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The economic outlook for the woodpulp industry in British Columbia Wood, William Fordham Johnson 1966

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THE  ECONOMIC  OUTLOOK FOR THE WOODPULP INDUSTRY IN B R I T I S H COLUMBIA by  •WILLIAM FORDHAM JOHNSON WOOD B.  Comm., U n i v e r s i t y  o f B r i t i s h Columbia,  1963  A THESIS I N COMMERCE SUBMITTED TO THE  FACULTY OF GRADUATE STUDIES  IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF THE  DEGREE OF MASTER OF BUSINESS ADMINISTRATION  We a c c e p t t h i s t h e s i s required standard  THE  as conforming  to the  UNIVERSITY OF B R I T I S H COLUMBIA April,  1966  In the  requirements  British  for  Columbia,  available mission  for  for  purposes his  presenting  I  an  without  of  this  Department o f  It  thesis  my w r i t t e n  by  for  April  Head  1966  I  of  understood  financial  Commerce  29.  partial  Columbia  at  the  Library  this  permission.  The U n i v e r s i t y o f B r i t i s h Vancouver 8, Canada Date  the  is  the  of  in  degree  study.  copying  granted  representatives.  cation  that  reference'and  be  thesis  advanced  agree  extensive  may  this  thesis  University  of  make  agree for  freely per-  scholarly  copying  shall  it  that  Department  that  gain  of  shall  further  my  fulfilment  not  or or  be  by publi-  allowed  ABSTRACT  The  H o n o u r a b l e Mr. R a l p h  Columbia's M i n i s t e r o f Trade position that  Loffmark,  a n d Commerce, h a s t a k e n t h e  demand f o r w o o d p u l p w i l l  supply during the next leaders of B r i t i s h  British  five years.  greatly  exceed t h e  On t h e o t h e r h a n d ,  Columbia's p u l p and paper  industry  fear that a large surplus o f pulp i s inevitable.  In t h i s  thesis,  fore-  t h e d i f f e r e n c e o f o p i n i o n was e x a m i n e d b y  c a s t i n g demand f o r p a p e r of  1965 t o 1975.  expected  From t h i s  requirements  s u l p h a t e market p u l p for bleached supply, will  e s t i m a t e was d e r i v e d t h e  f o r c h e m i c a l pulp and bleached f o r t h e same p e r i o d .  s u l p h a t e was t h e n  Finally,  the financial  spite  T h e demand  compared w i t h t h e p o t e n t i a l  the p r i n c i p a l  that  f a c t o r s which would  outcome f o r an i n d e p e n d e n t  s u l p h a t e p u l p m i l l were a n a l y z e d . reached  f o r the period  l e a d i n g t o t h e judgement t h a t a s u r p l u s c o n d i t i o n  exist.  affect  and paperboard  an i n d e p e n d e n t  bleached  The'conclusion  was  f i r m w o u l d be p r o f i t a b l e i n  of the anticipated surplus.  ii  TABLE OF CONTENTS Page ABSTRACT  . . . . .  i  i  L I S T OF TABLES  iv  L I S T OF FIGURES  v i  ACKNOWLEDGEMENT  v i i  Chapter I  INTRODUCTION . . . . . .  . . .  1  PRINCIPAL FACTORS OF THE WOODPULP INDUSTRY . .  6  Objective o f the Thesis II  The P r o d u c t Breakdown o f t h e M a r k e t Market Pulp Summary III  THE WOODPULP MARKET.  23  Growth o f Market Previous Forecasts The A u t h o r I s F o r e c a s t Summary IV  ANALYSIS OF SELLING PRICE AND PRODUCTION COST DATA  57  An A v e r a g e M i l l N e t V a l u e M i l l Production Costs V  FINANCIAL PROSPECTS FOR AN INDEPENDENT M I L L .  .  72  F e a s i b i l i t y Study Defensive Strategies o f Established Producers C o u r s e s o f A c t i o n Open t o a n I n d e p e n d e n t M i l l Summary VI  CONCLUSIONS  85  BIBLIOGRAPHY  88  APPENDIX  92 i i i  L I S T OF TABLES Table  Page  2.-1  T y p e s o f Woodpulp  8  2-2  1963 W o r l d P u l p C o n s u m p t i o n  8  2-3  W o r l d S h i p m e n t s o f Woodpulp f o r t h e Y e a r s 1950, I 9 6 0 ; a n d 1963  9  2-4  P r i c e s o f Bleached K r a f t  2-5  C u r r e n t B.C. P r o d u c e r s o f B l e a c h e d a n d S e m i Bleached K r a f t  19  B l e a c h e d Market P u l p M i l l s Under i n B r i t i s h Columbia  20  2- 6 3- 1  P u l p , U.S. M a r k e t  1965  Construction  W o r l d Demand - P a p e r a n d P a p e r b o a r d , T o t a l And C h e m i c a l P u l p 1955-1964, a n d FAO F o r e c a s t 1975  3-2  Paley Report  3-3  Stanford Research I n s t i t u t e  3-4  Forecast by I n t e r s t a t e & Foreign  13  Pulp 23 25  Forecast  26  Commerce  Committee  27  3-5  Correlation Coefficient  29  3-6  G.N.P. G r o w t h R a t e s  3-7  1965 FAO F o r e c a s t Compared w i t h 1964 A c t u a l  •  Paper Consumption  30  31  3-8  Forecast Variables  33  3-9  F o r e c a s t o f P a p e r Demand; 1970 a n d 1975  33  3-10 W o r l d P r o d u c t i o n o f C h e m i c a l P u l p 3-11  E x p o r t s o f Bleached and Semi-Bleached K r a f t P u l p , 1955-1964  iv  35  37  Table  Page  . 3-12 I m p o r t s o f B l e a c h e d a n d S e m i - B l e a c h e d P u l p 1955-1964  Kraft 39  3-13 P e r c e n t o f B l e a c h e d K r a f t P e r T o n o f P a p e r a n d Paperboard;  Western Europe,  3-14 B l e a c h e d K r a f t M a r k e t 3-15 P r o j e c t e d 1975 3-16 P r e d i c t e d and  1953-1960  40  Pulp c f . Chemical Pulp  Demand f o r B/K M a r k e t  Pulp,  1970 a n d 42  D i s t r i b u t i o n o f B/K M a r k e t  P u l p , 1970  1975  3-17 P e r C a p i t a  42 Paper  Consumption Gain,  1950-1964  3-18 1970 S u p p l y c f . Demand P u l p , Canada  1965-1969  51  3-20 S u p p l y c f . Demand 3- 21 C o m p a r i s o n  44 50  3-19 New S u p p l y B l e a c h e d K r a f t M a r k e t  53  o f B.C. P r o d u c t i o n T o n n a g e s ,  4- 1  December 1965 B l e a c h e d K r a f t  4-2  American Kraft  40  Prices,  1964  Prices  1955-1965, F u l l y  58  Bleached  ( G . E . 89/90)  59  4-3  Forecast o f Bleached K r a f t  4-4  Expected Average  4-5  Calculation of Mill  4-6  Weighted  4-7  Comparison  4-8  T y p i c a l Production Costs o f Bleached K r a f t Per  Average  55  Prices  Water F r e i g h t  Rates,  N e t , 1960-1970  Mill  o f Swedish  61  '  1966-1970 m  62 64  N e t , 1966-1970  66  and Canadian  67  S.A.D.T.,  B/K C o s t s  68  4- 9  B.C. Wood C o s t s  69  5- 1  Proposed  73  B/K M i l l s  v  L I S T OF  FIGURES  Figure 1.  2.  Page B l e a c h e d K r a f t Market P u l p as a of T o t a l Chemical Pulp S u p p l y c f . Demand - B l e a c h e d Pulp  vi  Percent  Kraft  41 Market 52  ACKNOWLEDGEMENT  The  author i s g r e a t l y indebted t o Professor  o f t h e F a c u l t y o f Commerce a n d B u s i n e s s The  U n i v e r s i t y o f B r i t i s h Columbia.  helpful  comments, a n d c r i t i c i s m  draft of this preparation  thesis contributed  of the f i n a l  draft.  vii  J . N. B r a y  Administration,  Mr. B r a y ' s  guidance,  of the preliminary immeasurably  to the  CHAPTER  I  •  INTRODUCTION On November 29, 1965, i n a s p e e c h  before the  A s s o c i a t e d Chambers o f Commerce o f t h e Lower M a i n l a n d , t h e H o n o u r a b l e Mr. R a l p h of  Trade  of  p u l p and paper  Loffmark,  a n d Commerce^  expansion  of this  unfounded.  He  B r i t i s h Columbia's  stated that  as a r e s u l t  Minister  the fears o f overproduction  of the current  p r o v i n c e ' s wood p r o d u c t s  unprecedented  industry are  continued?  I n c r e a s i n g w o r l d demand o v e r t h e n e x t f i v e y e a r s w i l l f a r e x c e e d new c a p a c i t y f o r p r o d u c t i o n b y B r i t i s h Columbia m i l l s .  