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The demand for British Columbia kraft pulp Suderman, Henry Leonard 1969

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THE DEMAND POR BRITISH COLUMBIA KRAFT PULP HENRY LEONARD SUDERMAN B.A.Sc, University of B r i t i s h Columbia, 1965 A THESIS IN COMMERCE SUBMITTED TO THE FACULTY OF GRADUATE STUDIES IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION We accept t h i s thesis as conforming to the required sjtandard THE UNIVERSITY OF BRITISH COLUMBIA A p r i l , 1969 In presenting t h i s thesis i n p a r t i a l f u l f i l m e n t of the requirements f o r an advanced degree at the University of B r i t i s h Columbia, I agree that the Li b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r reference and study. I further agree that permission f o r extensive copying of t h i s thesis f o r scholarly purposes may be granted by the Head of my Department or by h i s representatives. I t i s understood that copying or p u b l i c a t i o n of t h i s thesis f o r f i n a n c i a l gain s h a l l not be allowed without my written permission. Department of C(Tvv^™jLruui^ The University of B r i t i s h Columbia Vancouver 8, Canada pate CL^XJC SO / H 9 ABSTRACT i i The major objective of t h i s study was to determine the outlook of the B r i t i s h Columbia k r a f t pulp industry f o r the period 1969 - 1974. To a t t a i n t h i s objective and develop the necessary perspective, the global economy and p a r t i c u l a r l y world trade developments were studied. An h i s t o r i c a l analysis of world economic variables was made and then, where possible, pro-jections Into the future made. Prom these studies, s p e c i f i c a pplications to the B r i t i s h Columbia industry were given. Consequently, the approach of t h i s study was to begin with general global considerations and then proceed to more s p e c i f i c items pertaining to the B r i t i s h Columbia industry. The global demand trends f o r kr a f t pulp were obtained by studying the major k r a f t pulp consuming areas i n d i v i d u a l l y . Other k r a f t pulp producing areas of the world were analyzed to see what portion of poten t i a l demand they would be able to supply on competitive terms with B r i t i s h Columbia. As the perspective of the study narrowed, i t focused on Canada. This country's h i s t o r i c economic and future po-t e n t i a l were analyzed l n d e t a i l . Recent rapid growth trends were noted and t h e i r expansionary e f f e c t on B r i t i s h Columbia's economy noted. This study revealed that previous forecasters generally understated future economic growth, p a r t i c u l a r l y i n the area i i i of world trade. Consequently, a more l i b e r a l a t t i t u d e was adopted i n t h i s a n a l y s i s . On the basis of future reductions i n t a r i f f s , p a r t i c u l a r l y the Kennedy Round cuts i n the pro-j e c t i o n period, the mood of t h i s forecast i s one of optimism. Buoyant economic conditions are projected based on premises that state no abrupt changes i n world a f f a i r s should be ex-pected i n the next f i v e years. Global k r a f t pulp demand i s expected to grow at least at the same rate as the world GNP growth. The growth rate i n economic output has not been too much a l i k e f o r a l l coun-t r i e s and consequently the average global GNP growth has given only a rough i n d i c a t i o n of k r a f t pulp consumption. Disproportionate GNP growth i n the countries i s forecast f o r the next f i v e years. The i n d u s t r i a l i z e d countries w i l l continue to grow f a s t e r than the less-developed countries. Most of the growth i n k r a f t pulp demand w i l l occur i n the I n d u s t r i a l i z e d countries, of which the most promising areas are i n Europe and Japan. Because the t r a d i t i o n a l sources f o r European markets are approaching t h e i r raw ma-t e r i a l l i m i t s , s u b s t i t u t i o n from abroad should occur, con-sequently the demand f o r B r i t i s h Columbia k r a f t pulp should increase at a f a s t e r rate than o v e r a l l global demand. The o v e r a l l growth rate f o r B r i t i s h Columbia k r a f t pulp i s expected to continue close to i t s h i s t o r i c average annual rate of 16%. The growth i n B r i t i s h Columbia however i v has c h a r a c t e r i s t i c a l l y run i n cycles and the secondary trend has been accentuated by industry moods of optimism and pes-simism. In the l a s t two years pessimism r e s u l t i n g from over-supply has tempered the o v e r a l l general growth and a trough i n the c y c l i c a l pattern i s forecast f o r 1970 or 1971. The market i s currently firming; consequently construction and expansion of m i l l s i s expected to accelerate and a peak i n capacity growth should occur i n the l a t t e r portion of the five-year projection period. V TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION 1 Purpose of the Study 1 Background to the Problem. 1 D e f i n i t i o n of "Kraft" Pulp 2 Forecasting Premises 3 A p p l i c a b i l i t y of Previous Studies 5 Limitations of the Study 7 Introduction to the Text 8 I I . ANALYSIS OF GLOBAL KRAFT PULP DEMAND 9 Global Economic Trends.... 9 Past Trends 9 Projected Trends i n Economic and Trade Growth 11 Global Demands f o r Pulp and Paper 14 Past Trends of Global Kraft Pulp Production... 14 United Nations Studies 16 Future Global Demand and Trade 1? I I I . EXAMINATION OF MAJOR KRAFT PULP MARKETS 21 Introduction 21 United States 22 H i s t o r i c a l Trends 22 Future Trends 23 CHAPTER PAGE United Kingdom 26 Japan 27 Common Market • 29 Other Areas 31 IV. MAJOR WORLD KRAFT PULP EXPORTING AREAS 32 Introduction 32 Canada •• 32 United States 34 Scandinavia 40 Union of Soviet S o c i a l i s t Republic (U.S.S.R.)... 42 V. CANADIAN KRAFT PULP INDUSTRY 44 General Economy. • 44 H i s t o r i c a l Economic Growth 44 Trade Patterns. 45 Future Trends 46 Government Studies — The Gordon Report 47 Kraft Pulp Production 48 Domestic Market * .. 52 Domestic Consumption 52 Paper and Board Industry 54 Canadian Kraft Pulp Exports 56 VI. THE KRAFT PULP INDUSTRY OF BRITISH COLUMBIA 60 H i s t o r i c a l Development 60 v i i CHAPTER PAGE The C y c l i c a l Expansion of the Industry 63 Ownership Trends 65 Sales Contracts , 68 Government Services and Regulations 69 Competitive P o s i t i o n of B r i t i s h Columbia M i l l s 70 VII. PROJECTION OP BRITISH COLUMBIA KRAFT PULP INDUSTRY, 1969-197^ 73 Capacity 73 H i s t o r i c a l Capacity 73 Future Capacity 76 Production 78 Prices 81 Exports .8^ VIII. CONCLUSIONS 87 BIBLIOGRAPHY 92 APPENDIX I.. 99 APPENDIX I I . . . 100 APPENDIX III 101 v i i i LIST OF TABLES TABLE PAGE I. B r i t i s h Columbia Production of Kraft Pulp, 1950 - 1968 79 / ix LIST OP FIGURES FIGURE PAGE 1. World Production of Kraft Pulp, 1950 - 1965 14 2. Kraft Exports by Major Producing Areas, 1950 - 1968 33 3 . United States Production of Kraft Pulp, 19^6 - 1967 34 4. Canadian Kraft Pulp Production, 1952 - 1974 50 5. Canadian Exports of Kraft Pulp to Major World Markets, 19^9 - 1 9 6 8 . . . . . 58 6. B r i t i s h Columbia Kraft Pulp Production Capacity, 19^6 - 1972* 7^ 7. Kraft Pulp M i l l s i n B r i t i s h Columbia; E x i s t i n g , Under Construction and Proposed as of March, 1969 75 8. B r i t i s h Columbia Kraft Pulp Production, 1950 - 197^ 80 9. Canadian Average Market Kraft Pulp Prices 19^8 - 1969 82 X ACKNOWLEDGMENT The author i s greatly indebted to Professor James Warren of the Faculty of Commerce and Business Administration, The University of B r i t i s h Columbia. Mr. Warren's guidance, h e l p f u l comments, and c r i t i c i s m of the preliminary d r a f t of t h i s thesis contributed immeasurably to the preparation of the f i n a l d r a f t . 1 CHAPTER I INTRODUCTION A. Purpose of the Study The main purpose of t h i s study i s to forecast the growth of the B r i t i s h Columbia k r a f t pulp industry during the years 1969-1974. Within the framework of t h i s purpose, the domestic industry's p o s i t i o n and growth po t e n t i a l i n the world economy w i l l be analyzed; the h i s t o r i c a l development of the k r a f t pulp industry r e l a t i v e to general economic yard-s t i c k s reviewed; and a projection of probable supply and de-mand conditions a f f e c t i n g the industry f o r the five-year study period made. B. Background to the Problem In the l a s t two decades, k r a f t pulp production has grown at a very rapid rate and has become a major segment of primary industry i n B r i t i s h Columbia. Growth from infancy was characterized by s h i f t s i n s i z e and l o c a t i o n of m i l l s . * Some of the changes caused growing pains f o r the industry. 1 In 1946, there was only 1 m i l l producing k r a f t pulp i n B r i t i s h Columbia. At the end of 1968, there were 15 k r a f t pulp m i l l s i n production. During the development period, there has been a marked s h i f t i n geographical l o c a t i o n ; i n i t i a l l y the m i l l s were located on tidewater. More recently, construction of m i l l s i n the i n t e r i o r has become prominent. 2 Evidence of t h i s are the soft market conditions and depressed prices i n 1967 and I 9 6 8 . 2 The k r a f t pulp industry i n B r i t i s h Columbia i s comprised of many independent producers making v i r t u a l l y undifferentiated products. As the industry expands, each f i r m intent on maintaining i t s competitive p o s i t i o n may expand prematurely and as a r e s u l t there i s p e r i o d i c a l l y over-a l l excess capacity. The k r a f t pulp industry i n the l a s t f i v e years par-t i c u l a r l y has grown at an exceptional rate.^ The expansion has tapered o f f recently because of s o f t market conditions but the industry i s now poised f o r further rapid growth l n the next f i v e years. C. D e f i n i t i o n of " k r a f t " Pulp The word " k r a f t " i s taken from the German and means strong. The exceptional strength of k r a f t pulp i s obtained by Intentionally undercooking chips to produce a dark-coloured pulp. 2 For a discussion of discounts o f f l i s t price f o r the years 1967 and 1968, see Chapter VI, D. 3 Daily production capacity i n the l a s t f i v e years has more than doubled, from 4500 tpd i n 1964 to 10,800 tpd i n 1968. Source: Figure 6, p. 74. 4 For a p r e d i c t i o n of capacity i n B r i t i s h Columbia, 1969-197^ see Chapter VII, Section A. Synonymous with k r a f t pulp i s the term sulphate pulp. Although used interchangeably i n the l i t e r a t u r e , the pulp i n industry i s more commonly referred to as kr a f t pulp than as sulphate pulp. D. Forecasting Premises Forecasting i s an uncertain business. Many variables i n global a f f a i r s , i n t ernational business, economic condi-tion s , and technological developments are involved which a f f e c t the demand f o r a product. The world economy i s constantly changing. Economic theory and fac t are dynamic rather than s t a t i c . The business environment i s one of rapidl y changing technological and mar-keting conditions, of vigorous improvements of labour and managerial s k i l l s , of s w i f t l y changing products and processes. Business i s becoming increasingly interested i n the underlying market forces of demand and supply. Competition and price mechanisms are acquiring l a r g e r rather than reduced r o l e s . There i s greater international economic Interdependence of reduced economic i n s u l a t i o n and i s o l a t i o n , of more d i v e r s i -f i e d trade, of Increasingly int e r n a t i o n a l i z e d business opera-tions of established and active International economic i n -s t i t u t i o n s , and of closer intergovernmental contacts and consultation. 4 I t would obviously be a highly speculative and rather f u t i l e exercise to attempt to assess the l i k e l y impact i n the next f i v e years of each of the following p o t e n t i a l sources of disturbances: demographic changes, wars, technological changes, development of new products, changes i n taste, r e -source discoveries, changes i n trading arrangements, foreign trade developments, factors a f f e c t i n g International c a p i t a l and labour flows, exchange rate changes, domestic and i n t e r -national p o l i t i c a l developments, factors a f f e c t i n g business confidence, the rate of change of the supply of money, and the cost of c a p i t a l . However, i f c e r t a i n premises are stated, some in d i c a -t i o n of possible future events can be given. The premises range from general to s p e c i f i c . There are variables which can cause s h i f t s i n general business conditions of the econ-omy. Then-there are conditions confronting the kraft pulp industry s p e c i f i c a l l y . The general premises are l i s t e d f i r s t : a. There w i l l be no major economic depression s i m i l a r to the kind of 1930. b. There w i l l be no major changes i n government p o l i c y within the Canadian economy. o. Foreign c a p i t a l required f o r expansion of production f a c i l i t i e s w i l l be welcomed by Canada. The exporting coun-t r i e s of t h i s c a p i t a l w i l l not i n t e r f e r e s i g n i f i c a n t l y with 5 t h i s c a p i t a l flowing into Canada. d. Intermediate and consumer demand preferences w i l l con-tinue i n t h e i r present pattern. e. The demand i n foreign countries w i l l not be al t e r e d greatly by payments d i f f i c u l t i e s . Some s p e c i f i c premises re l a t e d d i r e c t l y to the kr a f t pulp industry are that i n the next f i v e years: a. There w i l l be no unforeseeable changes i n pulp supply conditions. b. There w i l l be no major changes i n technology, f o r instance, a change i n source of c e l l u l o s e such as a petroleum base. E. A p p l i c a b i l i t y of Previous Studies Studies of the pulp and paper industry have been pub-l i s h e d i n the l i t e r a t u r e . A United Nations agency has made several studies of global pulp demand.-' These demand pro-jections are of consumer areas, based on indices such as pop-u l a t i o n growth, l i t e r a c y l e v e l s , and Gross National Product. However, growth of world demand i s not d i r e c t l y correlated to the sources of supply, p a r t i c u l a r l y to the supply of B r i t i s h Columbia produced pulp, and so theses studies have 5 The Pood and Agriculture Organization (FAO), an agency of the United Nations, has published several h e l p f u l studies. For instance, see United Nations, Pood and A g r i c u l -ture Organization, World Demand For Paper to 1975. (Rome,1960) 6 l i m i t e d a p p l i c a b i l i t y to t h i s study. However, an i n d i c a -t i o n of t h e i r h i s t o r i c a l accuracy should prove b e n e f i c i a l l n a s certaining future trends. The Canadian and United States governments period!* c a l l y have predicted possible trends i n the forest products industry.^ The Economic Council of Canada, an agency of the Canadian government, has published i n t e r e s t i n g studies on 7,8 future economic trends i n Canada. Local l y , B r i t i s h Columbia Hydro and Power Authority published a useful study several 9 years ago on the B r i t i s h Columbia pulp industry. The l i t e r a t u r e most useful i n forecasting the k r a f t pulp industry's future were the trade journals. The Journals surveyed are shown i n the bibliography. Study of the indus-try's h i s t o r i c a l record was made through government and as-6 Reports such as the one published by the Royal Com-mission on Canada's Economic Prospects, The Outlook f o r the  Canadian Forest Industries (Ottawa, Queen's Pr i n t e r , March, 1957) and s i m i l a r l y by a United States agency, Timber Trends  i n the United States. Forest Service Resource Report No. 17 (Washington: Government P r i n t i n g O f f i c e , March, 19^5) give general projection guidelines. 