. The survey found that market wood pulp capacity will remain essentially stable during the next three years, while recovered paper market pulp capacity will register strong gains averaging 12.6 percent a year, albeit from a small base.
Outlook for paper and paperboard
After lagging behind the economy in 1995 and 1996, US production of paper and paperboard is projected to grow more rapidly than the economy in 1997. The anticipated quickening reflects the winding down of buyer inventory liquidation, particularly with respect to printing-writing papers and corrugated containers. In particular, US production of paper and paperboard is projected to rise in the 3.5-4.0 percent range in 1997, with strong momentum from both the paper and paperboard sectors.
Strong US construction activity in 1996 boosted demand for lumber and wood products, matching the previous record set in 1987. Softwood lumber consumption for the year was estimated at 119.6 million m3. Housing starts totalled 1.433 million units, up over 8 percent compared with 1995. Repair and remodelling projects also accounted for significant increases in wood products demand.
For 1997, most analysts expect housing starts to decline modestly consistent with a view that the economic expansion may soon peak, if it has not done so already. However, there appears little risk of a significant downturn in construction activity and resultant wood demand. The US housing starts continued very strong during the first two months of 1997.
After several years of declining production, the US lumber sector boosted output last year by about 5 percent. In western US, an area of the country most impacted in recent years by reductions in government timber sales, an increase in salvage logging helped contribute to greater raw material supply in the region. The volume of softwood lumber imports into the US - mostly from Canada - increased nearly 5 percent in 1996 while exports were down 2.6 percent (exports represent about one-tenth the level of US softwood lumber imports).
Significant new plant manufacturing capacity in panels, particularly Oriented Strand Board (OSB), has made for a difficult market in North America as industrial supply seems to have outpaced demand for panel products, at least temporarily. OSB continues to displace plywood commonly used for sheathing in the US. Also making significant advances are engineered wood products such as I-Joists, LVL, finger-jointed lumber and glue-laminated lumber, all of which are gaining increasing market acceptance. North American timber supply constraints are such that the market is likely to increasingly turn to these and other wood and non-wood substitutes. Product innovation is one solution to the timber supply problem, but a more rationale strategy to increase productivity from both public and private forest land will be necessary to continue to produce affordable wood products.
AF&PA's sustainable forestry initiative
After two years of development, AF&PA implemented the Sustainable Forestry Initiative (SFI) in 1995. During the development of the SFI, AF&PA reached out to, and incorporated ideas from, its members, the public, State and federal agencies, conservation groups, academicians and others. As a result, the initiative includes an ambitious set of principles and detailed guidelines that require our member companies to reforest harvested land promptly, provide for wildlife habitat, improve water quality and ecosystem diversity, and protect forest land with special ecological significance.
The SFI is the most comprehensive approach to good forest stewardship ever devised and is designed to protect the nation's forests for future generations. This programme applies not only to lands owned by companies, but extends to all US forest lands. Under the SFI our members have committed to promoting sustainable forestry practices on all forests of all sizes - from the National Forests to small, family-owned woodlands that comprise most of the nation's forest lands.
A key component to SFI is full public disclosure as to how our collective membership performs each year. In April 1996 the AF&PA issued the first SFI report to document the industry's progress in meeting its sustainable forestry objectives. The report was reviewed by an independent panel of experts. Panel members include conservationists, foresters and academicians who examine the industry's performance on an annual basis.
The report showed that member companies spent more than US$ 52 million on forest-related research, reforested 1.2 million acres, using natural reforestation on nearly one-third of the acres that were reforested; limited the average size of clear-cuts nation-wide on AF&PA members' lands to 66 acres; and reforested acres harvested by planting or seeding within two years on 97 percent of the acres.
To underscore the importance of the SFI, AF&PA members made compliance a condition of continued membership - and they have strongly enforced this by-law. During 1996, 15 member companies failed to meet by-law requirements for committing to the SFI and their memberships were terminated.
The forest products industry acknowledges that it needs a social license to operate profitably. We understand that we must retain the public's trust to maintain this license and can only do so by demonstrating through our actions that we are committed to continuous improvement. The SFI is our members' action plan for improving forestry.