Demand f o r w o o d - d e r i v e d p r o d u c t s million  tons  i n the next  c o u l d i n c r e a s e by  f i v e y e a r s , he a s s e r t e d , b u t B r i t i s h  C o l u m b i a ' s p r o d u c t i v e c a p a c i t y was k e y e d annual market growth r a t e , Loffmark  concluded  t o only s i x percent  or three m i l l i o n  h i s remarks w i t h t h i s  are warnings o f o v e r p r o d u c t i o n - don't Leaders  fifty  tons.  statements  Mr. "There  you b e l i e v e i t . "  o f t h e B.C. p u l p a n d p a p e r i n d u s t r y ,  n o t a b l y t h e H o n o u r a b l e J . V. C l y n e a n d Mr. L . L . G. B e n t l e y , retorted  that  the Minister's  statements  were " s h o c k i n g " ,  1 "Loffmark Doubts Pulp G l u t " , The P r o v i n c e , November 30, 1965, p . 20.  Vancouver,  2  "irresponsible",  and "not i n a c c o r d a n c e  with  A spokesman f o r t h e m a n u f a c t u r e r s salient  facts.  First,  predicted demand  (FAO) o f t h e U n i t e d N a t i o n s  f o r p u l p and p a p e r f o r t h e next  producers  cease p r o d u c t i o n  between J a n u a r y  increase i n world  f i v e years, the  925,000 T o n s 1,585,000 2,325,000 2,425,000 2,020,000  the Scandinavian  pulp m i l l w i l l  which  s u r p l u s e s would o c c u r t 1966 1967 1968 1969 1970  Secondly,  p o i n t e d o u t two  by t h e Food and  that, i n spite of a five percent  following pulp  2  the industry's expectation of pulp  s u r p l u s e s i s b a s e d upon a r e c e n t s t u d y Agriculture Organization  the facts".  and A u g u s t  have d e c i d e d  that  each  f o r a thirty-day period  1966 i n o r d e r  to s t a b i l i z e the  market. On December  2, 1965, Mr. L o f f m a r k  b y Mr. A r t M c K e n z i e o f T h e P r o v i n c e ,  was  interviewed  a t which time  he e x -  p r e s s e d h i s annoyance a t t h e o u t b u r s t by t h e l e a d e r s o f t h e 4 i n d u s t r y and r e a f f i r m e d h i s p o s i t i o n . following  He t h e n  figures to substantiate h i s claims.  B r i t i s h C o l u m b i a p r o d u c e d 3.5 m i l l i o n 2 "Firms H i t Loffmark Pulp November 30, 1965, p . 1. 3 " I n d u s t r y Says Loffmark December 1, 1965, p . 21. 4 "Loffmark The P r o v i n c e ,  Claim",  tons  offered the During  of pulp,  1964,  converted  T h e Sun, V a n c o u v e r ,  E r r s on P u l p " ,  R e t o r t s With Data C l a i m i n g December 2, 1965, p . 17.  The P r o v i n c e ,  Strong  Pulp  Demand",  3  1.7  million  of this  i n t o paper,  of pulp t o world markets. capacity world  f o r B.C.  the by  s h o u l d be  demand f o r p u l p  1974-5 - i t  s h o u l d be  that  was  any  not  1.8  1970,  t h e new  productive  million  was  million.  tons.  92 m i l l i o n  million  tons  However, t o n s , and  that  pulp production of three m i l l i o n  tons  i n view o f world  further public  industry representatives. f r o m M a j o r Roy  Wood P u l p A s s o c i a t i o n ,  Minister  by  argued  significant  The  amount o f p u l p c o u l d be No  support  shipped  6.5  i n 1964  132  i n c r e a s e i n B.C. 1970  By  and  sold  at a  comment h a s  demand,  and  price.  i s s u e d from  B.C.  T h e y h a v e , however, r e c e i v e d  Johnsen, who  P r e s i d e n t of the  British  predicted overproduction  and  excessive stocks  "because o f t h e expansion 5  which i s t a k i n g  place i n British  Columbia".  o f 1964  1965, up  he  6%,  period  insisted,  s a l e s up as  2%, 6  justified but  comparison  h i s statements  i n v e n t o r i e s up  In October  a Scandinavian m i l l pulp  f o r the  1965,  lowered  same  When t h i s  structure  f r o m $10 t o $12 a t o n , o r 7.5%. 5 P u l p and P a p e r , v o l . 39, n o . Ibid.,  p.  8.  throughout  and  Sulphate  news r e a c h e d thereby  f o r a l l grades  50,  Western  i t s inventory,  i t s p r i c e on B l e a c h e d  they, demanded e q u a l t r e a t m e n t  a c o l l a p s e of the p r i c e  6  the  i n d u s t r y ' s c l a i m i s found  i n order t o reduce  f o r a Yugoslavian buyer.  buyers,  "Pulp p r o d u c t i o n  70% o v e r  t h e r e c e n t r e d u c t i o n o f woodpulp p r i c e s  Europe.  with  1964". Further support  in  A  December 13,  French  triggered o f woodpulp  1965,  pp.  7-8.  4  The crucial  subject o f world  to the future prosperity o f the B r i t i s h  i n d u s t r y a n d economy.  Should  a vast surplus o f pulp, operate a t f u l l be  demand f o r w o o d p u l p i s  current building plans create  t h e B.C. i n d u s t r y w i l l  capacity, with the result  low o r perhaps  non-existent.  n o t be u t i l i z e d  be u n a b l e t o  that profits  will  On t h e o t h e r h a n d , i f a  shortage o f pulp occurs, the f o r e s t will  Columbia  resources o f the province  t o t h e maximum p o t e n t i a l .  OBJECTIVE OF THE THESIS  This thesis w i l l paper  and p a p e r b o a r d  analyze the world  f o r t h e p e r i o d 1955 t o 1964 a n d w i l l  i s o l a t e t h e i m p o r t a n t v a r i a b l e s t o be u s e d of  demand f o r t h e s e p r o d u c t s  estimate o f p o t e n t i a l of  fora  i n 1970 a n d 1975.  c o n s u m p t i o n we w i l l  demand f o r b l e a c h e d  k r a f t was s e l e c t e d  sulphate pulp  forecast From t h i s  derive a  (kraft).  *  forecast  Bleached  becauses  1. A l l b u t one o f t h e B.C. m i l l s u n d e r or  consumption o f  c o n s t r u c t i o n are designed  expansion  t o manufacture  this  product. 2. T h e demand f o r b l e a c h e d 1950, of  o r more t h a n  p u l p used  3. B l e a c h e d  board. of  500% s i n c e  t w i c e t h a t o f any o t h e r  category  i n paper-making.  kraft  high quality,  k r a f t has r i s e n  i s essential  i n the manufacture o f  strong, l i g h t - w e i g h t paper  Statistics  indicate  demand f o r t h e s e g r a d e s  a more r a p i d o f papers  than  and p a p e r acceleration f o r any o t h e r s .  5  S u b s e q u e n t l y , we w i l l p r o j e c t t h e e x p e c t e d w o r l d s u p p l y o f bleached k r a f t  f o r t h e same y e a r s i n an attempt t o r e s o l v e  the dispute of shortage versus s u r p l u s . F o l l o w i n g t h i s , we w i l l examine c u r r e n t b l e a c h e d kraft  s e l l i n g p r i c e s and c o s t s f o r a new  independent  m i l l w i t h a view t o p r e d i c t i n g the f i n a n c i a l a venture.  B.C.  outcome o f such  F i n a l l y , we w i l l d i s c u s s t h e s t r a t e g i e s o f  e s t a b l i s h e d p r o d u c e r s and s u g g e s t p o s s i b l e c o u n t e r - s t r a t e g i e s an independent m i l l m i g h t adopt.  6  CHAPTER I I PRINCIPAL FACTORS OF THE WOODPULP INDUSTRY Our a n a l y s i s o f t h e woodpulp i n d u s t r y w i l l  begin  w i t h a d i s c u s s i o n o f t h e p r o d u c t and a breakdown o f i t s market.  F o l l o w i n g t h i s , we w i l l l o o k a t t h e ' s u p p l y o f t h e  raw m a t e r i a l , t h e s t a t e o f t e c h n o l o g y , l a b o u r c o s t s , s e l l i n g p r i c e s , and t h e p r o d u c e r s .  THE PRODUCT Woodpulp i s c e l l u l o s e f i b r e w h i c h i s c o n v e r t e d i n t o paper, p a p e r b o a r d ,  t e x t i l e s , and c h e m i c a l s .  