7 Economic Council of Canada, Annual Review, I-V, (Ottawa, Queen's P r i n t e r , 1964-1968) 8 J.R. Downs, Export Projection to 1970. S t a f f Study, Economic Council of Canada (Ottawa, Queen's P r i n t e r , 1964) 9 B r i t i s h Columbia Hydro and Power Authority, The Pulp and Paper Industry of B r i t i s h Columbia (Vancouver, Canada, 1966) 7 10 s o c l a t i o n s t a t i s t i c s . Additional references are shown i n the bibliography. These readings were h e l p f u l i n making the five-year projection presented here. F. Limitations of the Study The five-year projection w i l l be most accurate f o r the beginning of the period, l e a s t accurate f o r the end of the period. Because of the uncertainties regarding future general economic conditions, government p o l i c i e s , and i n t e r -national conditions, most companies are usually hesitant about planning a c t i v i t i e s more than two or three years ahead.1*'" Even [Proposed expansion plans are subject to change because com-panies n a t u r a l l y want to remain f l e x i b l e under changing con-d i t i o n s . These l i m i t a t i o n s give an i n d i c a t i o n of the q u a l i t y of the predictions. Their i n t e r p r e t a t i o n requires that the reader keep the premises on which they were based i n mind. 10 B r i t i s h Columbia Bureau of Economics and S t a t i s -t i c s , Dept. of Ind. Dev., Trade and Commerce, Summary of  Economic A c t i v i t y ( V i c t o r i a , Queen's P r i n t e r , Published Annually), Canadian Pulp and Paper Association, Reference  Tables (Montreal, Published Annually) 11 For the reaction from industry to i n q u i r i e s by the Economic Council of Canada with respect to future plans, see B.A. Keyes, Special Survey of Longer Range Investment  Outlook and Planning i n Business. S t a f f Study, Economic Council of Canada (Ottawa, Queen's Pr i n t e r , 1964) 8 G. Introduction to the Text The succeeding chapters begin with general considera-tions and then proceed toward s p e c i f i c items. The intent i s to r e l a t e the world economy to the B r i t i s h Columbia k r a f t industry i n a general manner and then to analyze those fac-tors i n depth which have bearing on the industry i n B r i t i s h Columbia. The chapter a f t e r t h i s introduction deals with global economic variables and world demand trends. In the succeeding chapter, the major markets to which B r i t i s h Columbia has ex-ported k r a f t pulp and i n addition has future p o t e n t i a l i s examined. Then, i n the chapter following, the kraf t pulp pro-ducing areas of the world which compete with B r i t i s h Columbia f o r world markets are analyzed. Next, as the perspective i s narrowed, the growth rates and trade patterns of Canada, the p o l i t i c a l and economic e n t i t y i n which B r i t i s h Columbia i s intimately bound, are examined. The following chapter i s a subjective d e s c r i p t i o n of the k r a f t pulp industry i n B r i t i s h Columbia. Focusing on the core of the study, the h i s t o r i c a l capacity, production, and export trends are examined and projected f o r the next f i v e years. A chapter of conclusions ends the study. 9 CHAPTER II ANALYSIS OF GLOBAL KRAFT PULP DEMAND A. Global Economic Trends a. Past Trends The four decades p r i o r to 1910 witnessed a phenom-enal increase i n world economic growth and trade. This trend was reversed by World War I. The dis l o c a t i o n s of that war, the p r o t e c t i o n i s t attitude i n the ensuing decade and the de-pression and int e r n a t i o n a l f i n a n c i a l breakdown during the 1930's caused severe economic dis l o c a t i o n s and large-scale cutbacks i n world trade, p a r t i c u l a r l y f o r manufactured goods. Trade i n secondary Industries recovered i n the 19^0*s but not i n the primary industries. In the 1950»s, trade a c t i v i t y expanded further, p a r t i c u l a r l y trade among i n d u s t r i a l coun-t r i e s which grew at a f a s t e r rate than the ov e r a l l increase i n world t r a d e . 1 The dismantling of trade b a r r i e r s under the General Agreement on T a r i f f s and Trades (which started i n 19^7 and 1 D.W. S l a t e r , World Trade and Economic Growth: Trends and Prospects with Applications to Canada (Toronto, University of Toronto Press, 1968), pp. 3-5. of which the Kennedy Round i s the l a t e s t event) and the establishment of the European Free Trade Association (EFTA) i n the l a t e 1950's created viable areas of economic growth. As a consequence, there were very high rates of growth i n the volume of trade. In the 1960/s, trade continued to ex-pand more r a p i d l y than output, not only i n Europe, but among 2 the I n d u s t r i a l i z e d countries generally. The i n d u s t r i a l countries accounted f o r a s t e a d i l y growing share of world trade. From 1954 "to 1963, imports by i n d u s t r i a l countries grew at an annual rate of 7*7% and those of other countries by 5»5%» The i n d u s t r i a l countries Increased t h e i r share of world imports from 55% i n 1954 to 60% i n 1963.3 A s t r i k i n g c h a r a c t e r i s t i c of world trade was that the i n d u s t r i a l countries tended to export f a r more to the countries within t h e i r own group than they did to le s s developed countries. Eleven i n d u s t r i a l countries (Japan, I t a l y , Germany, Au s t r i a , Belgium, Netherlands, Sweden, Denmark, Switzerland, Norway, and France) increased exports more rapidl y than the 2 Economic Council of Canada, F i r s t Annual Review (Ottawa, Queen's Pr i n t e r , 1964), p. 80. 3 Ibid., pp. 77-79. 11 world average. In contrast, exports from the United States and Great B r i t a i n grew les s r a p i d l y than the world average. The poor countries, because of balance of payments problems, l i t e r a l l y could not a f f o r d to buy very much fini s h e d pulp. While paper and board requirements increased r a p i d l y with educational and economic advancement, t h e i r a b i l i t y to devote foreign exchange to importing a d d i t i o n a l amounts of k r a f t pulp was severely r e s t r i c t e d . b. Projected Trends i n Economic and Trade Growth Expectations f o r free world economic growth i n the next f i v e years are generally expansionary i n nature. The average Gross National Product i s expected to grow at an average rate of between k,0% and i n r e a l terms f o r most 4 of the i n d u s t r i a l i z e d countries of the world. Given these expected growth rates f o r global output, the general expectations f o r future world trade growth are f o r somewhat f a s t e r growth. Many forecasters predict rates of between k% and 5% per annum f o r the f i r s t half of the 1970»s.5 feB.Balassa, Trade Prospects f o r Developing Coun-t r i e s (Homewood, I l l i n o i s , 1964), p. 40 predicts an average growth of 4.2$ between 1970 and 1975 f o r i n d u s t r i a l i z e d countries. 5 W. Beckerman et a l , The B r i t i s h Economy i n 1975 (Cambridge, Cambridge University Press, 1965), p. 68. 12 Trade among the major i n d u s t r i a l countries p a r t i c u -l a r l y should continue to increase at a f a s t e r rate than t o t a l output. This p r e d i c t i o n r e f l e c t s a trend towards increased international s p e c i a l i z a t i o n of production and a growing interdependence between the economies of the world's chief trading nations. The increase i n trade w i l l be greatest among the i n d u s t r i a l l y advanced countries and l e a s t f o r the underdeveloped countries of the world. The balance of pay-ments problem w i l l continue to be the chief reason f o r the l a g i n trade development of the l e s s - i n d u s t r i a l i z e d coun-t r i e s compared to the i n d u s t r i a l l y more advanced countries. There w i l l s t i l l be a very large gap between t h e i r needs f o r foreign exchange and the a v a i l a b i l i t y to them despite a sub-s t a n t i a l program of a i d and private and public development c a p i t a l from the developed countries. To l i m i t further t h e i r prospects f o r trade, the l e s s developed countries have erected 6 This p r e d i c t i o n i s based on the following stimulants to world trade and s p e c i a l i z a t i o n enumerated by the Economic Council of Canada, F i r s t Annual Review (Ottawa. Queen's Pr i n t e r , 1964) which should lead to o v e r a l l expansionary growth: a. Improvements i n the q u a l i t y and cheapness of trans-portation. b. Improved communications. c. A high income e l a s t i c i t y of demand. d. The rapid development of large-scale international companies through v e r t i c a l integration. 1 3 extremely high b a r r i e r s to imports of i n d u s t r i a l products except f o r those items where they have very large competi-t i v e disadvantages. The Kennedy Round talks within GATT did l i t t l e to reduce these b a r r i e r s i n underdeveloped coun-tries.'' Within commodity groups, trade increases are expected to be more rapid i n manufactured goods than i n primary goods. This r e f l e c t s i n part the e f f e c t of reduced t a r i f f s i n the l a t e I960's r e s u l t i n g from the Kennedy Round t a l k s . Within manufactured goods, paper and board growth rates are expected o to grow at a rate of 5*5% annually. Raw material growth rates w i l l be small i n many areas, r e f l e c t i n g increasing fra c t i o n s of r i s i n g incomes spent on services and manufactured goods. However, the prospects f o r the i n d u s t r i a l i z e d world r e f l e c t considerable growth poten-t i a l f o r trade i n other i n d u s t r i a l raw materials, such as k r a f t pulp. The expectation of a continued su b s t i t u t i o n of plastic-chemical-synthetic materials f o r k r a f t pulp based materials i n the next f i v e years w i l l be more than offset by o new end uses of k r a f t pulp. 7 D.W. S l a t e r , World Trade and Economic Growth: Trends  and Prospects with Applications to Canada (Toronto, U. of Toronto Press, 1968), p. 90. 8 Ibid., pp. 62-72. 9 For trends i n conversion and end use, see Chapter I I I , C. 14 B. Global Demands f o r Pulp and Paper a. Past Trends of Global Kraft Pulp Production Kraft pulp production i s a r e l a t i v e latecomer to other pulping processes such as the mechanical and sulphite pulping processes. However, a spectacular Increase i n world k r a f t pulp demand has taken place since the early t h i r t i e s . Prom a pre-war l e v e l of l e s s than 5 m i l l i o n tons i n 1936, world k r a f t pulp consumption rose to over 35 m i l l i o n tons i n 1965. This growth i s shown i n Figure 1 below. 1955 I960 1965 YEAR FIGURE 1 WORLD PRODUCTION OF KRAFT PULP, 1950-1965 Source:. U.S. Pulp Producers Association 15 The post World War II period saw k r a f t pulp demand r i s e r a p i d l y , p a r t i c u l a r l y i n Europe and Japan. A f t e r a temporary slowdown i n 1949» there was a sharp r i s e i n world demand as a r e s u l t of the outbreak of the Korean War. A world-wide shortage of k r a f t pulp occurred i n 1951 a n d re-sulted i n soaring prices on the international market. A f t e r the Korean War, demand subsided and prices s t a b i l i z e d at lower l e v e l s . Then i n 1955 a n d 1956, k r a f t m i l l s again op-erated at or near t h e i r rated capacity i n most parts of the world. In 1957» a recession hitV> North America and brought with i t a sustained l e v e l l i n g o f f i n growth and output. The demand f o r paper f e l l o f f . This coincided with the coming Into operation of a considerable amount of new production capacity which had been planned two or three years e a r l i e r when the industry was operating at i t s rated capacity. In the period of rapid economic growth beginning In 1961, the demand f o r pulp and paper capacity increased s t e a d i l y so that a very firm market had developed by 1966. In 1967 and 1968, the demand leveled o f f as economic a c t i v i t y slowed i t s pace g l o b a l l y . Unfortunately, previous expansion plans were implemented so that large Increments i n capacity resulted at a time of soft market conditions. Indications of recovery i n early 19^9 became evident. b. United Nations Studies 16 Several projections of global demand f o r pulp and paper have been made In the l a s t two decades, c h i e f l y under the auspices of the United Nations. The Pood and Agriculture Organization (PAO), an agency of the United Nations, period-i c a l l y makes pulp and paper demand predictions i n coopera-t i o n with i t s member nations. The objective of these reports i s not to predict the l e v e l s of consumption which are l i k e l y to be obtained but to give a credible picture of what i s l i k e l y to happen under normal circumstances. 1 0 The predicted l e v e l s represent l e v e l s of consumption which might be ob-tained before rather than a f t e r the period indicated. In pred i c t i n g global demand, the PAO has made studies of geo-graphical markets and then consolidated the regional demands into a global demand.^ However, these studies do not con-sider how the t o t a l demand w i l l be s a t i s f i e d by the producer nations. This i s a l i m i t a t i o n i n applying the PAO'studies to a pre d i c t i o n of demand f o r B r i t i s h Columbia k r a f t pulp. 10 The r e s p o n s i b i l i t y of the PAO, according to i t s charter, i s to ensure that the output of the world's f o r -ests, i n quantity and qu a l i t y , r i s e s commensurately with the increase i n the needs of the world's people. 11 The PAO predictions were based on two mathematical models - the l i n e a r l o g rel a t i o n s h i p and the log-normal d i s -t r i b u t i o n . The per-capita income was the main index used to correlate and project per capita paper consumption. 17 A review of projections made by the FAO indicates that the studies have been too conservative. For instance, the FAO made both a conservative and a l i b e r a l estimate of 12 demand i n Europe from 1950 to i960. Even the more conserva-t i v e estimate was surpassed by 1958» Of i t s two global de-mand studies, the 10-year consumption projection was sur-13 passed a f t e r only s i x years. J The main reason f o r t h i s under-estimate i s a t t r i b u t e d to a higher r e a l i z e d rate of global economic growth than had been assumed. A comprehensive projection of world paper demand, pub-l i s h e d i n i960, gave the probable consumption l e v e l s f o r 1965 and 1975. """^  Again the actual consumption of pulp and paper i n 1965 was \$% greater than the most l i b e r a l estimate. c. Future Global Demand and Trade Future global demand i s a composite of each i n d i v i d -ual country's needs. A vari e t y of factors influence a coun-12 United Nations Food and Agriculture Organization, European Timber Trends and Prospects (Geneva, 1953) 13 United Nations Food and Agriculture Organization, World Pulp and Paper Resources and Prospects (New York, 1954) 14 United Nations Food and Agriculture Organization, World Demand f o r Paper to 1975 (Rome, i960) 18 try's a b i l i t y to import resources. Some of these factors are considered here. A country's type and size of indigenous resources are a major f a c t o r i n determining i t s demand f o r kraf t pulp imports. I f the country does not have large forest resources "but has other resources which support i t s general economy, then a good basis f o r trade e x i s t s . For t h i s reason, the i n -d u s t r i a l i z e d countries, e s p e c i a l l y the European countries, are viewed as good po t e n t i a l consumers. A good trade basis i s however lacking f o r many of the underdeveloped countries because they lack products f o r export as a basis f o r trade. With a deficiency of goods f o r exchange, t h e i r consumption of world production i s therefore minimal. The competitive p o s i t i o n of domestic kraf t pulp opera-tions compared with foreign producers at given rates of ex-change a f f e c t s trade p o t e n t i a l . A country l a r g e l y s e l f - s u f -f i c i e n t i n k r a f t pulp production, although contributing to o v e r a l l demand, i s u n l i k e l y to be a c t i v e i n trade. For i n -stance, the United States has a large indigenous industry which s a t i s f i e s many of i t s l o c a l demands i n t e r n a l l y . Con-versely, i n d u s t r i a l i z e d countries such as West Germany and I t a l y which have fast growing needs but lack forest resources necessary f o r domestic production and must import to s a t i s f y t h e i r requirements. Their trade p o t e n t i a l consequently i s a greater portion of t h e i r o v e r a l l demand. 19 The level of trade barriers between trading coun-tries has an effect on both demand and trade. An hypothesis of economic theory states that higher world production i s made possible, and a l l countries can have higher standards of l i v i n g under conditions of freer t r a d e . T o t a l output and also trade as a fraction of total output can be increased by lowering t a r i f f barriers. This is expected to happen with the coming into effect of several stages of the Kennedy Round t a r i f f cuts during the projection period. Their effect should generally Increase global demand and particularly world trade. The Kennedy Round t a r i f f cuts w i l l affect the kraft pulp industry in a particular way. Until now, converted pulp products have been subject to relatively high t a r i f f s whereas unconverted kraft pulp has lower and in some cases, no t a r i f f s . With the reduction of t a r i f f s on converted prod-ucts by many of the importing industrialized countries, changes in the structure of trade patterns w i l l emerge. A readjust-ment in the geographical areas of conversion w i l l result, with the more efficient areas increasing their share of total pro-duction. A positive factor for Increasing global demand should 15 P.A. Samuelson and A. Scott, Economics (Toronto: McGraw-Hill Canada Ltd., 1966), p. ?46. be the r e s u l t of more e f f i c i e n t inter-continental shipping. The introduction of larger ships and superport f a c i l i t i e s should r e s u l t i n comparative cost advantages f o r some of the producer areas. I f these savings are passed on to consumers, then trade i n kr a f t pulp should be spurred. Many consuming areas have u n f i l l e d needs which could be f i l l e d by using k r a f t pulp products. The extent to which these needs w i l l be f i l l e d w i l l depend on the marketing s k i l l s and aggressiveness of the producers and t h e i r organizations i n e x p l o i t i n g these opportunities. The choice of channels of d i s t r i b u t i o n , the use of trade groups and government serv-ices, and the introduction of forward integration w i l l deter-mine the use made of opportunities. The degree of develop-ment of these marketing s k i l l s i n the next f i v e years w i l l influence world demand and global trade. In summary, the future global demand i s the composite of prospective demand l e v e l s i n in d i v i d u a l countries. The future demand and trade p o t e n t i a l i n ind i v i d u a l countries i s dependent on many variables, of which some were introduced here. These factors w i l l be explored i n greater depth l n the succeeding chapters f o r each of the major areas. CHAPTER III 21 EXAMINATION OP MAJOR KRAFT PULP MARKETS A. Introduction The discussion i n t h i s section examines the areas of the world to which B r i t i s h Columbia producers w i l l be exporting k r a f t pulp i n the next f i v e years. In assessing the factors which determine the l e v e l of imports of these areas, questions such as 'how fast are kraft pulp needs l i k e l y to grow i n Individual countries?' and concomitantly ' w i l l the pattern of pulp conversion f o r various paper categories change s i g n i f i c a n t l y ? ' w i l l be answered. These related questions are important because they determine the present and poten t i a l size of national mar-kets. They point to the p o s s i b i l i t y of the t r a d i t i o n a l pro-ducing and exporting regions maintaining t h e i r flow of supplies to other regions while simultaneously s a t i s f y i n g constantly growing demands i n t h e i r own regions. North America, Europe, and Japan are expected to be B r i t i s h Columbia's major markets i n the next f i v e years. North America and Europe consume 85% of the world's paper and board. 1 Together with Japan, which i n the 1960's be-1 United Nations Pood and Agriculture Organization, World Demand f o r Paper to 1975 (Rome, I960), p. 12. came the fas t e s t growing economic area i n the world, Europe and North America are expected to be the dominant consumers of k r a f t pulp produced i n the free world i n the next f i v e years, B. United States a. H i s t o r i c a l Trends Studies of paper and paperboard requirements made i n the 1950's seriously underestimated the needs of the American economy. The Paley Commission expected converted products of kra f t pulp to grow at a rate commensurate with the i n -crease i n GNP, which i t projected to double during the 1950-2 1975 period. A c t u a l l y consumption outpaced the GNP growth and the GNP i t s e l f doubled before 1963. However, even i f only the more conservative projected l e v e l s of demand were reached, the Paley Commission states that the United States w i l l become Increasingly dependent on foreign sources of natural resources. Since i960, t o t a l United States imports have i n -creased by 1.1 m i l l i o n tons or ^7%t which Is i n marked con-tr a s t to the s t a t i c trend that prevailed p r i o r to i960. 2 Resources f o r Freedom, v o l . V, Selected Reports to  the Commission. A Report to the President by the Presidents Material Commission (Paley Report, Washington, June, 195 2), pp. 150-152. ( 23 Most of t h i s gain can be a t t r i b u t e d to imports from Canada. (See Chapter V f o r a discussion of Canadian exports to the United States.) The United States w i l l continue to look f o r imports from Canada not only because of i t s geographic proximity but a l s o because of the substantial equity p o s i -t i o n that American companies hold i n Canadian operations. About one-third of pulp imported from Canada i s captive pulp.^ The unbleached k r a f t pulp sector increased at a par-t i c u l a r l y high rate i n 1968. The o v e r a l l increase i n demand was over 196?, led by an 8.3$ increase i n shipping sack. In early 1969, the stocks i n unbleached kraf t f o r converting use were low and i n some cases c r i t i c a l . This indicates a d e f i n i t e firming of the United States market which had been soft f o r several years. b. Future Trends The United States Gross National Product (GNP) i s ex-pected to increase from $916 b i l l i o n i n 1969 to $1230 b i l l i o n 3 A t a l k given by J.L. R i t c h i e , American Paper I n s t i -tute, to the Canadian Pulp and Paper I n s t i t u t e , Montreal, P.Q., January 30, 1969. 4 A t a l k given by C H . Leach, American Paper I n s t i -tute, to the Canadian Pulp and Paper I n s t i t u t e , Montreal, P.Q., January 30, 1969. 24 i n 1974, an annual increase of 6% i n current d o l l a r s . T h e consumption of kr a f t pulp products i n the United States has h i s t o r i c a l l y p a r a l l e l e d GNP growth and i s expected to do so i n the next f i v e years. The United States Forest Service i n 1968 predicted that the annual demand f o r paper and board i n the United States w i l l grow at 3.3$ annually and reach 70 m i l l i o n tons i n 1974.^ This estimate may be too conservative because h i s t o r i c a l l y the demand f o r wood pulp has increased at a compound rate of 5.2% per year. Two-thirds of t h i s growth has come from Increases i n paper and paperboard production. The s u b s t i t u t i o n of wood pulp f o r other types of f i b r e ac-counts f o r the other t h i r d . Most components of pulp and paper follow trends i n the general economy. A f t e r being l e v e l during the f i r s t part of I969, the general economy of the United States should experience a general resurgence i n the t h i r d quarter of 1969. 5 A pre d i c t i o n made by Predlcasts, Inc., a Cleveland, Ohio organization and reported i n "U.S. Market and How i t W i l l Grow to 1980," Pulp and Paper Magazine of Canada. XLII (September 20, 1968), p. 14. 6 A.W. Wilson, "Surprise Shockers: Proposed 2% Tax and New Safety Law Penalties," Pulp and Paper. XLIII(March 4, 1968), p. 42. 7 An opinion expressed i n an interview by R.V. Hansberger. "Outlook," Pulp and Paper. XLIV (January, 1969). p. 66. This resurgence i s based on the high employment l e v e l i n early 1969. I n f l a t i o n a r y tendencies caused by the strong upward pushes on costs caused by labour increases i n excess of productivity gains temper the growth p o t e n t i a l . Kraft pulp w i l l therefore tend to strengthen and general market prices w i l l be a f f e c t e d upwards. In the next f i v e years there should be an increasing trend towards product conversion. Because of increased com-p e t i t i v e pressures, companies are t r y i n g to get closer to end use and get a higher product value. There are a number of areas of p a r t i c u l a r promise. Large refuse bags, mainly f o r use i n i n d u s t r i a l situations and i n municipalities f o r garbage c o l l e c t i o n are expected to grow f a i r l y r a p i d l y . There i s a large pot e n t i a l i n using kra f t pulp as mulch i n the a g r i c u l t u r e industry. Paper shipping sacks f o r r e l i e f programs are taking over from cartons and burlap bags. In the a g r i c u l t u r e industry wire-bound wooden boxes are being replaced with corrugated paper boxes. There i s also a per-s i s t e n t trend towards packaging consumer items previously sold unpackaged. The greater emphasis on s e l f - s e r v i c e re-t a i l i n g has accelerated a trend towards the use of converted products such as bags, printed wraps, and combination struc-tures.^ 8 A t a l k given by CH. Leach, American Paper I n s t i t u t e , to the Canadian Pulp and Paper I n s t i t u t e , Montreal, P.Q., January 30, 1969. 26 Another large increase in product demand w i l l result from large increases in book publishing. The expansion of enrollment in schools coupled with a large number of school and university graduates w i l l increase the demand for paper. Northern kraft pulp is regarded as an essential ingredient in the manufacture of paper grade materials. Furthermore, there w i l l be rapid growth ln the demand for fine paper used as computer printouts. C. United Kingdom The market potential in the United Kingdom is highly dependent on a return to a stable and viable economy. The United Kingdom has been subject to a number of rigorous deflationary measures over the past three years. These meas-ures w i l l continue into the projection period as most p o l i -cies are aimed at economic retrenchment and consequently a number of British imports w i l l be subject to austerity meas-ures. However, pulp and paper imports are expected to grow at f a i r l y healthy rates in the next five years compared to other imports. Great Britain has very limited pulp production f a c i l i -ties and must import over 90% of the pulp requirements. In 1965, Canada supplied Great Britain with Vv% of the required bleached sulphate, 16% of semibleached sulphate, and 5% of unbleached sulphate imports. These figures represent upward 2? trends i n the proportion imported from Canada.9 These per-centages are expected to r i s e asitraw materials become scarcer i n Scandinavia, which u n t i l now has been the leading source of raw pulp f o r Great B r i t a i n . C. Japan A f t e r a period of s e l f - s u f f i c i e n c y i n the post-war recovery period, 1962 marked a turning point f o r Japan when i t started importing pulp i n large quantities. As per capita income doubled since that year, there has been a very rapid increase i n demand f o r k r a f t pulp. In ascertaining demand potentials from GNP growth, the predictor should bear i n mind that Japan has a much higher paper and board consump-t i o n per capita than would be expected from i t s income l e v e l . Japan has an exceptionally low rate of i l l i t e r a c y i n r e l a t i o n to i t s per capita income. Japan ranks t h i r d i n the world i n the production of paper. The balance of payments, long a thorny issue i n Japan's highly trade dependent economy, i s expected to reach equilibrium i n the f i r s t quarter of 1969. 1 0 The Japanese government i s a c t i v e l y involved i n eco-9 United States Pulp Producers Assoc. Inc., Wood  Pulp S t a t i s t i c s . XXXI (New York, October, 1966), pp. 53-56. 10 " W i l l i t be Pulp or Paper Sold to Burgeoning Japanese Market?" The F i n a n c i a l Post. (Toronto), August 31, 1968, p. 14. 28 nomlc planning. In the next five years, i t expects the de-mand for paper and paperboard to grow at 7»&% annually, the same rate as i t s GNP.11 Japanese authorities say by 197^ 2.05 million tons of pulp could come from Canada, i f Canada can come up with the right terms in price, quality, and timing. The Japanese authorities are anxious to buy their material requirements in the rawest state possible. British Columbia exporters, of course, would like to s e l l pulp in the most finished state. For example, Japan has embarked on a chip-buying program, entering into an agreement to pur-chase substantial quantities of chips from Malaysia, Aus-12 t r a l i a , and the United States for the next several years. To ensure long-term supplies of raw materials, Japanese companies are integrating and merging with raw material producers. Japanese capital i s providing consid-erable backing in the current expansion of production f a c i l -13 i t i e s i n British Columbia. J Japanese importers are not 11 The Financial Post, loc. c i t . 12 Reported in "Tasmania to Become Source for Wood Chips for Japan," Pulp and Paper International, X (May,1968), p. 11. 13 Three mill projects, one completed at Skookumchuck in early 1969 (with tentative plans for expansion), one com-mitted for construction at Ashcroft in 1971-1972 and one tentatively considered at Bella Coola exhibit the recent i n -terest by Japanese investors in Brit i s h Columbia's kraft pulp industry. 29 interested in one-time purchases. Long-term contracts of ten years or more and equity positions in the production f a c i l i t i e s are the terms they are pressing toward to ensure a continuous supply of kraft pulp in the future. E. Common Market In the 1950's» as the Common Market countries re-covered from the ravages of the war and entered a period of sustained economic growth, production of kraft paper and paperboard rose from 365.000 tons in 1950 to almost 600,000 tons in i960. Net imports increased more than thirteen times, from 40,000 tons to over 600,000 tons, as the Common 14 Market countries became more dependent on outside markets. The per capita consumption, s t i l l much lower than in North America, rose 120$. These growth rates have continued through the 1960's and are expected to continue into the early 1970's in parallel with the rapid growth rates pro-jected for the economies of these countries. Besides the general increase in the consumption of paper and paperboard, demand for kraft pulp w i l l grow be-cause of the substitution effect of using sulphate (kraft) pulp instead of sulphite pulp. In the 1950's, there was a 14 A. Sundelin, Pulp and Paper Prospects In Western Europe (Munich, United Nations Publication, 1963), PP. 6-8. 3 0 marked increase in the consumption of sulphate pulp per ton of paper and board and a somewhat smaller decline in the use of sulphite pulp. The small, old sulphite mills in the Com-mon Market countries are steadily being shut down as they can no longer compete with the newer, larger sulphate mills. The consumption of bleached sulphate pulp per capita is es-timated to have been 70 kilograms in i960, 110 kilograms in 1965, and should rise to 170 kilograms in 197^ in the Common Market countries. 1^ Between I969 and 197^* GNP growth is expected to be 4.0 to 4.5$ for the Common Market countries. The require-ments for paper and board are expected to rise by 5.0%.^ Most of the increasing needs w i l l have to be imported and as it s historical source, the Scandinavian countries, reach their raw material limits, the Common Market countries w i l l be looking increasingly to North America, especially British Columbia, as a new raw material supply base. 15 W.E. Haviland et a l , Trade Liberalization and the  Canadian Pulp and Paper Industry (Toronto. University of Toronto Press, 1968), pp. 28-39. 16 Loc. c i t . 31 F. Other Areas Areas other than the United States, the Common Market, and Japan have never imported more than 20% of Canada's k r a f t exports. 