Most o f  t h e w o r l d ' s p u l p i s o b t a i n e d from t r e e s a l t h o u g h , i n many p a r t s o f t h e w o r l d , r a g s , hay, g r a s s , r e e d s , bamboo, and sugar cane a r e u t i l i z e d .  Paper c a n be manufactured  from  any f i b r o u s m a t e r i a l . Two major c l a s s i f i c a t i o n s a r e i n c l u d e d ' i n t h e g e n e r a l term, woodpulp - groundwood, and c h e m i c a l p u l p .  The  former; a l s o known as m e c h a n i c a l p u l p , r e s u l t s from t h e process o f g r i n d i n g l o g s u s i n g a high-speed g r i n d s t o n e . Newsprint  i s 7 5 % groundwood, w h i l e c o a r s e g r a d e p a p e r s ,  such  as a r e found i n cheap p u l p magazines, t e l e p r i n t paper, and l o w - c o s t t i s s u e paper,  a r e a l s o d e r i v e d from t h i s m a t e r i a l .  7  I n 1963,  world  c o n s u m p t i o n o f groundwood amounted t o  20,327,000  tons.^ In i t s f i r s t  stage,  the process which  chemical pulp u s u a l l y c o n s i s t s of reducing the m e a s u r i n g a b o u t 5/8 The  i n c h i n l e n g t h and  chips are subsequently  alkaline  solution  and  1/8  combined w i t h  lignin  and  either  an  fibres  phase,  i s washed, s c r e e n e d ,  the f i b r e or pulp either  turned  acid  After  or  an  in a  other bonding  together.  chips  inch i n thickness.  which hold the c e l l u l o s e  and  logs to  cooked under steam p r e s s u r e  d i g e s t e r t o b r e a k down t h e  (sometimes),  yields  agents  the  cooking  bleached  i n t o paper or d r i e d  as  woodpulp. The leading  acid  chemical  treatment  grade u n t i l  produces s u l p h i t e pulp, the e a r l y  1900's.  The  the alkaline  p r o c e s s m a n u f a c t u r e s s u l p h a t e o r k r a f t p u l p w h i c h now by  forms,  f a r , the l a r g e s t p o r t i o n o f the chemical p u l p market.  additional designed  treatment  mill  in either  chemical process  can produce d i s s o l v i n g o r s p e c i a l  which i s manufactured i n t o t e x t i l e s  and  By  a specially alpha  ••  pulp  chemicals.  In t h e market t h e s e major g r a d e s  are  further  subdivided according to the extent o f the bleaching process. The  grades  are ultimately  s o l d under the f o l l o w i n g c a t e g o r i e s :  1 Reference Tables, Canadian Pulp S e p t e m b e r 1965, p . 33.  and  Paper A s s o c i a t i o n ,  8  TABLE  2-1  TYPES OF WOODPULP  G.E. B r i g h t n e s s *  Grade Groundwood B l e a c h e d Groundwood Unbleached S u l p h i t e Bleached Sulphite Unbleached Sulphate Semi-Bleached Sulphate Bleached Sulphate  55/57 65/70 60/65 90/94 26/30 68/75 89/90  * The S t a n d a r d e m p l o y e d i s a G e n e r a l E l e c t r i c Meter t h a t compares t h e w h i t e n e s s o f t h e p u l p w i t h magnesium o x i d e (100 p t s . ) .  I n 1963 w o r l d totalled used  96.2 m i l l i o n  by grade  consumption  tons.  of furnish  o f paper  and  paperboard  A g e n e r a l breakdown o f t h e p u l p  followss TABLE  2-2  1963 WORLD PULP CONSUMPTION  Grade  S h o r t Tons (000's)  Groundwood - B l e a c h e d & U n b l e a c h e d S u l p h i t e - Unbleached - Bleached Sulphate - Unbleached - Bleached & Semi-Bleached Other Grades - Semi-Chemical - Soda Communist C o u n t r i e s ( g r a d e s n o t shown) Waste P a p e r & M i s c e l l a n e o u s G r a d e s Total  Sources  Canadian P u l p and Paper A s s o c i a t i o n , T a b l e s , S e p t e m b e r 1965; p . 33.  20,327 4,821 5,840 16,822 13,137 3,719 592 6, 944 24,000 96,202  Reference  9  BREAKDOWN OF THE  MARKET  W o r l d S h i p m e n t s o f Woodpulp Approximately  one  hundred n a t i o n s p a r t i c i p a t e  t h e w o r l d t r a d e o f woodpulp as s e l l e r s  or buyers.  1963  In  t h e r e were t w e n t y - f i v e n a t i o n s e x p o r t i n g woodpulp and t h e s e o n l y seven  are s i g n i f i c a n t ,  as can be  in  of  i n Table 2 - 3 .  seen  TABLE 2 - 3  FOR  WORLD SHIPMENT OF WOODPULP THE YEARS 1 9 5 0 , 1 9 6 0 AND 1963 ( 0 0 0 , 0 0 0 " s SHORT TONS)  1950  Exporting Country  Tons  Sweden Canada Finland U.S.A. Norway  S. A f r i c a Balance  37 29  3.3 2.6  1.1 0.1  17  1.7  2 9  1.1 0.9 0.3  2  -  -  0.3  4-  6.3  Total  1960  Tons  2.3 1.8  0.6 0.1  U.SoS.R.  0/ /o  100  1963  %  %  Tons  31  3.5 3.3  25 16 10  28 27 17 11  2.1 1.4 0.9  8 3  0.3  0.1  1  0.2  2  0.6  6  0.7  6  10.6  100  12.4  100  Sources E x t r a c t e d from C P . P . A . Reference September 1 9 6 5 , p . 3 3 .  7 2  Tables,  MARKET PULP All  pulp sold  a t arm's l e n g t h i s c a l l e d  p u l p as opposed t o c a p t i v e p u l p , w h i c h i s p u l p by  a company f r o m one  the t o t a l market p u l p  to another sold,  o f i t s own  a l l grades,  was  market  transferred In  1963  1 2 , 4 1 7 , 0 0 0  tons  mills.  10 o f w h i c h C a n a d a s u p p l i e d 3',338,000 Out  of this  bleached but  one  Canadian production,  and  semi-bleached  o f t h e new  construction,  m i l l s planned,  in British  t o t h e market by  study  fully  Raw  p r o b l e m areas.-  i n Chapter  and  t o be  Since a l l  under  3,000,000  that a  detailed  a f o r e c a s t o f f u t u r e demand These w i l l  be  was  bleached  c o u l d add  i t is clear  2  expanded and  are examined  M a t e r i a l Requirements  pulp m i l l  are  are planned  estimates  $100,000 p e r  working c a p i t a l .  source  new  licences  fact.  areas  and  The  The  spruce, two  t o 750  Tables,  mills day,  Before  o f money, i t r e q u i r e s a  material.  t o new  The  frantic bidding for  y e a r s - i s evidence o p e n e d up  mills.  Most o f t h e s e  p i n e h a v e grown t o  Farm L i c e n c e s  CP.P.A., p.  forest have  stands  of  maturity.  in allocating  ( T . F . L . ) , and  33.  of  many new  o f t h e p r o v i n c e where g r e a t and  a  including  tons per  .$60,000,000.  c h i e f methods u t i l i z e d  have been T r e e  2 Reference  be  Government has  these  interior  hemlock,  timber  of production,  o f t h e p a s t two  B.C.  allotted  been i n t h e  o f raw  required to build  s i n c e m o s t o f t h e new  required w i l l  r a i s e t h a t sum  guaranteed  this  t o n day  t o h a v e a c a p a c i t y o f 600  group can  forest  of capital  Therefore,  t h e minimum c a p i t a l  fir,  or currently  27%.  III.  Current  any  than  1,527,000 t o n s  Columbia a r e  1970,  o f t h e m a r k e t and  primary  only  or less  sulphate market p u l p .  s u l p h a t e market p u l p p r o d u c e r s , tons  tons,  Pulp  the  11  Harvesting will  Areas  provide  subject  a guaranteed  to sustained  ment r e c e i v e s  any  who  s o u r c e o f wood i n  yield  and  cutting.  cut  In r e t u r n ,  a l s o ensures t h a t the  rules or  diameter as pulpwood.  t o remove t h e  sawlogs.  rights to a l l chips from l o g s  fire-fighting,  and  and  i n that area.  the  designated  are  permitted  company i s  However, t h e  given  are  main  the  roads,  borne by  the  f o r stumpage t a x e s w h i c h a r e h i g h e r  than  and  to f o r f e i t  of a m i l l within created holding  unless  a s p e c i f i e d time l i m i t .  them f o r s p e c u l a t i v e  sufficient  allowable s i z e to  cut,  This  supply  r i g h t s i t must  the  for  gain.  v o l u m e o f wood, t h e s e t by  a  i t commences  t o p r e v e n t promoters from b i d d i n g  f o r e s t to determine the The  P.H.A.'s h a v e  company c o n c e r n e d t o p o s t  When a company s e e k s t i m b e r  of  forest  violate  e d g i n g s p r o d u c e d by  reforestation costs  a r i d e r r e q u i r i n g the  c o n s t r a i n t was  terrain.  a government  T.F.L.  construction  the  company.  to a l l trees  addition,  slabs  p e r f o r m a n c e bond s u b j e c t  resources  the  a twenty-one y e a r r i g h t  R e c e n t awards o f T . F . L . ' s and contained  fire-fighting,  Independent o p e r a t o r s In  and  government i n r e t u r n those of a  of  govern-  regulations.  (renewable under c e r t a i n c o n d i t i o n s )  sawmills  the  company d o e s n o t  U n d e r a P.H.A. a f i r m h a s  by  costs  i s d e t e r m i n e d by  company  perpetuity,  r e f o r e s t a t i o n a r e b o r n e by  annual allowable  official  A T.F.L. awarded t o a  stumpage t a x e s w h i l e t h e  road-building, The  (P.H.A.).  survey  species,  g o v e r n m e n t , must  a l a r g e percentage of  the  and be  total  12  requirements.  T h e company c a n a n d , i n m o s t i n s t a n c e s j  purchase c h i p s o r l o g s from o t h e r MacMillan^  Bloedel Limited,  2;500,000 a c r e s ,  suppliers.  must  F o r example,;  i n s p i t e o f owning o r c o n t r o l l i n g  b o u g h t 2 7 % o f i t s l o g r e q u i r e m e n t s f r o m 165  3 independent c o n t r a c t o r s Although pulp tree;  i n 1965. c a n be manufactured from almost any  i t s q u a l i t y and hence p r i c e a r e determined by t h e  species o f timber  used.  Each s p e c i e s has i n h e r e n t  fibre  c h a r a c t e r i s t i c s which e s t a b l i s h t h e q u a l i t y o f t h e f i n a l commodity.  For instance,  the long;  wide and bushy  fibres  o f D o u g l a s F i r make a p a p e r w h i c h i s h i g h l y t e a r - r e s i s t a n t but  very poor f o r top q u a l i t y p r i n t i n g .  the  f i b r e s o f hemlock, balsam and c e d a r a r e c o n s i d e r a b l y  thinner,  smoother, and a l i t t l e  On t h e o t h e r  s h o r t e r than Douglas f i r .  These s p e c i e s  c a n make a l i g h t - w e i g h t p a p e r , h i g h l y  to  outstanding  burst with  lodgepole  pine w i l l  printing  qualities.  produce t h e best  q u a l i t y pulp Prices  according  2-4.  t o s p e c i e s a s i s shown i n T a b l e  material w i l l  vary  the price a firm w i l l  according  resistant  Spruce and  p a p e r s , bond; a n d h i g h g l o s s p a p e r b o a r d .  Therefore;  hand,  f o r fine vary  p a y f o r i t s raw  t o t h e s p e c i e s and t h e type o f  paper market i t expects t o s e r v i c e . T e r r a i n determines a c c e s s i b i l i t y therefore;  the cost o f logging.  West C o a s t  a d v a n c e d f r o m t h e u s e o f oxen a s h a u l e r s ,  3 MacMillan; Bloedel R e p o r t 1965, p . 8.  and Powell  o f t h e timber and; logging has  through  River Limited,  railways,  Annual  13  and As  diesel  t r u c k s t o t h e l a t e s t method o f b a l l o o n l o g g i n g .  t h e c o m p a n i e s a r e f o r c e d t o move f u r t h e r  utilize  every a c c e s s i b l e tree,  c o s t s have r i s e n .  t h e s e c o s t s a r e l a r g e l y o f f s e t by which permits tainable.  removal  inland  improved  and  However,  mechanization  o f timber once c l a s s i f i e d  as  unat-  N e v e r t h e l e s s , the c o s t o f l o g g i n g remains  t h e m a j o r c o s t s i n p r o d u c i n g p u l p f o r i t r e q u i r e s 2.2 o f d r y wood t o make one  ton of bleached  a s s e s s m e n t o f wood c o s t s i s p r e s e n t e d TABLE  to  kraft pulp.  i n Chapter  one  of  tons An  IV.  2-4  PRICES OF BLEACHED KRAFT PULP U.S. MARKET - 1965  L i s t P r i c e Per S.A.D.T.*  Species Fir Hemlock, B a l s a m Cedar Spruce/Pine  $145.00 150.00 155.00 155.00  * S h o r t A i r Dry Ton. Woodpulp i s s o l d i n t e r n a t i o n a l l y a c c o r d i n g t o t h e s t a n d a r d s s e t by t h e T e c h n i c a l A s s o c i a t i o n o f Pulp and.Paper I n d u s t r i e s . A S h o r t A i r D r y Ton >is d e f i n e d a s 2,000 p o u n d s o f air-dry fibre. A Bone-Dry Ton o f f i b r e e q u a l s 10/11 o f an a i r - d r y t o n . A f t e r wood s u p p l y , t h e n e x t m o s t i m p o r t a n t material use  i s c l e a n pure water.  it  A ton of pulp involves the  o f 100,000 g a l l o n s o f w a t e r w i t h a low m i n e r a l  since a large percentage i s necessary  t o ensure  raw  i s used  as  steam.  In  t h a t the water used  t h e p u l p c o n t a i n s no m e a s u r a b l e l e v e l  of  content  addition, i n washing  radiation.  14  Pulp converted who, Any  i n turn,  i n t o paperboard may s e l l  discernible  Furthermore,  Glean;  1  to film  the quality,  manufacturers.  mix and thus  i s related  to i t s "dirt  f i l t e r e d water i s e s s e n t i a l t o maintain a  c l o s e t o 0-1 p a r t s p e r m i l l i o n  quality  t o box makers  i n the container w i l l  o f a sheet o f bleached pulp  count". level  t h e i r products  level of radiation  destroy the film. price,  i s often sold  (20 p.p.m.) p u l p e a r n s  t h e m i l l must e n s u r e  that  (p.p.m.).  Inferior  $25.00 l e s s p e r t o n .  i t s water supply w i l l  Finally,  be s u f f i c i e n t  t o c o v e r i t s demand, t a k i n g i n t o c o n s i d e r a t i o n t h e w o r s t p o s s i b l e c o n d i t i o n s o f drought. V a s t q u a n t i t i e s o f e l e c t r i c a l power a r e a l s o a prerequisite of a mill. is  An example o f p u r c h a s e d  power c o s t  p r o v i d e d b y G r e a t L a k e s P a p e r Company who r e c o r d a p a y -  4 ment o f $6.81 p e r t o n o f p r o d u c t i o n i n 1964. Canadian  p u l p and paper  m i l l s purchased  Together,  $5.10 o f power p e r  5 ton produced purchase  i n 1962.  a steady  requirements  In B r i t i s h  Columbia  l o a d and manufacture t h e i r  Using t h i s combination,  m a i n t a i n power c o s t s a t a r e a s o n a b l e Common t o a l l m i l l s manufacture o f t h e cooking  4 Great  mills  additional  f o r peak l o a d c o n d i t i o n s b y e i t h e r  t h e r m a l methods.  the Canadian  most  mills  hydro o r are able t o  level.  i s t h e use o f chemicals  liquor  and b l e a c h i n g .  Pulp and Paper I n d u s t r y spent  I n 1962  $122,228,000 o n  L a k e s P a p e r Company L i m i t e d , A n n u a l  5 Dominion Bureau o f S t a t i s t i c s , #36-204, p . 1 8 .  i n the  R e p o r t 1964.  P u l p a n d P a p e r M i l l s 1962,  chemicals and o t h e r s u p p l i e s ,  o r t h e e q u i v a l e n t o f $10.10  p e r ton o f a l l p u l p produced.  The c o s t o f c h e m i c a l s t o an  i n d i v i d u a l m i l l v a r i e s a c c o r d i n g t o t h e d i s t a n c e from t h e source.  In B r i t i s h Columbia the major s u l p h a t e  chemicals  a r e c u r r e n t l y produced a t Vancouver, Squamish and Nanaimo and  a new p l a n t i s b e i n g c o n s t r u c t e d a t P r i n c e A more d e t a i l e d examination  f o l l o w s i n Chapter  Rupert.  