1'' They are not expected to increase t h e i r imports too much i n the next f i v e years. These areas are t y p i c a l l y the underdeveloped countries and beset by balance of pay-ments problems, these countries w i l l not be able to a f f o r d very much f i n i s h e d pulp. Some very modest aggregate i n -creases are expected because some northern bleached kraft i s ess e n t i a l to make high q u a l i t y p r i n t i n g , writing, and fin e paper. Predictions of imports into Asia and A f r i c a are d i f -f i c u l t to make; but, despite t h e i r large populations, exports to these areas are not expected to increase noticeably. Aus-t r a l i a and New Zealand have t a r i f f protected indigenous i n -dustries although A u s t r a l i a imports pulp from Canada f o r ce r t a i n grades of paper and board. The demand i n L a t i n America i s growing but i s not expected to surpass greatly i t s domestic production capacities. 17 Canadian Pulp and Paper Association, S t a t i s t i c a l  Report (Montreal, January, I969). 32 CHAPTER IV MAJOR WORLD KRAFT EXPORTING AREAS A. Introduction There are presently four countries that are the chief exporters of k r a f t pulp. They are i n order Canada, Sweden, Finland, and the United States. A f i f t h , the U.S.S.R., may at some future date become a major competitor on the world export scene. An analysis of the industries i n these coun-t r i e s and t h e i r export potential i s given i n the next two chapters. Figure 2 on the following page l i s t s the r e l a t i v e importance of the major exporting countries. Canada's r i s e as the major exporting country i s dramatically shown. Sweden, which i n the post-war decade was the major exporter, follows a f t e r Canada. Finland ranks t h i r d . The United States, the major kraft pulp producer i n the world, i s only fourth l n exports. B. Canada The industry i n Canada i s discussed i n greater de-t a i l than the other countries i n the following chapter. This was considered necessary because B r i t i s h Columbia i s so i n -timately bound within the Canadian economy. 33 w o c o •H iH ^ 2 to O X r 4 0 United States 1950 1955 I 9 6 0 1965 YEAR Sources: Canadian Fulp and Paper Association U.S. Pulp Producers Association FIGURE KRAFT EXPORTS BY MAJOR PRODUCING AREAS, 1 9 5 0 - 1 9 6 8 C. United States The United States h i s t o r i c a l l y has been a major kraft pulp producer i n the world (see Figure 3» below). ol I 1— I L 1 1950 1955 i960 1965 YEAR FIGURE 3 UNITED STATES PRODUCTION OF KRAFT PULP, 19^6 - I967 Source: U.S. Pulp Producers Association 35 Since 1945, k r a f t pulp production i n the United States has increased f i v e - f o l d , reaching 22,750,000 tons i n 1967. For several years a f t e r the war, there were several spurts i n increases of supply, followed by steady growth from 195 2 to 1956. The economic recession i n 1957 and 1958, the most severe i n the United States since the depression, resulted i n a sharp curtailment of production growth. Since 1959 however, growth has increased s t e a d i l y at 6.9% annually. Coinciding with the large expansions i n the southern United States, exports recently have become s i g n i f i c a n t . The United States exports of k r a f t linerboard have shown an impressive growth of 100,000 tons annually In recent years, r i s i n g from 525,000 tons i n 1963 to 1,175,000 tons i n 1967. 1 Linerboard exports now comprise 56% of the t o t a l United States exports of paper and paperboard. I f t h i s rate con-tinues, linerboard exports should reach 1.88 m i l l i o n tons i n 1974, a 6.85$ compound annual growth rate. There i s a marked reduction i n new capacity scheduled to come into operation during 1969, r e l a t i v e to the trend of the preceding year (See Appendix i ; ) . About 90% of the t o t a l wood pulp capacity coming into operation i n the United States during the I966-I969 period w i l l be on stream by the end of 1968. 2 In unbleached kraf t paperboard, 97% of the t o t a l ex-1 "Paperboard Export Growth," Southern Pulp and Paper  Manufacturer, XXXI (September 10, 1968), p. 36. 2 Loc. c i t . 36 pansion In capacity scheduled f o r the 1966-1969 period was i n s t a l l e d by the end of 1968. Data a v a i l a b l e on new capacity scheduled f o r 1970 i n -dicate that the slowdown w i l l continue i n that year, although new kr a f t pulp equipment added i n 1970 w i l l be greater than i n 1969.-^ The rates f o r both 1969 and 1970 are well below those of the two previous years and well below the growth rate needed to keep production along i t s long-term growth trend. The cutback i n capacity expansion plans resulted from pessimism generated by the fact that operating r a t i o s were l n the mid-80's f o r 1967 and 1968. Another factor that probably had some impact upon the slowdown i n the rate of growth of capacity during 1969 and 1970 was the behaviour of p r o f i t s i n the industry r e l a t i v e to investment. A f t e r 1957, following a decade of f a i r l y high returns on investment, there was a sharp drop i n p r o f i t s and a r e l a t i v e l y low rate of return prevailed u n t i l 1965. The higher rates of return i n 1965 and 1966 coincided with higher production r a t i o s but there were lower returns on investment i n 1967 and 1968.^ 3 "Paper and Paperboard Capacity, 1967-1970," Southern Pulp and Paper Manufacturer. XXXI (December 10,1968), p. 61. 4 E.A. Locke, "The Rate of Return - and What We Can do About i t , " Southern Pulp and Paper Manufacturer. XXXI (November 10, 1968), p. 68. There has been a marked s h i f t i n geographical areas f o r k r a f t pulp production i n the post-war period. In 1 9 4 6 , the New England, Middle A t l a n t i c , and North-Central States accounted f o r 6 4 $ of the output, the South 2 8 $ , P a c i f i c States 8$. By 1963, the New England, Middle A t l a n t i c , and North-Central States had dropped to 44$, while the South and P a c i f i c States had r i s e n to 43$ and 12$ respectively. The half-decade since 1963 has been a period of major growth f o r the kr a f t pulp industry i n the twelve southern states, with production expected to reach 23.6 m i l l i o n tons i n I969. Unbleached sulphate wood pulp accounts f o r the major part of the wood pulp capacity i n the southern United States (6l$ as of the end of 1966). The bulk of the expansion to 1971 i s al s o scheduled f o r thi s grade (2.4 m i l l i o n tons, or roughly two-thirds of the t o t a l ) . The South accounted f o r 70$ of the 7 m i l l i o n tons of new kr a f t pulp capacity from 1967 to 1969 i n the United States.^ The strong growth shown i n exports of k r a f t llnerboard i n 1967 and 1968 would not have been possible without the new capacity that has been i n s t a l l e d i n the South. The Southern m i l l s , designed to use the l a t e s t tech-no l o g i c a l techniques, are located i n a region of fast-growing timber. Southern Pine i s the main species pulped although 5 Locke, l o c . c i t 38 over hal f of the forested lands are held by small owners and on these lands v i r t u a l l y no s a t i s f a c t o r y forestry i s being practised.^ The southern states have ample fresh water and cheap hydro-electric power. Its warm year-round climate a l -lows plant equipment to be more exposed r e l a t i v e to northern climates and therefore c a p i t a l costs per unit are less a l -though maintenance costs may be higher. Based on 1964 data, i t was established that the United States South had a m i l l -cost advantage over eastern Canada i n linerboard and bond paper.? Furthermore, a DBS study of productivity trends be-tween 1947 and 1961 revealed that productivity i n the United States industry increased more than twice as fast as i n Canada.^ Continuing an h i s t o r i c a l trend, there should be more sub s t i t u t i o n of k r a f t pulp f o r sulphite pulp. In 1968, there were 29 sulphite m i l l s i n the United States, each under 6 United States National Research Council, Renewable Resources (Washington: Government P r i n t i n g O f f i c e , 1962), pp. 42-43. 7 W.E. Haviland et a l , Trade L i b e r a l i z a t i o n and the  Canadian Pulp and Paper Industry (Toronto. University of Toronto Press, 1968), pp. 40-51. 8 Loc. c i t . 39 50,000 tons capacity and these are prime candidates f o r early closure. Their closure means that t h e i r markets to a degree can be taken over by kraft pulp producers. A fa c t o r which could have a retarding e f f e c t on future expansion has been the r e l a t i v e low rate of return of the American pulp and paper industry (approximately 9% i n the l a s t few years which i s considerably below a number o of other major i n d u s t r i e s ) . The low p r o f i t s resulted from the desire of many companies to maintain competitive status i n tonnage output and t h e i r resolve to t i e down the few re-maining prime s i t e s f o r integrated paper m i l l s . This p o l i c y has resulted i n lower pulp pri c e s ; consequently investment inter e s t from the money markets has also been reduced. In order not to discourage c a p i t a l investors further, pulp company managers are becoming more p r o f i t conscious. The trend i n the next f i v e years should be f o r more conservative expansion plans as management t r i e s to increase the return on investment. Announced plans f o r expansion are shown i n Appendix I. These announced plans i l l u s t r a t e the slowdown i n expansion expected i n the next f i v e years. 9 E.A. Locke, "Emerging Managerial Attitudes i n the United States Paper Industry," (a ta l k given to the Canadian Pulp and Paper Association, Montreal, P.Q., January 30, 1969) 40 D. Scandinavia Sweden and F i n l a n d are the major kraft pulp producers i n Scandinavia. Norway, which produces mainly mechanical and sulphite pulp, produces and exports very l i t t l e k r a f t pulp. Sweden i s the leading producer i n Europe and i s highly dependent on export markets. Between 1950 and I960, Sweden exported approximately the same volume of kraf t pulp as Canada. However, i n recent years, i t has f a l l e n behind as Canada accelerated her export volume (see Figure 2, p. 33) ). There i s a trend underway i n Sweden and Finland to-wards integrated operations with a greater proportion of the pulp converted domestically. Growth l n Sweden i s ex-pected to increase s t e a d i l y i n the next f i v e years but at 10 a slower pace than i n Canada. Finland's r i s e to prominence i n world paper and board markets began i n 1938. In the post-war period, Finland's production and exports consistently have been s l i g h t l y less than two-thirds of the Swedish figures. The balance of pay-ments d e f i c i t since the mid-sixties has been Finland's most serious p r o b l e m — i t had to devalue i t s currency 23.8$ i n 10 A 250,000 tpy bleached k r a f t m i l l i s scheduled f o r 1972. Additions to seven other e x i s t i n g m i l l s are planned i n the next f i v e years. Source 0. Ahdersson, "Sweden: Moves toward more integrated m i l l s , " Pulp and  Paper. XLII (July 15, 1968), p. 102. 41 October, 196?. The announced expansion plans i n Finland are not very extensive f o r the next f i v e y e a r s . 1 1 Both Finland and Sweden have centralized Industry as-sociations. In the face of tightening competition, the F i n -nish industry has the advantages of centralized export sales which enable i t to o f f e r a wide range of produce mixes and technical services. Sweden's c e l l u l o s e , papermill, and wood pulp associations merged recently. These associations have a l s o integrated t h e i r research groups into one co-ordir 12 nated research e f f o r t . Both Finland and Sweden regard the United Kingdom as t h e i r most important export market. They both currently ship 25$ of t h e i r t o t a l exports there. A f t e r the United Kingdom, the i n d i v i d u a l countries of the Common Market f o l -low as the major export markets f o r Finnish and Swedish kraft pulp. The European Economic Community markets are v i t a l to the Scandinavians and they tend to regard them as primarily t h e i r s . This a t t i t u d e i s reinforced by the prod-13 uct up-grading and forward integration into the market. 11 Andersson, Pulp and Paper. XLII (July 15. 1968), p. 100. 12 Ibid., p. 102. 13 W.E. Haviland et a l , Trade L i b e r a l i z a t i o n and the  Canadian Pulp and Paper Industry (Toronto, U. of Toronto Press, 1968), pp. 70-76. 0 42 However, as these Scandinavian countries, particularly Finland, reach the limit of their raw material resources, future expansions in demand in the European markets w i l l have to be satisfied from abroad, particularly from the American South and from British Columbia. E. Union of Soviet Socialist Republic (U.S.S.R.) The Soviet pulp Industry has one great advantage over everyone else. Its reserves of wood represent about 30$ of the world's forest lands which is four times Canada's 14 reserve. The industry in Russia is now growing rapidly: production in the pulp and paper sector is expected to jump from 3,230,000 tons in 1965 to 8,000,000 tons in 1970. 1 5 Russia's ultimate aim apparently is to become a major exporter of kraft pulp. However, It is unlikely to happen during the next five years. Russia lacks trained labour; moreover, i t has a large domestic market whose demand is l i k e l y to consume most of i t s production. Per capita con-sumption now is only 50 lbs. annually but western marketing influences in terms of distribution and packaging, education, 14 Canadian Pulp and Paper Association, Reference  Tables (Montreal, July 1967), p. 30. 15 "The Soviet challenge to Canada's export pulp market," Pulp and Paper Magazine of Canada. LXIX (January 5, 1968), p.~4lt and technology w i l l force domestic demand higher i n the next f i v e y e a r s . ^ Taking the above factors into considera-t i o n , i t i s u n l i k e l y that the Soviet Union w i l l be able to provide competition f o r Canada i n the export markets. 16 "The Soviet challenge to Canada's export pulp market," Pulp and Paper Magazine of Canada, LXIX (January .5. CHAPTER V 44 CANADIAN KRAFT PULP INDUSTRY A. General Economy a. H i s t o r i c a l Economic Growth Canada's economic experiences have r e f l e c t e d many of the world trends. At the same time, they have shown considerable divergences from these trends. Canada's GNP has grown at 3*5$ annually i n r e a l terms i n the past t h i r t y years. During t h i s time, i t s economy has been growing at a f a s t e r rate than the United States economy. I f Canada continues to grow at a f a s t e r rate than the United States, and there i s reason to believe that i t w i l l continue to do so, the average income and stand-ard of l i v i n g i n the two countries should approach each other c l o s e l y . The growth i n the l a t e r 1950 fs was quite slow, f o l -lowing i n the wake of the recession i n the United States. However, Canada's growth rate from 1962 to 1966 was very rapid, mainly because i t absorbed substantial economic slack present at the beginning of the decade. The growth has slackened somewhat i n the l a t e 1960's but i s s t i l l at a high l e v e l . Growth i n 1968 was 4.7$ i n r e a l terms. 45 b. Trade Patterns Canada's trade trends also have been influenced by world developments i n trade but again have shown divergences which make Canada's trade trends unique. In the 1950's, Canada experienced very slow trade growth compared with the trading and growth experience of many other countries. This continued into the early 1960's. One important q u a l i f i c a t i o n , e s p e c i a l l y applicable to our study, i s that i n contrast with general world trends, the proportion of Canada's exports represented by raw materials did not decline during t h i s p e r i o d . 1 However, i n the mid-1960 's Canada's trade growth surpassed that of many indus-t r i a l countries. The exports from Canada h i s t o r i c a l l y have been pre-dominantly food, raw material, and processed materials. These categories have become a smaller part of world trade. In the face of t h i s trend, Canada however, has been able to pick ,up an increased share of world trade i n raw and pro-cessed materials. In the past decade, about 85$ of Canada's exports have gone to the Ind u s t r i a l i z e d countries. Exports to these 1 D.W. Slater , World Trade and Economic Growth:  Trends and Prospects with Applications to Canada (Toronto, University of Toronto Press, 1968), pp. 40-45. 46 markets increased from s l i g h t l y more than $3.5 b i l l i o n i n 1954 to $5.8 b i l l i o n i n 1963. c. Future Trends The Economic Council of Canada predicts a 4 3/4 % growth rate f o r GNP annually between 1970 and 1975 i n r e a l terms. This high growth rate i s based on a high growth rate of the labour force and potential employment during t h i s p e r i o d . 2 A s i g n i f i c a n t part of Canada's international compara-t i v e advantage w i l l continue to l i e i n the output of primary and processed i n d u s t r i a l materials. Therefore, despite these categories* shrinking portion of o v e r a l l world trade, Canada's share should Increase at a f a i r l y high rate. The absolute value of the primary and processed i n d u s t r i a l ma-t e r i a l s should grow su b s t a n t i a l l y on the basis of the high rates of growth projected f o r the i n d u s t r i a l countries. Growth i n wood products p a r t i c u l a r l y should be substantial because raw materials are becoming scarce i n most other i n -d u s t r i a l countries.^ 2 Economic Council of Canada, Fourth Annual Review (Ottawa: Queen's Pr i n t e r , 1967). P. 89. 3 Economic Council of Canada, Third Annual Review (Ottawa: Queen's Pr i n t e r , 1966), p. 30. 47 B. Government Studies — The Gordon Report In common with other forecasters of the 1950's, the Gordon Royal Commission s i g n i f i c a n t l y underestimated pro-4 spective growth i n foreign trade. The forecasts of the Com-mission concerning the world economy and Canada's foreign trade have thus f a r s i g n i f i c a n t l y underestimated the actual trend. Furthermore, i t forecast slower growth generally i n foreign trade than i n output f o r the Canadian economy. Ac t u a l l y , so f a r i n the forecast period, both exports and imports have a c t u a l l y grown more rapidl y than output.^ The Commission's pessimistic outlook was based on the b e l i e f that world trade and payment ba r r i e r s would remain substan-t i a l l y unchanged and that there would be l i m i t e d flows i n private international c a p i t a l (on which the development of production f a c i l i t i e s f o r B r i t i s h Columbia k r a f t pulp heavily depends). The Commission's Report pointed out the great re-duction that had taken place i n private international capi-t a l flows and doubted that these flows would regain t h e i r older r o l e . However, t h i s l a s t decade has seen large sums 4 A.A. Shea, Canada 1980. A Digest of the Gordon Report, The Royal Commission on Canada's Economic Prospects (Toronto: McClennan and Stewart, i960), p. 21. 5 D.W. Sl a t e r , World Trade and Economic Growth:  Trends and Prospects, with Applications to Canada (Toronto, University of Toronto Press, 1968), pp. 77-83. 48 of i n t e rnational c a p i t a l f o r development flow into Canada. The Commission underestimated o v e r a l l growth i n world out-put and trade, rather than Just f o r p a r t i c u l a r export cate-gories.^ Within t h i s context, the projected compound annual growth rates of wood pulp f o r 1955 to 1980 were 3.1$. The actual annual growth rate from 1955 to 19^5 was 5.4$.? C. Kraft Pulp Production Kraft pulp was f i r s t produced i n Canada i n 1908.. Production between 1908 and 1912 was 5 thousand tons an-nually. I t ranged between 200 and 250 thousand tons annually i n the 1920 ,s. Production dropped during the depression, 6 This extremely conservative view of world trade prospects was based on the following premises: a. "The deliberate pursuit of full-employment p o l i c i e s (by foreign countries) and the fact that the highest l e v e l at which they can be implemented i s at the l e v e l of national p o l i c y , mitigates against a reduction l n trade r e s t r i c t i o n s . " b. "Underdeveloped countries would be unwilling to dispense e n t i r e l y with protective devices to encourage the new i n -dustries that they wish to es t a b l i s h . " c. "The net e f f e c t of defence arguments has been to make trade more d i f f i c u l t . " 7 D.W. Sla t e r , World Trade and Economic Growth:  Trends and Prospects with Applications to Canada (Toronto,, University of Toronto Press, 1968), p. 82. 8 W.H. S h e r r i f f , WayaRamack. a Romance of Canada (Privately published at Three Rivers, Canada, 1924) 49 then b u i l t up slowly i n the l a t e 1930's. War spurred a production increase from 300 thousand tons i n 1939 to 500 g thousand tons i n 1945. Production volume i n the post-war period i s shown In Figure 4, next page, on a semi-log scale. The post-war production growth has been very healthy. There was a sharp increase i n demand caused by the outbreak of the Korean War. Then between 1952 and 1964, the annual increase was a very consistent 10$. This growth i s twice the 4.5$ growth ex-perienced by the rest of the pulp industry. From 1964 to 1968 ( r e f l e c t i n g p a r t i c u l a r l y the rapid growth i n the B r i t i s h Columbia industry), growth accelerated at an even f a s t e r rate — 15.2$ annually. A large percentage of this new pro-duction has been sold as market pulp. In i960, only one-t h i r d of the white paper grade pulp was sold as market pulp. By 1968, market pulp accounted f o r h a l f of the t o t a l produc-t i o n of these grades. 1^ However t h i s statement has to be q u a l i f i e d because some of the pulp now c l a s s i f i e d as market pulp i s a c t u a l l y moving to offshore a f f i l i a t e d companies and so the s h i f t has not been as dramatic as the figures suggest. 9 Canadian Pulp and Paper Association, Reference  Tables (Montreal, 1947) 10 Ian B. Chenoweth i n a t a l k "Canada's Place i n the World Fibre Economy" to the American Paper Inst i t u t e (New York, February 18, 1969) 5 0 110,000 1000 100 CANADIAN KRAFT PULP PRODUCTION 1952-1974 Total / — -— Bleached t Semibleached —.. Unbleached 1 1 i 1 1 9 5 0 1 9 5 4 1 9 5 8 1966 1970 1962 YEAR -Source: Canadian Pulp and Paper Association FIGURE k In the i n i t i a l post-war period, two-thirds of a l l Canadian k r a f t production was unbleached kra f t pulp. Its growth, however, has been the l e a s t spectacular of the three pulp categories. Unbleached kraf t has increased at an aver-age annual rate of only 5.3$. Moreover, growth through 1967 and 1968 became n e g l i g i b l e . This r e f l e c t s the increasing competition from the United States South which i n recent years has increased i t s unbleached kra f t production at a very high rate (See Chapter IV, c ) . The United States ap-pears to have a comparative advantage i n unbleached kraft pulp which i t has exploited i n the 1960's. The United States industry now s a t i s f i e s much of i t s domestic market which e a r l i e r depended on Canadian imports. This develop-ment has been r e f l e c t e d i n the Canadian production of un-bleached k r a f t pulp. The main production growth has been i n the bleached and semi-bleached sulphate sectors which have increased ra p i d l y . Prom 195 2 to 1966, bleached sulphate production increased s t e a d i l y at 11.6$. Then, a f t e r v i r t u a l l y no growth i n 1967, production soared 44$ from 1967 to 1968. Although i n absolute amount semi-bleached kraft production s t i l l i s less than 20$ of the t o t a l sulphate out-put, i t s growth rate has been the most spectacular of the three categories. Before 1957, less than 100,000 tons of semi-bleached pulp was produced annually i n Canada. Growth since then has averaged 2 2 $ annually. This increase stems from product up-grading, where previously the converted product was manufactured from unbleached k r a f t , i t now i s made from semi-bleached k r a f t . D. Domestic Market a. Domestic Consumption Canadian consumption of paper and paperboard has i n -creased from 280 l b s . per capita i n i 9 6 0 to 348 l b s . per capita i n 196?, a 24$ o v e r a l l increase. Considering that Canada's population has grown at a f a i r l y substantial rate i n t h i s period, i t i s apparent that the domestic market, although small compared to the United States market has a good future p o t e n t i a l . The t a r i f f - p r o t e c t e d grades of paper, concentrated mainly i n eastern Canada now comprise 2 6 $ of t o t a l national production versus 2 3 $ of production a f t e r World War I I . 1 1 However, imports of paperboard, wrapping paper, and s p e c i a l i n d u s t r i a l papers have been expanding f a s t e r than exports since 1945. 11 W.E. Haviland et a l , Trade L i b e r a l i z a t i o n and  the Canadian Pulp and Paper Industry (Toronto. University of Toronto Press, 1968), p. 2 3 . More recently, the t o t a l Canadian demand f o r a l l grades of k r a f t paper increased by only 1$ between 1967 and 1968. With the GNP growth at 4.7$ i n r e a l terms f o r 1968, the domestic growth was well below the economy average. Semi-bleached kraf t demand was up but both bleached and un-bleached k r a f t demand were down. Within the converted products, recent trends show multiwall-sack kra f t down 8.9$ and paperboard at 1,603,000 tons i n 1968 increased 3$ over 1967. Containerboard showed a 3.6$ increase while boxboard at 589.000 tons gained only 1.9$. The production of bleached and semi-bleached sulphate including bleached hardwood, amounted to more than 4.5 m i l -l i o n tons i n 1968, representing an o v e r a l l increase of 27$ or 980,000 tons from 1967. This substantial increase re-f l e c t e d the upsurge In North American demand f o r most grades of paper and board i n the k r a f t packaging f i e l d s . The strong overseas markets accounted f o r nearly one-half of the increase. Semi-bleached and bleached hardwood kraft pulp p a r t i c u l a r l y are taking over from sulphite pulp as a newsprint additive i n eastern Canada. In 1968, bleached hardwood accounted f o r 12$ of the t o t a l bleached sulphate production. 5 4 b. Paper and Board Industry U n t i l now, the domestic paper and board industry has supplied Canadian consumers with the same variety of prod" ucts and q u a l i t i e s as demanded by consumers l n the United States. This has necessitated short production runs and In many instances high costs. Industry s u r v i v a l depended on f a i r l y high t a r i f f rates. The industry's p r o f i t picture has not been too bright. Producers who have had a large stake i n the protected grades generally experienced a poor p r o f i t record. Their return on equity has fluctuated between 3 and 9% i n the l a s t dec-ade. This compares unfavourably with firms which are both integrated and concentrated on newsprint and pulp. These companies have been able to maintain, with few exceptions, 12 rates of return on equity at 10$ or above. The next f i v e years should see a large-scale r e-structuring of the t a r i f f - p r o t e c t e d segments of the indus-t r y , concentrated mainly i n eastern Canada. Some phases of the t a r i f f cuts from the Kennedy Round w i l l come into effect during t h i s period. 12 Haviland et a l , Trade L i b e r a l i z a t i o n , pp. 18-27. 55 Given a greater l o w - t a r i f f market, and conversely having to compete with producers i n these potential mar-kets, the domestic converting industry w i l l be forced to s p e c i a l i z e i n order to achieve competitive costs under free trade conditions. The r e s u l t may be that production of some grades of paper may have to be discontinued i n Canada. Some mi l l s w i l l have to be relocated, others consolidated, some ©etven closed. The major re-adjustment w i l l be i n Quebec and O n t a r i o . ^ The economies of adjusting to a f r e e r trade s i t u a t i o n w i l l have to be analyzed from each m i l l i s point of view, and the conclusions f o r each may d i f f e r s i g n i f i c a n t l y . These changes w i l l come hard, and they w i l l be expensive. How-ever, by 1974, Canada should be able to compete i n c e r t a i n grades of writing paper, reproduction papers, linerboard, 14 corrugating medium, and unbleached k r a f t paper. S p e c i a l i z a t i o n alone i n response to the Kennedy Round t a r i f f cuts w i l l not be enough. Marketing also w i l l have to be re-organized and formidable obstacles overcome. Because of the importance of t i e d sales, converting f a c i l i -13 Haviland et a l , Trade L i b e r a l i z a t i o n , pp. 77-79. 14 Ian B. Chenoweth i n a t a l k "Canada's Place i n the World Fibre Economy" to the American Paper In s t i t u t e (New York, February 18, 1969) t i e s and marketing outlets w i l l have to be acquired i n the export markets of the United States and Europe. There are now f i v e Canadian pulp and paper companies which have i n -vested overseas, mainly i n the United Kingdom and Western Europe as a means of d i v e r s i f i c a t i o n , and of obtaining t i e d markets f o r t h e i r products. E. Canadian Kraft Pulp Exports Canada has exported over h a l f of her kraf t pulp pro-duction. (See Appendix II) Since the m i d - f i f t i e s , about 60$ of her t o t a l production has been exported. Within the three categories, a larger percentage of bleached kraf t i s exported, whereas a smaller proportion of semi-bleached and unbleached kraf t pulp production are ex-ported. Only one-third of the unbleached kraft pulp pro-duced has been exported d i r e c t l y . The rest i s converted domestically or used as newsprint furnish. Overall exports of k r a f t pulp grew at a steady rate of 10.8$ between 1952 and 1967 (see Figure 2 , pj 3 3 ) . From I967 to 1968, exports jumpied 31$ which i s considered un-usual, and lower rates are expected f o r 1969 and 1970. Projecting the growth at the h i s t o r i c a l rate of 11$, Ca-nadian kraf t pulp exports should reach 6.0 m i l l i o n tons i n 1974. The major portion of the increase w i l l be i n the bleached kraf t pulp sector. The major export markets were analyzed subjectively i n Chapter I I I . Here a b r i e f s t a t i s t i c a l review of Canada's exports to her major markets i s presented. There are f i v e main export areas to which Canada has exported kraf t pulp. In order of size f o r 1968, they were the United States, Western Europe (mainly the Common Market countries), Japan, Great B r i t a i n , and South America (see Figure 5 on the following page). Exports to the United States have increased at a very steady rate. Except f o r the sharp Increase caused by the Korean War i n 1951 and the curtailment of imports caused by the economic recession i n 1958, export growth has been a consistent 8.2% yearly. Western Europe has imported k r a f t pulp from Canada at a very rapid rate, increasing 30% on the average each year since 1958. Exports to Japan have increased even more spectacularly, at an average of k0% annually since 1962. Within the t o t a l o v e r a l l increase, the growth rates of ex-ports to these two areas has not been very smooth; growth has been more rapid i n some years than others. Great B r i t a i n ' s r e l a t i v e importance as a Canadian market has diminished i n the l a s t decade. In the 1950's, Great B r i t a i n was the second most important kraf t pulp mar-ket. However by 1962, exports to Western Europe, and by I963, exports to Japan surpassed exports to Great B r i t a i n . 58 1000 100 CANADIAN EXPORTS OP KRAFT PULP TO MAJOR WORLD MARKETS, 1949-1968 United States Western j Europe / / / / / / /' J s Japan Great B r i t a i n 10 / / / J Y 1 // A / V IV South j ''America t / / / A 1950 1 1954 1 1953 1962 62 I90T 1970 YEAR Source: Canadian Pulp and Paper Association U.S. Pulp Producers Association FIGURE 5 59 Although o v e r a l l growth of exports to Great B r i t a i n has been trending upward i n the post-war period, there have been nu-merous periods of reversals. Some recovery from i t s cur-rent doldrums i s expected i n the next few years. The South American market has been the most e r r a t i c . In the 1950' s exports of Canadian pulp ranged between 10 and 20 thousand tons per year. Then i n the 1960's exports ranged between 30 and 80 thousand tons per year. Except f o r t h i s s h i f t i n ranges at the turn of the decade, no clear growth pattern i s d i s c e r n i b l e . 