of chemical costs  IV.  Labour c o s t s c o n s t i t u t e a c o n s i d e r a b l e p o r t i o n o f expenses o f p r o d u c t i o n . intensive^  Although  the industry i s c a p i t a l  i t r e q u i r e d $21.10 o f l a b o u r t o produce and s e l l 7  a t o n o f p u l p and paper i n Canada i n 1962.  On a p e r  employee b a s i s , t h e c o s t came t o $5;500 p e r y e a r .  The r a t i o  o f employees t o t o n o f p r o d u c t i o n i s s Newsprint  2 to 1 .  Pulp  (Old M i l l s )  1 to 1  Pulp  (New M i l l s )  0.6 t o 1  During the p e r i o d 1957-1962 wages and s a l a r i e s r o s e an average o f 4% p e r y e a r . Labour s k i l l s have undergone a r a p i d change i n t h e past ten years.  As new measuring d e v i c e s and c o n t r o l  mechanisms have been i n s t a l l e d , t h e s k i l l o p e r a t i n g employee has a l t e r e d . needs o n l y t o monitor  l e v e l o f an  The average o p e r a t o r  the equipment, whereas b e f o r e he was  6 Dominion Bureau o f S t a t i s t i c s ; #36-204, p . 18. 7 Ibid.j  :  p. 7.  now  16 c o n s t a n t l y changing  flows and a d j u s t i n g c o n t r o l s .  r e q u i r e d degree o f s k i l l  The  f o r maintenance p e r s o n n e l has  i n c r e a s e d s h a r p l y , and t h e r e i s a t p r e s e n t a shortage o f q u a l i f i e d instrument t e c h n i c i a n s .  The e f f e c t o f automation  can be i l l u s t r a t e d most e f f e c t i v e l y by t h e f a c t t h a t from 1957 t o 1962 p r o d u c t i o n o f p u l p and paper r o s e 20% b u t t h e number 3  o f employees dropped  2%.  A glance a t the c l a s s i f i e d advertisement o f any Canadian  section  newspaper i n the p a s t y e a r w i l l show t h e  i n t e n s e demand f o r p u l p and paper p r o d u c t i o n p e r s o n n e l . A c c o r d i n g t o Mr. C. T. Farmer o f H. A. Simons  (International)  L i m i t e d , 40% o f a p u l p m i l l ' s employees must be e x p e r i e n c e d o p e r a t o r s and maintenance mechanics. The i n d u s t r y has enjoyed e x c e l l e n t r e l a t i o n s w i t h t h e main union, t h e I n t e r n a t i o n a l Brotherhood o f Pulp, S u l p h i t e and Paper M i l l Workers. t h e r e has been o n l y one s t r i k e  In t h e p a s t twenty y e a r s ,  (1958).  The union l e a d e r s  have a c t e d r e s p o n s i b l y and, through a s t r o n g b a r g a i n i n g p o s i t i o n , have e s t a b l i s h e d h i g h r a t e s o f pay and except i o n a l l y good working  conditions.  There i s a s m a l l union,  U n i t e d Pulp Workers, s e r v i n g t h r e e m i l l s t h a t has been more a g g r e s s i v e i n i t s a t t i t u d e towards management, b u t as y e t i t has f a i l e d t o win any s i g n i f i c a n t advantages n o t a l r e a d y a c q u i r e d by t h e Pulp and S u l p h i t e Union. pulp m i l l s  In  newer-design  ( s i n c e 1957) l a b o u r c o s t s are, g e n e r a l l y speaking,  8 t o 10% o f t h e s e l l i n g p r i c e o f b l e a c h e d p u l p . 8 D.B.S., #36-204, T a b l e 1, p . 7.  Therefore,  17  a  4% a n n u a l  i n c r e a s e i n wages c o u p l e d w i t h a d r o p  employee/ton p r o d u c t i o n overall offers  profitability little  wage  of the m i l l .  invention.  The  p u l p i n g has  u n d e r g o n e few  major a l t e r a t i o n  changes s i n c e i t s  i n the process  1950 s when t h e Kamyr Company d e v i s e d t h e 11  The  lower  controlled  1.  manpower  cooking procedures?  consistent quality the s i z e of the  of pulpy  4.  separated  The  from  lower  s t o c k must be  B u n c h e d f i b r e s must b e  capital  been h i g h e r  screened  passed  on  re-cooked.  the  a more  investment  for  and  through-put  only the  and  higher  The  As  fibre  a result,  ten years  ago,  bleaching process  s t r e n g t h and  most b l e a c h e d  b u t now  have  through-put  undergone v a r i o u s minor changes which have lowered damaging t h e  cooked  to the bleaching process.  than p r e v i o u s equipment p e r m i t t e d .  85/87 G.E.  bottom.  Radiclone Cleaners  contributed to greater e f f i c i e n c y  "whiter" pulp.  with  mill.  f i b r e s must b e  costs without  mechanism  requirementsy  3. h i g h e r a n d  A n o t h e r improvement has screeners.  continuous  at the top  i s being discharged  advantages ares  occurred i n  This cooking  c h i p s w h i l e cooked pulp  at  a  increment.  permits uninterrupted charging or f i l l i n g  a  the  Management, t h e r e f o r e ,  digester to replace batch digesters.  2.  on  Technology Kraft  the  a minor e f f e c t  the  o p p o s i t i o n t o a s e t t l e m e n t amounting t o  4 t o 5% a n n u a l  State of  r a t i o has  in  has  bleaching  have a t t a i n e d k r a f t was  91 p l u s i s  sold  available.  18 A f i n a l modification of the process invention of the air-borne dryer. dryer  t h e p u l p was  currents. the pulp The  carried  sheet  result  i s supported  The  and d r i e d by h o t a i r  eliminates the r o l l e r s ,  c o s t and a s i g n i f i c a n t  Initial  visit  t o a pulp m i l l w i l l  t o make p u l p ? "  s t a t e o f t h e a r t say no.  Canadian  industry supports  Montreal  where r e s e a r c h  while  bleach,  Collectively,  area  laboratory.  At the present  the  and Paper I n s t i t u t e i n i s being  conducted,  time,  no b e t t e r method  i n c o m m e r c i a l o p e r a t i o n , b u t o n e new p r o c e s s ,  t i m e f r o m 2h h o u r s t o 40 m i n u t e s , Red Rock, O n t a r i o .  produce s u p e r i o r pulp  i s i n pilot plant  cooking operation  W h i l e r e s e a r c h o n a new m e t h o d t o i s commendable  and i s s u p p o r t e d  a r e v o l u t i o n a r y break-through could leave  producers  with  large; fixed,  partially  by the  new  depreciated plants;  few f u n d s a v a i l a b l e f o r a l t e r a t i o n s .  '  "Alkifide",  industry,  and  and  ask, " I s n ' t  d i s c o v e r e d b y Domtar Company L i m i t e d , w h i c h l o w e r s  in  and  The adherents t o t h e  the Pulp  in this  leave  e a c h company p r o u d l y p o i n t s , a s w e l l , t o i t s own  research is  screen,  I t i s common t o h e a r t h e v i s i t o r  t h e r e a n e a s i e r way  often  a l l that piping, concrete,  e q u i p m e n t a r e r e q u i r e d t o c o o k , wash,  current  increase  rate.  t h e n o v i c e w o n d e r i n g why  dry pulp.  and  and d r i e d by h o t a i r p r e s s u r e .  i s lower c a p i t a l  in the production  In t h e o l d e r s t y l e o f  on r o l l e r s  T h e new a i r d r y e r  has been t h e  19  Current  Producers  producers  L i s t e d below a r e t h e e x i s t i n g  British  o f bleached  k r a f t p u l p and t h e i r  rated annual operating  and semi-bleached  c a p a c i t i e s o f market p u l p , based  Columbia  u p o n 345  days/year.  