60 CHAPTER VI THE KRAFT PULP INDUSTRY OF BRITISH COLUMBIA A. H i s t o r i c a l Development Kraft pulp i s a r e l a t i v e latecomer to the B r i t i s h Columbia pulp and paper industry, as was the case f o r other h i s t o r i c a l producing areas. Sulphite pulp and newsprint were produced i n large volumes long before kraf t pulp be-gan to play a s i g n i f i c a n t r o l e . The f i r s t sulphate m i l l i n B r i t i s h Columbia started up during World War I at Ocean F a l l s . The m i l l produced captive pulp f o r i n t e r n a l use i n an integrated pulp-newsprint complex. For t h i r t y years, t h i s m i l l was the only k r a f t pulp producer i n the province. The generally buoyant conditions i n the world economy following World War II spurred the f i r s t period of expan-sion i n B r i t i s h Columbia during the l a t e 1940's and early 1950's. In t h i s expansion, m i l l s were b u i l t at Port A l b e r n i , Harmac, Crofton, and at Elk F a l l s . These m i l l s were a l l on tidewater and r e l a t i v e l y close to sources of wood, being within t h i r t y miles from a sizeable proportion of t h e i r pulp-wood supply. 1 Except f o r the Elk F a l l s m i l l , these 1 B r i t i s h Columbia Bureau of Economics and S t a t i s -t i c s , P o t e n t i a l Pulp and Paper M i l l s i n B r i t i s h Columbia ( V i c t o r i a , Queen's P r i n t e r , 1959), p. 12. 61 m i l l s were t m i l t by Canadian companies who c h a r a c t e r i s t i c a l l y were r i c h i n resources and technology but lacked development c a p i t a l and world market connections. Most overseas sales during t h i s time were negotiated through foreign agents. In the following period, characterized by slower growth, two e x i s t i n g sulphite m i l l s at Woodfibre and Port Mellon were converted to k r a f t pulp production. The f i r s t k r a f t m i l l i n the i n t e r i o r of B r i t i s h Columbia was completed at Castlegar i n 1961. A major wave of k r a f t pulp expansion occurred be-tween 1965 and 1968 with the opening of seven new m i l l s . In I 9 6 5 , a m i l l was opened at Kamloops and i n 1 9 6 6 , two m i l l s were opened at Prince George. A m i l l at Prince Rupert, a m i l l at Tahsis i n 1 9 6 ? , and m i l l s at Powell River and Prince George i n 1968 complete t h i s period of expansion. This spurt i n expansion i n i t i a t e d a new era i n the financing and marketing operations of kraf t pulp producers i n B r i t i s h Columbia, and was characterized by the formation of j o i n t ventures. These joint ventures were between l o c a l companies r i c h i n resources and technology with foreign partners having world market connections. The foreign partner c h a r a c t e r i s t i c a l l y came from the more i n d u s t r i a l i z e d countries who had c a p i t a l a v a i l a b l e f o r investment abroad. Partners came from Great B r i t a i n , continental Europe, Japan, and the United States to seek p r o f i t a b l e investment oppor-62 t u n i t i e s as well as assured sources of raw material. The formation of j o i n t ventures has coincided with the widespread trend of mergers and a c q u i s i t i o n s i n the Western economy. These mergers were designed to form both v e r t i c a l l y and h o r i z o n t a l l y integrated operations. B a s i c a l l y , the k r a f t pulp producer wants to integrate forward as c l o s e l y as possible to the consumer. Because of the possible con-f l i c t of i n t e r e s t i n dealing with middlemen such as pulp agents, the pulp producer would rather deal d i r e c t l y with export markets. But lacking expertise i n many of the foreign markets, as well as c a p i t a l f o r expansion, the B r i t i s h Colum-bia producer finds a j o i n t venture a more palatable a l t e r n a -t i v e . S i m i l a r l y , the foreign partner, a n t i c i p a t i n g a future need f o r raw materials, enters into a partnership agreement i n order to integrate backwards as f a r as possible to the 2 source of raw materials. A trend well developed i n the United States but less so i n Canada, p a r t i c u l a r l y i n B r i t i s h Columbia, has been merger a c t i v i t y to produce horizontal Integration. Wider business operations increase sales opportunities by broad-ening the product l i n e . The reduction i n the v a r i a b i l i t y of sales and lower marketing costs and e f f o r t s through hor-i z o n t a l integration generally r e s u l t s i n increased p r o f i t s . 2 B r i t i s h Columbia Hydro and Power Authority, The  Pulp and Paper Industry of B r i t i s h Columbia (Vancouver, 1966), pp. 12-14. 63 B. The C y c l i c a l Expansion of the Industry The k r a f t pulp Industry l n B r i t i s h Columbia i s highly c a p i t a l intensive. Its r a t i o of property, plant, and equip-ment to t o t a l assets i s one of the highest i n manufacturing. Because of unit cost reasons, new capacity l n a c a p i t a l i n -tensive industry must be added i n large increments. The large size of the increments requires long lead times f o r the planning and additi o n of new capacity. The a b i l i t y to predict economic conditions several years i n advance i s necessary to plan future expansions wisely. The industry i s comprised of r e l a t i v e l y few pro-ducers whose k r a f t pulp i s mostly undlfferentiated. When-ever the picture brightens appreciably, considerations f o r expansion are made industry wide because each firm wishes to preserve i t s market. Were each firm to expand, then the ov e r a l l e f f e c t would be to produce substantial excess capac-i t y l a s t i n g f o r a number of years. The decision by a company to b u i l d a pulp m i l l usually i s made independently on the basis of present or past economic conditions. These conditions may themselves be quite misleading as indicators of future conditions. But more to the point, the independent decision of each producer to proceed with expansion leads to the cumulative 64 3 r e s u l t o f e x c e s s c a p a c i t y . T h e p r o b l e m m a y b e c o m p o u n d e d b y p r o v i n c i a l g o v e r n -m e n t p o l i c i e s . T h e g o v e r n m e n t i s a n x i o u s t o d e v e l o p i t s n a t u r a l r e s o u r c e s a n d i n i t s e n t h u s i a s m m a y f o r c e p r e m a t u r e e x p a n s i o n . S i m i l a r l y , f o r e i g n i n v e s t o r s , a n x i o u s t o s e c u r e f u t u r e s u p p l y , h a v e b e e n l o o k i n g t o B r i t i s h C o l u m b i a ' s f o r -h, e s t r e s o u r c e s t o s u p p l y t h i s n e e d . E x p a n s i o n i n p r o d u c t i o n c a p a c i t y t h e r e f o r e t e n d s t o r u n i n c y c l e s . T h e l o n g s w i n g s l n c o n t r a c t i o n a n d e x p a n s i o n a r e r e i n f o r c e d b y t h e g e n e r a l c l i m a t e o f b u s i n e s s c o n f i d e n c e a n d o p t i m i s m . O v e r o p t i m i s m , l a c k o f c a u t i o n , a n d s p e c u l a -t i o n d u r i n g l o n g p e r i o d s o f e x p a n s i o n a n d t h e s u b s e q u e n t c o l l a p s e o f c o n f i d e n c e a n d e x c e s s i v e c o n s e r v a t i s m d u r i n g m a j o r c o n t r a c t i o n s i n c r e a s e t h e a m p l i t u d e o f o s c i l l a t i o n o f c y c l i c s u p p l y s w i n g s . T h e c a u s e s o f t h e l o n g c y c l i c s w i n g s a r e n o t y e t f u l l y u n d e r s t o o d . H o w e v e r , w h e n a c c o u n t i s t a k e n o f t h e c o n n e c t i o n s v i a b o t h e x p o r t t r a d e a n d i n v e s t m e n t , i t w i l l b e a p p a r e n t t h a t d i s t u r b a n c e s o r i g i n a t i n g i n t h e p r i n c i p a l e x p o r t m a r k e t s a r e t r a n s m i t t e d t o B r i t i s h C o l u m b i a . 3 D.A. W h i t e , B u s i n e s s C y c l e s i n C a n a d a . S t a f f S t u d y , E c o n o m i c C o u n c i l o f C a n a d a ( O t t a w a , Q u e e n ' s P r i n t e r , 196?), p p . 16-17. 4 F a c t o r s c i t e d b y R . M . F o w l e r i n C a n a d i a n P u l p a n d P a p e r I n d u s t r y . X X I ( F e b r u a r y , 1968), p . 29 a s c o n t r i b u t i n g t o t h e i n d u s t r y ' s d o l d r u m s i n 1967. 65 Examination of the h i s t o r i c a l trend l i n e of B r i t i s h Columbia k r a f t pulp production capacity reveals that the secondary trend l i n e since World War II has experienced marked peaks and v a l l e y s . (See Figure 6 i n the following Chapter.) The peaks of these o s c i l l a t i o n s came i n 1948, 1952, 1956, 1961, and 1967. There were four years between the f i r s t three peaks, f i v e years between the t h i r d and fourth peaks, and s i x years before the l a s t peak i n 1967. The trend l i n e since then has tapered off and announced ex-pansion plans indicate that there w i l l be a bottoming out i n 1971. The period f o r each expansion cycle appears to be lengthening. Furthermore, i t appears that the capacity i n -creases lagged s l i g h t l y behind the economic conditions of the United States, i t s major market u n t i l now. On the basis of these c y c l i c trends, (see Figure 6 page 7*0 It i s expected that a f t e r the minimum of 1971 substantial increases i n production may be expected and that the peak of the expansion should come i n 1973 or 1974. C. Ownership Trends The early development of the kraf t pulp industry i n B r i t i s h Columbia was dependent to a large extent on United States c a p i t a l . American c a p i t a l was applied i n two ways. In one way, an American company would e s t a b l i s h a subsidiary i n B r i t i s h Columbia and keep a c o n t r o l l i n g interest through i t s equity investment. M i l l s at Elk F a l l s , Woodfibre, and Castlegar were established t h i s way. A l t e r n a t i v e l y , a Canadian company, by issuing bonds and debentures on the American money market, raised the necessary development c a p i t a l but retained ownership of the m i l l . M i l l s at Port Mellon, Port A l b e r n i , and Nanaimp were financed t h i s way. In the recently constructed and proposed m i l l s , European and Japanese c a p i t a l have become more s i g n i f i c a n t . As pointed out i n Section A of t h i s chapter, the new capi-t a l sources have also introduced a new ownership idea. J o i n t -ventures between the foreign c a p i t a l source and an indige-nous operation have made partnership popular. M i l l s at Skeena, Kamloops, and Prince George (three) are owned on a join t venture basis. U n t i l recently, enterprises i n developed countries have exhibited considerable reluctance i n engaging i n joint ventures. This reluctance has been overcome i n increasing degrees as the r e s u l t of j o i n t ventures between entrepre-neurs of two d i f f e r e n t nations having proven themselves. Somewhat greater i n i t i a l d i f f i c u l t i e s f o r j o i n t ventures than might be the case f o r wholly foreign-owned investments may occur. (Skeena Kraft experienced production and man-agement problems i n i t s i n i t i a l start-up period.) The entrepreneurs i n the j o i n t venture characteris-t i c a l l y have come from countries having comparable business methods and experiences. The Finnish partners i n the cur-rent construction of the m i l l at Kitimat are anxious to extabllsh a m i l l i n a new raw material area because the raw materials i n t h e i r own country are being harvested close to t h e i r maximum production l i m i t . Furthermore, they want to broaden t h e i r product l i n e to complement t h e i r domestic product l i n e . F i n a l l y , they want to e s t a b l i s h a beachhead from which to penetrate the large North American market. The Japanese a u t h o r i t i e s want t h e i r c a p i t a l invest-ment to compensate adequately f o r the outflow of i n i t i a l c a p i t a l . The Japanese economy long has experienced a nega-t i v e balance of payments. A favourable return on overseas investment i s one method of generating a more favourable balance of payments position. The West German investors, to provide adequate over-seas management, par t i c i p a t e i n j o i n t ventures as a matter of p o l i c y so that they can associate with l o c a l c a p i t a l i n the country of the investment. The B r i t i s h investors, by investing i n B r i t i s h Columbia, are seeking more p r o f i t a b l e opportunities than they can f i n d at home. 68 D. Sales Contracts Some m i l l s produce pulp f o r sale on the open market only, while others produce both "market'' pulp and pulp f o r conversion into newsprint and other papers. This l a t t e r category of captive pulp w i l l be converted into paper either i n the same m i l l s i n B r i t i s h Columbia or abroad. In the case of pulp agencies, marketing p o l i c y and practise varies considerably from company to company. The trend i s to replace the use of independent agencies with the companies' own representatives as the volume of business grows. Established producers often u t i l i z e the technique of long-term contracts to reduce the v a r i a b i l i t y of sales as well as to lower marketing costs and e f f o r t s . The long-term contracts are often f o r periods of ten years or more. The l o g i c a l extension of these long-term contracts i s cap-t i v e sales to an integrated partner. Pressures to reduce the v a r i a b i l i t y of sales during the recent soft market con-d i t i o n s and to reduce marketing costs generally are causing a trend toward longer-term and captive-sales.^ A continued trend of longer-term contracts should r e s u l t i n more stable production runs In the next f i v e years f o r the k r a f t m i l l s i n t h i s province. 5 H.W. MacDonald, "New Trends and Developments i n Pulp Marketing," Canadian Pulp and Paper Industry. XXII (August, 1968), p. 42. E. Government Services and Regulations 69 V i r t u a l l y 93$ of the 136,700,000 acres of forest land i n B r i t i s h Columbia are owned or administered by the provin-c i a l government.^ Management of these resources i s guided by the p r i n c i p l e of sustained y i e l d . This p r i n c i p l e d i c -tates that timber depletion s h a l l not exceed the forest's a b i l i t y to reproduce sound wood. The B r i t i s h Columbia gov-ernment, i n administering the public forests has set up several management e n t i t i e s to allow use of these resources by private enterprise.'' 6 B r i t i s h Columbia Bureau of Economics and S t a t i s -t i c s , B r i t i s h Columbia Facts and S t a t i s t i c s , Dept. of Ind. Dev., Trade and Commerce ( V i c t o r i a , Queen's Prin t e r , 1968), P. 35. 7 The primary management e n t i t i e s are public sus-tained-yield units ( p u b l i c l y owned and administered by the Forest Service) and tree-farm licences (privately adminis-tered under Forest Service supervision). Superimposed upon certa i n I n t e r i o r public sustained-y i e l d units are pulpwood harvesting areas granted to pulp companies f o r the removal of small or decadent timber not suitable f o r lumber production. However, the experience with the pulpwood harvesting area concept has not proved too encouraging. L e g i s l a t i o n Introduced i n the 1908 l e g i s -lature has replaced the pulpwood harvesting areas concept with a l i c e n s i n g system. This system stresses performance and a l l o c a t e s timber on the basis of annual cutting rights s o l e l y on the basis of demonstrated need. Theor e t i c a l l y , a pulp m i l l must be under construction before i t receives an assured supply of timber. C e r t i f i e d tree-farms and farm-wood-lot licences make up the balance of managed forest lands. 70 P. Competitive P o s i t i o n of B r i t i s h Columbia M i l l s The k r a f t pulp industry i n B r i t i s h Columbia has several unique c h a r a c t e r i s t i c s . These c h a r a c t e r i s t i c s give i t advantages as well as disadvantages over some other pulp-producing areas. Both the coastal species and the i n t e r i o r species are superlative f o r pulping operations. The coast area, r e f l e c t -ing the e f f e c t of a wet, fast-growing environment has four predominant species: Douglas f i r , western hemlock, western red cedar, and balsam f i r . The i n t e r i o r , together with a r e l a t i v e minor concentration of the Soastal species, has spruce, pine, and l a r c h . The coastal species have a long, fast-growing f i b r e whose pulp has exceptional strength. The pulp from i n t e r i o r species i s noted f o r i t s even f i b r e lengths capable of producing very bright pulps. The k r a f t pulp m i l l s i n B r i t i s h Columbia are r e l a -t i v e l y new and e f f i c i e n t . Pulp m i l l s are expected to oper-ate between f o r t y and f i f t y years. The k r a f t 'mills i n B r i t i s h Columbia are therefore i n an excellent competitive p o s i t i o n r e l a t i v e to other producers i n the world. B r i t i s h Columbia has an immense supply of raw mate-r i a l s . Its 136,700,000 acres of forest land represent ap-es proximately one-quarter of the North American Inventory. 8 B r i t i s h Columbia Bureau of Economics and S t a t i s t i c s , B r i t i s h Columbia Facts and S t a t i s t i c s . Dept. of Ind. Dev.,, Trade and Commerce ( V i c t o r i a , Queen's Pr i n t e r , 1968) , p. 34. 7 1 Whereas competitive areas are r a p i d l y approaching maximum u t i l i z a t i o n , B r i t i s h Columbia s t i l l has large tracts of under-u t i l i z e d f o r e s t s . B r i t i s h Columbia m i l l s enjoy a substantial advantage i n t h e i r wood costs. The wood costs i n B r i t i s h Columbia are Q 10 to 2 5 $ l e s s than wood costs i n eastern Canada. 7 In addi-t i o n , logging operations can take place year round i n B r i t i s h Columbia whereas they are seasonal i n eastern Canada. 1 0 On the negative side, r e l a t i v e l y l i t t l e research and development i s done by B r i t i s h Columbia k r a f t pulp producers. The e f f o r t l n B r i t i s h Columbia compares unfavourably with the record of Sweden or the United States. The research ef-f o r t l n recent times has been reduced by the closing of the Rayonler R'esearch Centre and the curtailment of a c t i v i t i e s by Columbia C e l l u l o s e . 1 1 9 W.E. Haviland et a l , Trade L i b e r a l i z a t i o n and the  Canadian Pulp and Paper Industry (Toronto. University of Toronto Press, 1968), PP. 5 2 - 5 3 . 10 Operations may be c u r t a i l e d however i n dry sum-mers because of the f i r e hazard. S i m i l a r l y snow and ice i n severe winters may cause some curtailment of operations. Operations i n B r i t i s h Columbia's i n t e r i o r were d r a s t i c a l l y c u r t a i l e d by severe winter conditions i n January, 1 9 6 9 . This production curtailment may have spurred the firming of the kraf t pulp market. 1 1 Ian B. Chenoweth i n a t a l k "Canada's Place i n the World Fibre Economy" to the American Paper Inst i t u t e (New York, February 18, 1 9 6 9 ) Costs of labour, transportation, and supplies have been r i s i n g r a p i d l y . These are matters of some concern since the a b i l i t y of B r i t i s h Columbia to compete on world markets and r e t a i n a major place i n the world f i b r e economy rests on the a b i l i t y to develop her resources and o f f e r 12 them to world markets competitively. 12 Ian B. Chenoweth i n a ta l k "Canada's Place i n the World Fibre Economy" to the American Paper In s t i t u t e (New York, February 18, 1969) 73 CHAPTER VII PROJECTION OP BRITISH COLUMBIA KRAFT PULP INDUSTRY,1969-1974 A. Capacity a. H i s t o r i c a l Capacity Kraft pulp production f a c i l i t i e s were p r a c t i c a l l y non-existent before World War I I . 1 The growth since then had been spectacular, with the highest rate i n the world. The compound annual growth rate of kra f t pulp capacity between 1 1956 and 1968 was 16$ i n B r i t i s h Columbia compared to 9$ for the rest of Canada. From 1965 to 1968, B r i t i s h Columbia's capacity almost doubled, which i s i l l u s t r a t e d i n Figure 6 on the following page. The d a i l y production figures given here are the sums of a l l k r a f t m i l l s i n B r i t i s h Columbia, calculated from i n d i v i d u a l m i l l capacities f o r each year and shown i n Ap-pendix I I I . The geographic l o c a t i o n of the kra f t pulp m i l l s are given i n Figure 7 on page 75« The companies, t h e i r parents or partners, and notes on each are given i n Appendix I I I . 1 Production at Ocean F a l l s , the only kraft pulp m i l l before 1946 i n B r i t i s h Columbia, was only 150 tpd. FIGURE 6 KHAFT PULP MILLS LN BRITISH COLUMBIA Existing, Under Construction and Proposed as of March,.1969 B Proposed Mills FIGURE 7 There were sixteen m i l l s i n production and one m i l l was under construction i n March, 1969. Eleven m i l l s were at various stages of consideration at t h i s date. The b r i e f h i s t o r y of these m i l l s i s given i n Appendix III. b. Future Capacity The B r i t i s h Columbia t o t a l capacity i n 1970 and 1971 can be predicted with reasonable certainty. A m i l l would have to be under construction by t h i s time to be i n produc-t i o n i n 1971. The capacity of B r i t i s h Columbia m i l l s f o r 1972 to 1974 i s more d i f f i c u l t to predict. The,-^proposed m i l l s are at various stages of planning. Six m i l l s have posted per-formance bonds f o r construction to be undertaken by a cer-t a i n date and t h e i r construction i s therefore more cert a i n . F o r f e i t u r e of these bonds means the loss of an assured source of timber. Announcements concerning f i v e new m i l l s have been made but so f a r no d e f i n i t e schedule f o r construction i s given. The d e c i s i o n to proceed with the plans i n time to come on stream before 1974 w i l l depend l a r g e l y on general economic and market conditions i n the next two years. De-velopers are exercising considerable caution at t h i s time a f t e r the industry experienced overcapacity and depressed prices i n the l a s t two years. Should the current firming of the market continue, more commitments f o r expansion w i l l be made. Based on the m i l l s presently producing, those under construction, and those d e f i n i t e l y committed, capacity l n B r i t i s h Columbia should r i s e to 12,400 tpd l n 1971 and 14,900 tpd i n 1972. These figures probably indicate f a i r l y accu-r a t e l y the capacity f o r those years because m i l l s require approximately t h i r t y months time from the completion of the f e a s i b i l i t y study to the startup of the m i l l . For 1973 and 1974, the projection i s more d i f f i c u l t . The uncommitted companies may or may not go ahead with t h e i r expansion plans. However, indications are that the world market i s firming, prices are r i s i n g and potential p r o f i t -a b i l i t y increasing. On t h i s basis, i t i s expected that In the next two years, several proposed expansions w i l l d e f i -n i t e l y be committed. Moreover, some of the e x i s t i n g m i l l s 2 w i l l probably expand t h e i r f a c i l i t i e s . Based on these guidelines, i t i s suggested that 18,000 tpd i s not unreason-able as a projection of B r i t i s h Columbia's production capac-i t y i n 1974. 2 Announced expansions f o r the m i l l s at Kamioops and Skookumchuck have been made with completion set f o r 1972. The [Vancouver] Sun. 1968-69. 78 B. ProductIon The production of k r a f t pulp has p a r a l l e l e d the growth i n capacity. Divergences between the capacity and production are r e f l e c t e d i n the operating r a t i o which has ranged from the low 80's to the mid-90's fo r the Industry. Production increases have been less c y c l i c than capacity increases i n B r i t i s h Columbia. Actual k r a f t pulp production i s plotted i n Figure 8 on page 80. This Figure i s based on Table 1 following. The kra f t pulp production between 1950 a n d 1968 increased nineteen-fold, reaching 2,988,000 tons i n 1968 which rep-resents a 16$ compound annual growth rate. B r i t i s h Columbia's share of Canadian production i n -creased s t e a d i l y from 30$ i n 1955 to 50$ i n 1968. S i m i l a r l y B r i t i s h Columbia's share of the world market increased from 2.7$ i n 1955 to 5.0$ i n 1965. Compared with the production i n the United States, B r i t i s h Columbia's output was only 6.5$ of the United States figure but by 1965 i t had climbed to 8.7$ of the United States t o t a l . The production of kra f t pulp i s expected to r i s e ap-preciably i n the projection period. I f production follows the predicted capacity l e v e l s of the previous sections, an-nual production should reach 4,800,000 tons i n 1974. TABLE I BRITISH COLUMBIA PRODUCTION OP KRAPT PULP, 1950-1968 Year Tons Percentage Of (000's) Canada World 1950 159 14.9 1.4 51 242 20.1 2.0 52 202 18.4 1.7 53 273 22.7 2.1 54 393 28.7 2.7 55 431 29.9 2.7 56 492 30.5 2.8 57 533 32.2 2.9 58 694 35.5 3.6 59 875 38.7 4.0 i960 940 38.8 4.0 61 1097 40.7 4.2 62 1226 41.6 4.5 63 1288 40.7 4.3 64 1497 43.2 4.5 65 1777 45.8 5.0 66 2187 47.3 67 2452 48.5 68 2988 50.0 Sources: B.C. Bureau of Economics and S t a t i s t i c s Canada: Dominion Bureau of S t a t i s t i c s Canadian Pulp and Paper Association 80 FIGURE 8 BRITISH COLUMBIA KRAFT PULP PRODUCTION, 1950-1974 81 A more conservative pred i c t i o n made by the B r i t i s h Columbia Government states that annual production should reach 4,300,000 tons i n 1974 i n B r i t i s h Columbia. 3 C. Prices Kraft pulp prices are determined by the equilibrium of supply and demand. Supply i n turn i s determined by ca-pacity, and such contingencies as s t r i k e s and unavoidable shutdowns. Demand i s determined by general economic a c t i v i t y , inventory l e v e l s , and secondary demand f o r converted products. The average post-war prices are shown i n Figure 9 (see page following). These are not o f f i c i a l l i s t p rices. Of-f i c i a l l i s t prices are meaningless because discounts are often given during periods of oversupply. The prices are averages per ton from t o t a l exports. In the post-war period, bleached kra f t pulp prices ranged between $125 and $150 per ton except f o r a b r i e f period of high prices at the outbreak of the Korean War. Be-cause of increased competition and Improved technology, down-ward price trends have been just as common as upward price trends i n the post-war period. Prices slumped i n the mid-1950 's and early 1960's when large capacity increases i n North America created an oversupply. The market was firm i n 1966 when prices were near the l i s t price of $145 to $150 perton. 3 B r i t i s h Columbia Government Study f o r the Economic  Outlook Conference (Vernon, 1968) 82 u H O 2; o W !=> w 175 -150 125 1 0 0 75 50 25. 0 CANADIAN AVERAGE MARKET- KRAFT PULP PRICES 1 9 4 8 - 1 9 6 9 .3-i ft So —It"'/ 11.-A3 « J* 1 .'v.'.': •A I 5-i 4 if--3$ ft;. i w Mi VS.. * 4 J .3C« f -is-, i J5. > IT ft m It j '""is* off \ '~J-.!*- - M • hi-V 1945 1950 1955 I 9 6 0 .1965 "' 197C YEAR • -• ' -1 Bleached '-" linlb^^ched"-a nd 'Semib i'eacnedi':. ••' -v,> S^ v^ : Sources: Canadian Pulp and Paper Associa-ti o n . U.S. Pulp Producers Association . _ _. . . . . . - • -* -FIGURE 9 As soft market conditions re-appeared i n 1967* prices f e l l $15 to $25 off l i s t to $120-$135 per ton. A f t e r remaining at these l e v e l s i n early 1968, prices i n l a t e 1968 started climbing to $125 and $135 per ton. Further increases i n early 1969 have raised prices to the $140-$142 range. As the prices have returned close to l i s t prices, industry o f f i c i a l s are predicting a general r i s e i n l i s t prices f o r the end of 1969.^ Future trends i n p r i c i n g should see a greater em-phasis by management on maintaining stable price s . Lower operating r a t i o s to support price l e v e l s should become more widespread. Management i s becoming increasingly market oriented and r e l a t i v e l y less production oriented. In the past year, the major producers i n B r i t i s h Columbia have followed a p o l i c y of production curtailment whenever the opportunity arose i n order to.provide a firm basis f o r price Improvements. Continuing t h i s p o l i c y should preclude the need f o r overly aggressive marketing i n the future. In the face of higher costs and lower productivity, the major producers w i l l f i n d i t d i f f i c u l t to hold the l i n e on p r i c e s . In the next f i v e years, there should be cost-al- J. Schreiner, "Pulp: up $5, then up again?" The F i n a n c i a l Post (March 22, I969), p. 1. 84 push price increases i n a d d i t i o n to any demand-pull i n -creases. Demand-pull price increases are foreseen as global demand increases are anticipated. Their exact l e v e l cannot be predicted accurately but a steady r i s e i s anticipated. D. Exports The majority of kraft pulp produced i n B r i t i s h Colum-bia i s exported to foreign countries. The increases i n ex-ports have p a r a l l e l e d the growth i n production. The United States has been B r i t i s h Columbia's largest export market but B r i t i s h Columbia's dependence on the United States market i s not as great as that of the industry i n eastern Canada. The United States has taken approximately 40$ of B r i t i s h Columbia's kraft pulp exports i n the l a s t decade, representing 70$ of t o t a l Canadian exports to the United States. Although i n absolute amounts^ exports to the United States are increasing, i t s growth rate has been less than overseas markets.particularly i n the past two years. The Common Market countries have become major im-porters of B r i t i s h Columbia k r a f t pulp i n the l a s t two years. Exports to the Common Market i n 19&7 were 300$ greater than to the United Kingdom and 75$ greater than to 85 Japan.^ This r e f l e c t s the tremendous economic expansion i n the Common Market countries and the i n a b i l i t y of i t s t r a d i t i o n a l raw material sources to supply i t s increasing needs. Exports to Western Europe should continue to i n -crease at a substantial rate i n the next f i v e years. The large exports w i l l be spurred i n part by future partnership i n the construction of kraf t m i l l s i n B r i t i s h Columbia of the two areas. These m i l l s are planned on the basis of integrated v e r t i c a l sales. For the l a s t f i v e years, Japan has been a major B r i t i s h Columbia export market. Its imports represented between 15 and 20$ of B r i t i s h Columbia«s kraf t pulp ex-ports. The exports u n t i l now have been market pulp sales through agents i n Japan. There should be an upswing i n ex-ports of k r a f t pulp to Japan. The m i l l at Skookumchuck, which opened i n early 1969. was the f i r s t m i l l i n which Japanese interests have had an equity position. Two more m i l l s on a j o i n t venture basis are proposed. From t h i s , the near term growth should be rapid. The United Kingdom takes approximately 10$ of B r i t i s h Columbia's t o t a l exports. I t s economy has under-5 B r i t i s h Columbia Bureau of Economics and S t a t i s -t i c s , S t a t i s t i c a l Report, Dept. of Ind. Dev., Trade and Commerce ( V i c t o r i a , Queen's Pr i n t e r , 1968), p. 18. 86 gone serious re-adjustments i n the mid-1960 1s and i n t h i s period her import rate l e v e l l e d o f f . However, the market recovered i n 1968 and some moderate increases can be ex-pected i n the United Kingdom market f o r the next f i v e years. A f t e r taking more than 17$ of B r i t i s h Columbians kr a f t pulp exports i n 1961, South America has decreased i n importance to where i t took only 3% of B r i t i s h Columbia's t o t a l exports i n I967. This r e f l e c t s the increase i n pro-duction f a c i l i t i e s l o c a l l y i n South America. A u s t r a l i a has imported approximately k% of B r i t i s h Columbia's exports i n the l a s t decade. B r i t i s h Columbia's portion of t h i s market i s not expected to grow appreciably. New Zealand, through p r e f e r e n t i a l trade agreements, stands to gain any increasing demand i n A u s t r a l i a . In summary, B r i t i s h Columbia's chief markets are overseas. The overseas markets have the greatest export po t e n t i a l . The United States w i l l continue to supply a large percentage of her needs i n t e r n a l l y . However, the major overseas markets are becoming increasingly dependent on outside sources f o r t h e i r raw material needs. B r i t i s h Columbia stands to gain from th i s trend. Over 90$ of Canadian k r a f t pulp exports to overseas markets come from B r i t i s h Columbia. B r i t i s h Columbia's Increasing dependence on the more bouyant overseas export markets should stand i t l n good stead l n the next f i v e years. 