TABLE 2-5 CURRENT B.C. PRODUCERS OF BLEACHED AND SEMI-BLEACHED KRAFT  Name  Tons  B.C. F o r e s t P r o d u c t s Canadian F o r e s t Products C o l u m b i a C e l l u l o s e Company Crown Z e l l e r b a c h Kamloops P u l p and Paper MacMillan; Bloedel Limited R a y o n i e r Canada L i m i t e d  300,000 105,000 185,000 120,000 86,000 350,000 180,000  Total  1,326,000  W i t h t h e e x c e p t i o n o f Kamloops, t h e s e f i r m s have been and  i n p r o d u c t i o n f o r t e n y e a r s o r more. Paper,  Kamloops  w h i c h began p r o d u c t i o n i n O c t o b e r  1965,  Pulp i s  c o n t r o l l e d b y t h e W e y e r h a u s e r Company o f t h e U n i t e d S t a t e s . These producers  possess  strong managerial  t e a m s composed o f  experienced p r o d u c t i o n p e r s o n n e l and a g g r e s s i v e w e l l e s t a b l i s h e d marketing  organizations.  New a r r i v a l s  t r a d e a r e f a c e d w i t h i n t e n s e c o m p e t i t i o n from  these  i n the companies,  20 M i l l s Under C o n s t r u c t i o n C o n s t r u c t i o n has commenced on t h e m i l l s below. bleached  listed  T a b l e 2-6 a l s o c o n t a i n s t h e e s t i m a t e d p r o d u c t i o n o f k r a f t market p u l p o f each o f these  mills.  TABLE 2-6 BLEACHED MARKET PULP MILLS UNDER CONSTRUCTION IN BRITISH COLUMBIA  Name Northwood Pulp P r i n c e George Pulp & Paper Tahsis Intercontinental Skeena K r a f t Total  Tons  Start-up Date  215;000 115,000 135,000 100,000 260,000 825,000  1966 1966 1967 1968 1968  A common c h a r a c t e r i s t i c o f these new m i l l s i s t h e f a c t t h a t each i s a s s o c i a t e d w i t h one o r more e s t a b l i s h e d companies.  Northwood i s f i n a n c e d by Noranda Mines and t h e  Mead C o r p o r a t i o n ; one o f t h e l a r g e s t U.S. producers 9 and paper.  o f pulp  P r i n c e George Pulp and Paper i s j o i n t l y under-  w r i t t e n by Canadian F o r e s t Products and-the Reed.Group; t h e l a t t e r b e i n g t h e U n i t e d Kingdom's b i g g e s t producer 10  o f paper  and paperboard. I n t e r c o n t i n e n t a l i s a t r i - p a r t y o r g a n i z a t i o n whose p a r t n e r s i n c l u d e Canadian F o r e s t Products, Reed; and 9 "The 500 B i g g e s t I n d u s t r i a l s " , Fortune, v o l . LXXII, no. l ; J u l y 1965; p . 154. 10 "The 200 L a r g e s t C o r p o r a t i o n s O u t s i d e t h e U.S.";' Fortunei' v o l . L X X I i ; no. 2, August 1965; ?. 172.  21 Feldmuhle,  t h e l a r g e s t p a p e r m a n u f a c t u r e r i n Germany."^  Skeena K r a f t  i s 6 0 % owned b y C o l u m b i a  Sweden's l a r g e s t i n t e g r a t e d  C e l l u l o s e and 40% by  f o r e s t p r o d u c t s p r o d u c e r and 12  distributor, Tahsis  Svenska  i s financed  Cellulosa.  by Canadian  wholly-owned s u b s i d i a r y  To c o n c l u d e t h e l i s t , International  of International  l a r g e s t p r o d u c e r o f p u l p and paper. Paper to  Paper,  Paper,  I n 1964  the world's  International 13  s o l d 5,700,000 t o n s o f p u l p a n d p a p e r ,  5.5% o f t h e t o t a l w o r l d c o n s u m p t i o n  a  w h i c h amounted  of these items.  SUMMARY This affecting is vital  c h a p t e r has o u t l i n e d t h e p r i n c i p a l f a c t o r s  the pulp industry. to the f i n a n c i a l  treatment o f the subject It  i s an e s t a b l i s h e d  immense u n t o u c h e d  Although a source o f timber  s u c c e s s o f a new m i l l , will  fact that  no  further  be attempted i n t h i s s t u d y . British  Columbia p o s s e s s e s  r e s o u r c e s o f wood a n d c o u l d  c u t s i x times  14 the  current  y i e l d without overcutting.  power s o u r c e s a r e now, to  a l l o w a new m i l l  or will  S i m i l a r l y , water and  be by 1968,'in s u f f i c i e n t  supply  t o l o c a t e near any a v a i l a b l e t i m b e r .  11 P h i l l i p s D i r e c t o r y o f W o r l d P u l p a n d P a p e r M i l l s f u l l y d e s c r i b e s e a c h p u l p a n d p a p e r m i l l i n c l u d i n g p r o d u c t s made, o u t p u t p e r d a y , a n d m a j o r f a c i l i t i e s t p . 247. 12 C o l u m b i a  C e l l u l o s e C o . L t d . , A n n u a l R e p o r t 1964, p . 1 1 .  13 I n t e r n a t i o n a l  P a p e r Company,' A n n u a l R e p o r t 1964, p . 2.  14 D r . J . H a r r y S m i t h , "Wood S u p p l y i n B r i t i s h C o l u m b i a P r e s e n t and P o t e n t i a l " , B r i t i s h C o l u m b i a s F u t u r e i n F o r e s t P r o d u c t s T r a d e i n A s i a a n d t h e P a c i f i c A r e a . 1965, p . 14. 1  22 T h e r e f o r e , the f a c t o r s l i s t e d below a r e t h e most c r i t i c a l and w i l l be examined i n d e t a i l s (a) Markets (b) S e l l i n g P r i c e s (c) C o s t s (d) E f f e c t s o f Changing Flows o f Income and C o s t s (e) O f f e n s i v e and D e f e n s i v e T a c t i c s o f P r o d u c e r s .  23  CHAPTER I I I THE WOODPULP MARKET GROWTH OF MARKET T h e w o r l d demand f o r p a p e r a n d p a p e r b o a r d h a s shown p h e n o m e n a l g r o w t h  s i n c e 1955.  i n d i c a t e t h a t t h e growth of  living increases.  F o r e c a s t s b y t h e FAO  r a t e w i l l continue as the standard  The t a b l e below i l l u s t r a t e s  TABLE  these  facts.  3-1  WORLD DEMAND - PAPER AND PAPERBOARD, TOTAL PULP AND CHEMICAL PULP 1955-1964 AND FAO FORECAST 1975 (000,000's T o n s )  Year 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1975  Paper & Paperboard 63.5 68.5 70.3 72.1 75.5 83.7 88.4 92.1 96.1 103.2 147.5  Sources t Paper & Paperboard  Total Pulp 51.7 54.2 55.1 55.1 60.5 ' 66.6 69.7 73.2 76.4 83.3 120.0  Chemical Pulp 32.4 34.3 34.9 35.3 38.8 42.6 45.3 47.3 49.8 54.7 80.0  - W o r l d Reviews^ P u l p & Paper Y e a r s 1955 t o 1964 T o t a l P u l p & C h e m i c a l P u l p - Woodpulp S t a t i s t i c s ; USPPA, Y e a r s 1955-1964 1975 F o r e c a s t s - W o r l d Demand f o r P a p e r t o 1975; FAO, Rome 1960.  24  The of  p a p e r and  preceding  table indicates that  paperboard  has  tons per year  during the  continues  FAO  the  consumption has  t o 64.6  i n 1964.^"  c o u n t r i e s r e v e a l s t h a t ; i n 1964, pounds p e r p e r s o n . range,  and  115  Ten  f i g u r e s a r e h e a v i l y b i a s e d by  should  s t a r t w i t h an  and  by  1975.  4;000/000 rate  On  i n c r e a s e d from  A per  a 50.4  c a p i t a breakdown  i n the  pounds p e r p e r s o n .  The  of the world's  of  produc-  k x a f t market  estimate of the world  200  average  t h e U n i t e d S t a t e s w h e r e 6%  f o r e c a s t o f demand f o r b l e a c h e d  chemical  by  100-199  pulp  demand f o r p a p e r  then d e r i v e the growth r a t e of t h i s grade o f p u l p  total  per  t e n n a t i o n s consumed o v e r  t h e w o r l d ' s p o p u l a t i o n consumed 4 5 % A  If this  more n a t i o n s f e l l  w e r e b e l o w 100  tion.  average o f  ten-year p e r i o d .  f o r e c a s t w o u l d b e met  capita b a s i s , world p o u n d s i n 1956  i n c r e a s e d an  consumption  from  pulp.  PREVIOUS FORECASTS An  examination  consumption r e v e a l s t h e i r a c t u a l consumption has  of previous extremely  f o r e c a s t s f o r paper conservative nature,  outstripped the  forecasts.. Various  m e t h o d o l o g i e s h a v e b e e n u s e d - some a p p a r e n t l y guesses,  others u t i l i z i n g  techniques. not  informed  highly sophisticated statistical  T h o s e s t u d i e s s e l e c t e d f o r summary w e r e  t o emphasize t h e i r  for  inadequacies,  the best available; with p a r t i c u l a r  but r a t h e r to  chosen,  present  a t t e n t i o n to the  FAO  1 "How N a t i o n s Rank i n P e r C a p i t a P a p e r C o n s u m p t i o n , W o r l d R e v i e w I s s u e ; P u l p a n d P a p e r ; v o l . 39, n o . 29, J u l y 1 9 / 1965/ p . 7.  work.  1965  25  The  Paley Report This  2  1952 r e p o r t was l i m i t e d  a n d was b a s e d upon t h e h i s t o r i c a l consumption  and t h e growth  t o American  demand  rate of per capita  r a t e o f t h e G.N.P.  TABLE 3-2 PALEY REPORT (000,000 T o n s )  Grade  Forecast 1975  1965*  8.7 7.5 12.5 20.5  8.5 8.4 10.5 20.9  49.2  48.3  Newsprint Printing & Writing Industrial Paperboard Total  * P r e l i m i n a r y f i g u r e s from O f f i c i a l B o a r d M a r k e t s ; F e b r u a r y 11; 1966.  The y e a r s ahead  1975 e s t i m a t e h a s a l m o s t b e e n r e a c h e d t e n  of plan.  The major  e r r o r was i n t h e e s t i m a t e o f  G.N.P. i n c r e a s e o f 1.5% p e r annum/ a s a c t u a l G.N.P. has been w e l l  i n excess o f that  growth  forecast. . 3  World  Pulp and Paper This  Resources  and P r o s p e c t s  1954 r e p o r t e s t i m a t e s t h e w o r l d ' s  t o r e a c h 66 m i l l i o n  t o n s b y 1961.  consumption  T h a t l e v e l was p a s s e d two  2 R e s o u r c e s f o r Freedom; v o l . V; A R e p o r t t o t h e P r e s i d e n t b y t h e P r e s i d e n t ' s M a t e r i a l P o l i c y Commission,' U.S. G o v e r n m e n t P r i n t i n g O f f i c e , Washington; June 1952. 1  3 World Pulp and Paper Resources U n i t e d N a t i o n s ; New Y o r k ; 1954.  a n d P r o s p e c t s , FAO,  26  years a f t e r publication.  T h e p r o c e d u r e u s e d was a  l i n e p r o j e c t i o n o f t h e 1945-1950 w o r l d c o n s u m p t i o n  straight figures.  4 America's  Demand f o r Wood 1929-1975 Stanford Research I n s t i t u t e c a r r i e d o u t a d e t a i l e d  regression analysis using r e a l disposable  the variables-population  income and growth  growth/  o f G.N.P.  T A B L E 3-3 STANFORD RESEARCH INSTITUTE FORECAST  ^ Forecast 1975  Grade Newsprint Printing & Writing Industrial Paperboard  * Preliminary Figures B o a r d M a r k e t s , p . 2.  G.N.P. g r o w t h  Pulp]' Paper  likely  8.6 8.5 11.7 20 3  8.5 8.4 10.5 20.9  49.1  48.3  ?  Total  The  1965*  from  Official  r e a s o n f o r t h e l o w e s t i m a t e was a  r a t e o f 1.2% p e r annum.  and Board/Supply  and  Demand 1957~*  T h i s f o r e c a s t was b a s e d u p o n a s t r a i g h t log  correlation  o f demand a n d r e a l d i s p o s a b l e  was  e s t i m a t e d t o i n c r e a s e b y 3 % p e r annum.  line log-  income.  G.N.P.  4 S t a n f o r d Research I n s t i t u t e / A Study f o r t h e Weyerhauser T i m b e r Company; 1954. 5 R e p o r t o f t h e C o m m i t t e e o n I n t e r s t a t e a n d F o r e i g n Commerce. R e p o r t n o . 573, U.S. G o v e r n m e n t P r i n t i n g O f f i c e ; Washington, June 17/ 1957.  27 TABLE  3-4  FORECAST BY INTERSTATE & FOREIGN COMMERCE  COMMITTEE  Forecast 1975  Grade Newsprint Printing & Writing Industrial Paperboard Total  * Preliminary Board Markets.  Figures  1965*  8.3 7.1 10.5 20.5  8.5 8.4 10.5 20.9  46.4  48.3  from  Official  6 World  Demand  f o r Paper  This  t o 1975  s t u d y , u n d e r t a k e n b y t h e FAO, i s t h e m o s t  t h o r o u g h d o n e on t h i s  subject.  T h e FAO h e l d  w i t h a number o f w o r l d i n d u s t r i a l statisticians reviewing  leaders,  for  economists, and  i n S e p t e m b e r o f 1959 f o r t h e s o l e p u r p o s e o f  past  efforts  i n f o r e c a s t i n g demand i n o r d e r t o  a r r i v e a t an i n f o r m e d v i e w o f l i k e l y This  a conference  f u t u r e demand  c o n f e r e n c e examined t h e h i s t o r i c a l  demand,  f o r e c a s t i n g , and v a r i a b l e s t o be employed  cast.  T h e outcome was t h e m o s t d e t a i l e d a n d  sophisticated  f o r e c a s t completed  Methodology.  i n the forestatistically  and p u b l i s h e d  a straight-line  c o r r e l a t i o n between income and consumption  6 World  methodology  i n the world.  I n 1954 t h e FAO c o n d u c t e d a f o r e -  c a s t o f p a p e r demand, a s s u m i n g  of countries  trends.  logarithmic  f r o m a number  (cross-sectional analysis).  Demand  f o r Paper  t o 1975. FAO, Rome, 1960.  28 T h i s t e c h n i q u e proved t o have two p r i n c i p a l drawbacks s (a) each country c a r r i e d t h e same weight i n t h e correlation regardless  of population  o r income l e v e l ;  (b) a s t r a i g h t - l i n e r e l a t i o n s h i p i m p l i e d t h a t paper consumption would i n c r e a s e a t t h e same r a t e f o r a given  income growth r a t e f o r a l l c o u n t r i e s  of t h e i r current The  regardless  s t a t e o f economic development. 1  outcome o f t h e 1954 f o r e c a s t was  discussed  e a r l i e r ; t h e FAO sought a method t o overcome t h e s e o b j e c t i o n s i n o r d e r t o improve t h e new s t u d y .  The demand  f u n c t i o n s e l e c t e d f o r t h e c o r r e l a t i o n a n a l y s i s was t h e l o g normal d i s t r i b u t i o n .  The a p p l i c a t i o n o f t h i s f u n c t i o n  r e s t e d on t h e assumption t h a t paper demand p e r c a p i t a w i l l ; as incomes r i s e ; approach a s a t u r a t i o n l e v e l .  The f u n c t i o n  used was t  where y = consumption i n k i l o g r a m s p e r c a p i t a S  = saturation value in.kgs per c a p i t a t = lnx - u P x = income p e r c a p i t a  u & p = The  value o f S  constants.  was determined by c o n s e c u t i v e  from a guess f i g u r e . function; apart  adjustments  One important v a l u e o f t h e l o g normal  from g r e a t l y improved f i t ; was t h a t t h e  29  elasticity decreases obtained The  coefficient as  corresponding t o such a  income i n c r e a s e s i n a c c o r d a n c e  from h i s t o r i c a l  with  d a t a i n a number o f  l o g n o r m a l f u n c t i o n was  applied  curve  countries.  to h i s t o r i c a l  a number o f c o u n t r i e s f o r t h e p e r i o d 1949-1956. resulting listed  results  data f o r The  c o e f f i c i e n t o f c o r r e l a t i o n by major grade  is  below.  TABLE  3-5  CORRELATION C O E F F I C I E N T  Grade  r_  Newsprint Printing & Writing Industrial Paperboard T o t a l Paper  The  FAO  were s a t i s f i e d  distribution provided a better correlation  and p r o c e e d e d  b a s e p e r i o d was  1954-1956.  0.9917 0.9917 0.9876 0.9979 0.9968  that the  f i t than  l o g normal  straight-line  t o the d e t a i l e d  analysis.  Population forecasts  log The  were  s u p p l i e d by t h e U n i t e d N a t i o n s Economic Commission f o r each major a r e a w i t h t h e w o r l d average increase.  The  G.N.P. b a s e y e a r was  g r o w t h r a t e i s shown i n T a b l e  3-6.  b e i n g 1.8%  1954,  and  the  annual assumed  TABLE 3-6 G.N.P. GROWTH RATES  Assumed  Area United States Canada L a t i n America Western Europe E a s t e r n Europe U.S.S.R. Africa Near E a s t Japan India Far East (Others) China Oceania Source*  FAO; W o r l d Demand; T a b l e 2.28J p . 7.  1. 40 2. 18 2. 50 2. 50 4. 00 4. 50 2. 00 2. 00 5. 65 2. 50 2. 00 4. 75 2. 