87 CHAPTER VIII CONCLUSIONS The forecasts f o r the five-year projection period are based on premises which state that present economic trends generally w i l l continue l n t h e i r present patterns. Extrap-o l a t i o n of growth rates and trends are v a l i d on thi s basis. Consequently, projections pertinent to the B r i t i s h Columbia kr a f t pulp industry were based to some degree on h i s t o r i c a l data. Economic growth i n the fre e world i n the next f i v e years should be expansionary l n nature. The Gross National Product should increase between h.0% and k»5% i n r e a l terms foremost of the i n d u s t r i a l i z e d countries. The growth i n these countries i s expected to be greater than that of the less developed countries. World trade w i l l grow at a fas t e r rate than t o t a l out-put i n the projection period. This r e f l e c t s greater economic interdependence among the more i n d u s t r i a l i z e d countries, and an increasing awareness of the mutual gains possible from more l i b e r a l trade a t t i t u d e s . Global kra f t pulp consumption i s expected to increase at l e a s t as fast as the world GNP growth rate. North America, Europe, and Japan are expected to be the dominant areas of kra f t pulp consumption i n the free world i n the next f i v e years. 88 Kraft pulp consumption i n the United States should ex-perience a general increase but t h i s market w i l l become more s e l f - s u f f i c i e n t as greater domestic production capacity builds up. Consequently i t s growth potential as a B r i t i s h Columbia export market w i l l not be as great as the indus-t r i a l i z e d markets overseas. Exports to the United Kingdom market should strengthen as Great B r i t a i n continues i t s economic recovery e f f o r t and simultaneously Imports less from Its h i s t o r i c European sources. Japan's k r a f t pulp requirements are booming i n l i n e with i t s economy. B r i t i s h Columbia's exports should increase as Japanese investors b u i l d m i l l s i n B r i t i s h Columbia. The outlook i s tempered by the fact that Japan i s importing chips i n increasing amounts from the United States and A u s t r a l i a . The Common Market has been B r i t i s h Columbia's fastest growing market i n the l a s t two years and i t s importance should continue to increase i n the projection period. Cap-t i v e sales from j o i n t ventures and the decreasing Importance of i t s t r a d i t i o n a l European sources should spur sales. The less developed i n d u s t r i a l areas h i s t o r i c a l l y have not imported s i g n i f i c a n t amounts of B r i t i s h Columbia pulp and are not expected to do so i n the next f i v e years. A lack of a viable balance of payments pos i t i o n i n these coun-t r i e s i s the main reason f o r t h e i r prospective low consump-t i o n of kraf t pulp. 89 Production l n Sweden and Finland, the largest k r a f t pulp exporters i n the world a f t e r Canada, i s expected to grow more slowly as raw material supply l i m i t s are reached. Consequently, t h e i r t r a d i t i o n a l European markets w i l l be looking increasingly to North America f o r kraft pulp supply. Although the United States i s the largest kraft pulp producer i n the world, i t t r a i l s Canada, Sweden, and Finland In exports. Major expansions i n the southern United States w i l l give i t greater s e l f - s u f f i c i e n c y , p a r t i c u l a r l y l n un-bleached k r a f t pulp. Exports of unbleached kraf t pulp to European markets should become s i g n i f i c a n t . The Soviet Union, despite i t s huge forest reserves, w i l l not become a s i g n i f i c a n t pulp exporter i n the next f i v e years, although i t may make some inroads i n the Japanese market. Other areas of the world occupy a minor role i n kraft pulp exports. Although they may s a t i s f y t h e i r r e l a -t i v e l y low domestic market i n t e r n a l l y , they pa r t i c i p a t e minimally i n global k r a f t pulp trade. Production of kraf t pulp i n areas of Canada other than B r i t i s h Columbia w i l l grow less r a p i d l y than In B r i t i s h Co-lumbia i n the next f i v e years. The t a r i f f - p r o t e c t e d segments i n eastern Canada face a severe readjustment period as pro-tec t i v e trade b a r r i e r s as a r e s u l t of the Kennedy Round talks are reduced. B r i t i s h Columbia has been a r e l a t i v e latecomer to global kr a f t pulp production but i t s growth i n volume and exports has been more than \ % annually since 1 9 5 2 « The Industry development since that year has occurred i n a c y c l i c a l manner. Extrapolation of t h i s trend indicates that 1971 may be a trough and 197^ a peak i n the expansionary cycle. The large expansion i n the mid - 1 9 6 0 's was character-ized by the introduction of joint ventures between foreign and domestic entrepreneurs. This ownership trend has re-sulted i n more v e r t i c a l l y integrated marketing channels. B r i t i s h Columbia's forest reserves, forest management, and climate give i t comparative advantages over other kraf t pulp producing areas i n the world. Kraft pulp prices are expected to increase i n the projection period; t h i s Inflationary trend w i l l come from two sources. Higher manufacturing costs and lower pro-d u c t i v i t y w i l l r e s u l t i n cost-push price increases. In-creased global demand w i l l force demand-pull price increases. Projections based on assumptions made i n t h i s study indicate that B r i t i s h Columbia could have a production ca-pacity of 1 8 , 0 0 0 tpd by 1974 and may produce 4,800,^000 tons of kra f t pulp during that year. B r i t i s h Columbia's k r a f t pulp exports w i l l be most rapid i n the fast expanding over-seas i n d u s t r i a l i z e d economies. The United States w i l l con-91 t inue to be the prov ince ' s largest market but i t s per-centage share of t o t a l exports w i l l decrease. 92 S E L E C T E D B I B L I O G R A P H Y A . B O O K S B a l a s s a , B . T r a d e P r o s p e c t s f o r D e v e l o p i n g C o u n t r i e s . H o m e w o o d , I l l i n o i s : R i c h a r d D . I r w i n , I n c . , 1964. B e c k e r m a n , W . , e t a l . T h e B r i t i s h E c o n o m y l n 1975. 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"Industry Trends," Paper Trade Journal, 153:4, January 27, 1969, P. 9. Locke, E.A. "The Rate of Return - and What We Can Do About I t , " Southern Pulp and Paper Manufacturer. 31:10, November 10, 1968, p. 68. MacDonald, H.W. "New Trends and Developments i n Pulp Marketing," Canadian Pulp and Paper Industry. 22:8, August, 1968, p. 41. "New Capacity Survey Shows Modest Increases f o r 1969, 1970," Paper Trade Journal. 152:48, November 25, 1968, p. 42. "Outlook," Paper Trade Journal. 152:30, July 22, 1968, P. 43. "Paperboard Export Growth," Southern Pulp and Paper Manu-facturer. 31:9. September 10, 1968, p. 36. Predicasts, Inc.,"U.S. Market and how i t w i l l grow to 1 9 8 O , " Pulp and Paper Magazine of Canada, 69:18, September 20, 1968, p. 14. Rust, T.G. "The Future of the Pulp and Paper Industry i n Western Canada," Canadian Pulp and Paper Industry. 21:8, August, 1968, p. 37. S l a t i n , B. "Paper and Paperboard: Trends i n Production and Capacity, 1966-1970," Southern Pulp and Paper Manu-facturer. 31:4, A p r i l 10, 1968, p. 88. S l a t i n , B. "The Paper Industry i n the South, Pause i n Growth, 1969-1970," Southern Pulp and Paper Manufacturer. 32:11, November 10, 1968, p. 26. 9 7 "Sweden, Record Production, but Sales Down," Pulp and Paper Magazine of Canada. 6 9 * 6 , March 15, 1 9 6 8 , p. 2 4 . "Tasmania to Become Source f o r Wood Chips f o r Japan," Pulp and Paper International. 1 0 : 5 , May, I 9 6 8 , p. 1 1 . "The Soviet Challenge to Canada's Export Pulp Market," Pulp and Paper Magazine of Canada, 6 9 :1» January 5 t 1 9 6 8 , p. 9 5 . "United States Apparent Consumption of Paper and Paper-board and Basic Economic Indicators," Southern Pulp  and Paper Manufacturer. 3 1 : 8 , August 1 0 , 1 9 6 8 , p. 8 4 . Wilson, A.W. "Surprise Shockers: Proposed 2% Tax and New Safety Law Penalties," Pulp and Paper. 4 3 : 3 , March, 1 9 6 8 , p. 4 2 . D. MAGAZINES, NEWSPAPERS "Busier than ever, but les s to show f o r i t - that's B.C.," The F i n a n c i a l Post. September 21, I968, p. P - 3 . "Fine paper firms brace f o r onslaught," The Fina n c i a l Post. September 21, 1968, p. P-14. "Japanese Interests share i n B r i t i s h Columbia pulp m i l l project," The F i n a n c i a l Post. August 31, 1968, p. 14. "Kamloops Pulp $80-million m i l l one of Canada's largest," The F i n a n c i a l Post. February 1, 1969. Mathias, P. "Firmer prices may show e f f e c t on company earnings next year," The F i n a n c i a l Post. September 21, 1968, p. P - 5 . Mathias,. P. "Pulp, paper may be on the road back," The  Fi n a n c i a l Post. August 3 . 1968, p. 1. Mathias, P. "Spring jump seen i n Prices of Pulp," The  Fi n a n c i a l Post. January 4 , 1969, p. 1. Schreiner, J. "New a l l u r e now i n the pulp and paper stocks," The F i n a n c i a l Post. January 25, 1969, p. 25. Schreiner,- J. "Pulp: up |5, then up again?" The F i n a n c i a l  Post. March 22, I969, p. 1. Shaw, C. "B.C. pulp expansion seen as sign confidence re-turning," The F i n a n c i a l Post. March 22, I969. Thiesmeyer, L.R. "The industry's next 100 years," The  F i n a n c i a l Post. September 21, 1968, p. P-14. 99 APPENDIX I UNITED STATES KRAFT PULP EXPANSION Year Company Location Capacity Product (tpd) 1968 Consolidated Wisconsin 325 Bleached Papers, Inc. Rapids, Wis. 415 Kraft 1968 Georgia-Pacific Crossett, Bleached Corp. Arkansas Kraft 1968 Louisiana Forest Port Hudson, 510 Bleached Prod. La. Kraft 1968 MacMillan Pine H i l l , 800 Kraft Bloedel-United Ala. Linerboard 1968 Nekoosa-Edwards Ashdown, 400 Bleached Ark. Kraft 1968 Owens-Illinois Orange, 900 Kraft Inc. Texas Pulp 1968 Pineville Kraft Pineville, 750 Kraft Corp. La. Pulp 1968 St. Regis Paper Monticello, 1130 Linerboard Co. Miss. 1969 American Can Co. Halsey, 300 Bleached Oregon Kraft 1969 Western Kraft Hawesville, 200 Bleached Corp. Ky. 600 Hardwood 1969 Weyerhaeuser New Bern, Bleached Corp. N.C. Kraft 1970 Boise Cascade DeRidder, 1000 Kraft Corp. La. 600 Pulp 1970 International Ticonderoga, Kraft Paper Co. N.Y. Pulp 1970 U.S. Plywood Courtland, 500 Bleached Champion Papers Ala. 600 Kraft 1970 W. Virginia Wickliffe, Kraft P. and P. Co. Ky. Pulp 1971 Container Corp. Ferandina Beach, 850 Linerboard of America Fla. 450 Cor. Medium 1971 International Texarkana, 650 Bleached Paper Co. Tex. Board,Paper Source: Pulp and Paper, December 1 6 , I 9 6 8 . APPENDIX II CANADIAN KRAFT PULP PRODUCTION AND EXPORTS 100 PRODUCTION (000's) tons Year Bleached Semi-bleached Unbleached Total Export: Total 19^7 194 21 474 689 305 48 255 17 543 815 385 49 362 10 483 855 454 1950 437 13 604 1054 592. 51 525 11 681 1217 716 52 525 15 552 1092 621 53 580 25 601 1206 690 54 695 46 644 1385 837 55 731 60 680 1471 890 56 716 82 799 1597 904 57 799 115 791 1705 986 58 909 173 814 I 8 9 6 1089 59 1061 242 931 2234 1376 i 9 6 0 1171 284 987 2442 1466 61 1293 323 1081 2697 1634 62 1413 420 1092 2925 1680 63 1534 396 1115 3136 1883 64 I 8 2 5 621 974 3420 2018 65 2052 624 1227 3903 2245 66 2440 723 1442 4605 2626 67 2466 732 1474 5071 2889 1968 3560 1021 1471 6052 3774 Source: Canadian Pulp and Paper Association /KPP&MD/X UJ ! 041 Tf 3*4 COCVM3/A KM/?!- Pi//.*3 A<t/<L£.3 Or\it-V CAPACITY y £pd i XO/ Notes Parent and /or Part-rier- Company Z. o c a /-/ an ( dumber: Pi'^urc 7,) 1947 /948 1949 (950 /95/ /952 /953 /954 /955 /95d> (957 1958 (959 I960 1 /9<°3 7964 /96i /9C& (9C7 796$ (969 (970 (97/ 7972 7973 (974-Star ted / 9 / <C f aaptive pu/p Started fS*7f expanded /957', /9GS Corwer ted from sa/p/?/' te , /9SO STorled 795/ f expanded /9£3/ /9&<d-Started / 9 S 6 Croujn ~2.ef/er/ac*ch Mac Mi//an B/oede./ Can. /^drest Foduds /rfac/W/Jan 3/aede/ Cromn Be/lerbach Ocean Fa //s For t Al'hem/ Fart Me//on Nanaimo JT/k Fails / 2 3 & 5 (50 J50 /OO (50 /6>5 i ! (50 /i>5 i ! /50 /Q>5 140 /50 250 140 125 (65 Z50 175 250 (65 250 175 250 f£>5 250 250 450 ia>5 250 250 UX> Ib5 250 250 COO UOO (<e5 500 210 GOO 400 Uo5 560 220 6O0 400 175 550 ISO 725 500 IBS 575 250 725 &20 185 | 575 250 725 C?ZO ! I $5 575 260 725 £20 185 575 450 72$ cm IB5 576 450 I2B0 &20 785 750 525 IZ3C II2C IBS ' 900 525 1280 1120 f&5 900 525 1280 1120 185 900 525 1280 1250 185 900 525 1280 1250 IBS 900 525 1280 1250 /S5 900 526 (280 1250 185 900 525 (230 (250 185 900 525 7280 (250 (85 900 525 (280 7250 Started /9 58 • Conferred From su/phire , /9Q,/ First /nter/or /wit/, started /9C/ Started /9G5, to £>e expanc/ed /3J2. Started mid - /SCC A/iead (c/.S.), A/oranda (Canada) /fctyon/er . ZTT (c/.S.) Ot/onese (Cf. S. ), Svens ka (Sweden) Yteyferhauser (c/S.), Operators (Can) Mead(t/.S.) f A/of and* fn>n*dn ) &.C. poresr Prod. Co (an* bid Ce/Za/ose. £(arrt/oops F end /? / V a r M w ood Crofton \ \No o d fibre. Cas t/e^ar Kam/oops prince (jcorqe 7 e 9 fO ! £ 1 1 i i 1 L 425 \ GOO (aOO I 250 \ 550 ! \ (,00 250 550 (pOO 250 550 coo 250 550 95C 55C 57i 25C 950 550 coo 250 400 950 550 | COO j 250 700 950 550 Coo Z50 750 550 550 COO 250 750 550 550 COO 1250 750 950 550 COO 250 750 <950 550 COO 250 750 950 S~50 COO (000 750 950 550 COO /OOO 750 Started m/'d- /9CG Started car/y ~(9C*J Started ryifd - f9Q>7 started e-arfy /9G8 f cap>tioe p>c//p Started /> /«V , /9C8 £eed(U.K-), C.F.P. (Canada) Ce/an ese fc/.S.)f Svenska (Suteden) /E'.fisiatic (Denmark), Tnt. /fyaerfas.) /feed(U.K.), Feld. (vs/.6.),C.P. P. (Can.) Frt'nce Cjeorge 5keena Kraft Fan sis Co. Mac M///an B/oede/ Xn tercont-t'nenta/ Pr/nce Geo rye j // Fr-ince ^a/pert j 12. rarisis \ 13 PooJe// P?iver I /4-Pr/nce Georqe IS j • 1 i j i | 1 1 ! . ! 1 i J , 1 \ 700 I200 7/5 750 (200 7/5 750 500 4-30 1200 7(5 750 550 (a 50 (ZOO 7(5 750 550 <a50 (200 715 750 550 C50 (200 115 750 550 C50 (200 7/5 750 5-50 <?50 1200 7/5 750 550 C50 First Japanese uenture ) early /9G9 Under con struct/on, startup /ate / 970 Mill definite f sige and date /nde f/nite. Mill definittj bond react/res /972 cstarf'up Has until {972. to bui/d ry>/// /tonsha/ Pfit. (Japan), /.oca/ Op. Jen so - Ocftge/t {pin/and), Ginter/Chnt 8o*aters (a<J,8a/burst (Canada) \r/e/dooood (c/- S. , Canada J Mead fc/. S. ) . rfr«ess (Canada.) Ore s -t-izro o k. \ Jzurocon Bu/ke/ey Va//ey Car/'£>oo F. aria' P. /Q/exanc/rn Pbr. Prod, Crc 5 t brock ^cjro c an /-/ ou s ton Quesne/ /3/e* andra lb i7 16 19 20 • i 1 ! 1 1 • 1 i 1 1 ; 1 ) ! 400 400 400 j 75Z> 1 1 1 i 1 750 750 500 750 400 750 750 500 750 400 750 750 SCO 7S0 •400 2~n feasi hi/i ty staje / sfart-ap /9 73 PJ arts pre sent/y undecided Not under /mmediate, cons/'derat/on Feasihi/ity stages , negotiatinj oOt'+h Goo £ rn~menr~ Proposa/ For #40 mi//ion kraft. mi// i — _ . « : u** * Dalsho»>af /Marubeni (Japan), B.C. Cyprus Amines Ccf.S.) Boise Cascade (Zcfo/i*), Cr»*>t.N.(cl Sanyo (Japan) ( S.C operator Flshcro-Pt Ki'ckfny /torse Crotos Nest Xnd. fhrta/ Purest Tnd. Rupert ter/irtaes P/shcr-o ft Cro/dcn Fer-n/e &e//a Coo/a Grand Forks 21 22 23 24 25 i i t ; j i \ i j i j i ! ! i 1 1 i j 700 700 (620) (0>20) ((*Z0) (czo) Three mi/is prop csed -for area Undisclosed partner p/ans uncertain P/ans mi if in Fort St, John . Port A/e/son area Canadian t&cific PaHuooy Stearns Rodger (t/.S.) , 6C. op. PadFr'c. /O^J/SIJ Peace Ff^er kraft Steooart Ne (son Peace tfiJcr 20 27 28 1 t ! (bZO) (JdZO) (cx* . — . •—. .... * — . -» • •» — • » — • — ToT*.L • 150 250 3(5 315 455 &G5 340 ///5 /2<a£ (465 (885 23/0 ' 2955 3755 3755 3555 45-/0 <a(B . 7-f 60 J 9725 (0835 ((505 it 505 (Zj25S ' 74,655 (5700 Sources • 3.C. r<?aLj oF Fcor->om/c5 one/ <S~rct t/'3 t/'cs Conop>c*ny Plnnc/Q/ P<eports T~he P^tnanc/a/ Post A/ a r 1 ona/ G/rcc-/ory of Canae/,\»r7 Pu/p and Paper Proc/iUccS 

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