50  31  L i s t e d below compared  with actual  i s t h e FAO 1964  forecast  figures.  TABLE 1965  Forecast 1965  North America L a t i n America Western Europe Eastern Europe U.S.S.R. Africa Near E a s t Far East Japan China Oceania  48.0 3.8 27.5 4.1 6.7 1.0 0.3 1.8 4.9 3.2 1.4  Forecast,  The is,  1964,  Difference  -1.0 +0.4 +0.9 +0.4 +2.1 +0.4 -0.1 -0.5 -3.1 0 0  -2.1 +10.5 +3.3 +9.8 +31.3 +40.0 -33.3 -14.0 -63.3 0 0  -0.5  -0.5  49.0 3.4 26.6 3.7 4.6 0.6 0.4 2.3 8.0 3.2 1.4  W o r l d Demand, T a b l e 2.29,  W o r l d Review,  u n d e r e s t i m a t i o n o f t h e demand.  North America;  Difference  103.2  FAO,  1964  The m a j o r  studies;  factor  i s t h e a s s u m e d r a t e o f G.N.P. increased  Europe/ and e s p e c i a l l y ;  (1954 U.S.  dollar basis  )  51. 7.  that  which The  t h e paper consumption i n 1  Japan..  By  a c t u a l N o r t h A m e r i c a n G.N.P. a n n u a l i n c r e a s e 3.2%  p.  P u l p & Paper, p.  result i s similar to a l l previous  boom o f t h e s i x t i e s h a s  of  c  1965  caused the d i f f e r e n c e s  the  Actual 1964  102.7  Total  Actual  3-7  FAO FORECAST COMPARED WITH ACTUAL PAPER CONSUMPTION (000,000 T o n s )  Area  S o u r c e : 1965  f o r 1965,  7  substituting 1960-1964  f o r t h e assumed  7 The Bank o f Nova S c o t i a ; M o n t h l y Review,  values,  February  1966.  32 the FAO f o r e c a s t would have been 49.1 m i l l i o n tons f o r 1964. S i m i l a r c o r r e c t i o n s f o r Western Europe and Japan would a l s o adjust the forecast.  In the case o f U.S.S.R., the FAO  o v e r - e s t i m a t e d the r a t e o f economic growth.  S i n c e G.N.P. i s  not a v a i l a b l e f o r t h e U.S.S.R., t h e FAO s u b s t i t u t e d t h a t r a t e o f economic growth t h a t corresponded P l a n f o r paper p r o d u c t i o n .  t o the Five-Year  The remaining a r e a s a r e w e l l  w i t h i n an a c c e p t a b l e v a r i a n c e f o r the f o r e c a s t .  The methodo-  l o g y employed i s c a p a b l e o f f o r e c a s t i n g consumption w i t h more a c c u r a c y than any o t h e r method u t i l i z e d of  to date.  The v a l u e s  t h e two v a r i a b l e s - income growth r a t e p e r c a p i t a , and  p o p u l a t i o n , can be o b t a i n e d each y e a r and t h e f o r e c a s t amended y e a r by y e a r . THE AUTHOR'S FORECAST In t h i s study, t h e t e c h n i q u e s d e s c r i b e d above i n c o n n e c t i o n w i t h t h e FAO work w i l l be employed t o o b t a i n a f o r e c a s t f o r paper demand f o r 1970 and 1975. of  On t h e b a s i s  t h a t p r e d i c t i o n , t h e next s t e p w i l l be t h e d e r i v a t i o n o f  the demand f o r b l e a c h e d market k r a f t p u l p .  Following t h i s ,  the study w i l l examine p r o d u c t i o n by c o u n t r i e s , f u t u r e p l a n s , and w i l l p r e d i c t t h e s i z e o f the s u r p l u s o r shortage f o r t h e next f i v e and t e n y e a r s . F o r e c a s t o f Paper Demand, 1970 and  1975  T h i s f o r e c a s t assumes t h e f o l l o w i n g v a r i a b l e s (growth r a t e s o f G.N.P. and p o p u l a t i o n ) f o r market areas s e r v e d by B r i t i s h Columbia p u l p e x p o r t e r s *  33  TABLE 3-8 FORECAST VARIABLES  Population (Millions) 1970 1975  G.N.P. A n n u a l Increase  %  Area North America L a t i n America Western Europe Africa Near E a s t Japan Far East (Others) Oceania  Application  c  2.5 2.0 2.0 1.5 2.0 7.5 2.5 3.0  232 255 330 275 58 100 900 15  255 290 350 300 66 108 1/000 16  o f t h e above d a t a t o t h e l o g normal  distribution provides the forecast  o f p a p e r demand shown i n  T a b l e 3-9.  TABLE 3-9 FORECAST OF PAPER DEMAND, 1970 a n d 1975 (000,OOO's S.A.D.T.)  Area North America L a t i n America Western Europe Africa Near E a s t Japan Far East (Others) Oceania Total  Sourcej  Actual 1964  Forecast 1970 1975  49.0 3.4 26.6 0.6 0.4 8.0 2.3 1.4  60.0 ' 5.6 34.3 0.9 0.6 11.3 3.3 1.8  91.7  117.8  70.5 • 6.5 42.5 1.4 0.9 14.9 4.6 2.1 143.4  1965 W o r l d R e v i e w , P u l p a n d P a p e r , p . 7.  34  Forecast o f Chemical Chemical has  Pulp  pulp as a percent o f paper  s l o w l y i n c r e a s e d from  Table for  3-1).  of  consumption  5 0 % i n 1955 t o 5 3 % i n 1964 ( s e e  This trend w i l l  higher q u a l i t y  from  Demand  c o n t i n u e a s t h e c o n s u m e r demand  increases.  The p a t t e r n i n Western  1950 t o 1960 h a s shown a h i g h l y c o r r e l a t e d  increasing percentage  of chemical pulp  Europe  relationship  i n the furnish of  p a p e r w i t h t h e p e r i o d 1940-1950 i n t h e U n i t e d S t a t e s . proportion decreases  of chemical pulp  i n c r e a s e s , groundwood p e r c e n t a g e  due t o two f o r c e s - q u a l i t y demand, a n d a d i m i -  n i s h i n g amount o f a v a i l a b l e wood f o r g r i n d i n g . the percent o f chemical pulp toj or  64.6 m i l l i o n  i n paper i s expected  t o increase tons,  5 8 % i n 1975.  The  Kraft  kraft pulp Bleached  sulphite,  addition,  grades  although normally whiter  o f paper.  than  kraft,  the strength characteristics required.  there i s a d i s t i n c t  o f sulphates over  will  time,  has e n l a r g e d t h e need f o r b l e a c h e d  i n t h e f u r n i s h o f most w h i t e  does n o t p o s s e s s  use  (B/K) P u l p  demand f o r s t r o n g e r a n d , a t t h e same  l i g h t e r - w e i g h t papers  economic advantage i n t h e  s u l p h i t e s because 25% l e s s o f t h e former  produce a paper o f comparable o r s u p e r i o r q u a l i t y .  manufacturers by  Therefore,  t o n s , o r 5 5 % b y 1970; a n d 83 m i l l i o n  Demand f o r B l e a c h e d  In  As t h e  h a v e shown t h e i r p r e f e r e n c e f o r b l e a c h e d  a s t r o n g surge  i n demand  (see Table  3-10).  Paper kraft  35  TABLE  3-10  WORLD PRODUCTION OF CHEMICAL PULP (OOO^OO's T o n s )  Grade  1950  1960  1963  % Change 1950-1963  Bleached K r a f t " Sulphite Unbleached K r a f t " Sulphite Sub T o t a l  2.6 3.2 8.1 4.5 18.4  9.6 5.2 13.9 5.1 33.8  13.1 5.8 16.8 4.8 40.5  504 180 209 107 220  Other Grades Communist A r e a s  2.3 2.3  4.1 4.7  4.7 4.7  204 204  23.0  42.6  49.9  217  11.3  22.5  26.3  Total  r  Bleached as % o f  Kraft Total  Sources  R e f e r e n c e T a b l e s ; Canadian P u l p and A s s o c i a t i o n , T a b l e 8 9 / p . 33.  Paper  A n a l y s i s o f F u t u r e Demand The  final  s t e p i n f o r e c a s t i n g t h e demand f o r  b l e a c h e d k r a f t m a r k e t p u l p i n v o l v e s an a n a l y s i s o f p a s t history plus projection The  annual  f o r the  future.  i s s u e o f Woodpulp S t a t i s t i c s ,  published  by  t h e U n i t e d S t a t e s P u l p and  Paper A s s o c i a t i o n  (USPPA),  is  the recognized world authority of pulp sales  and w i l l  t h e s o l e s o u r c e o f d a t a f o r d e t e r m i n i n g B/K The i n t e r n a l B/K  sales.  o n l y n a t i o n w i t h a s i g n i f i c a n t volume o f market p u l p t r a d i n g  ten-year average  has been f a i r l y  i s the United States.  The  c o n s t a n t a t 570,000 t o n s ,  b u t o n l y 10% o r 57,000 t o n s c a n b e B/K  market p u l p  be  market p u l p because t h e b a l a n c e  c o n s i d e r e d as  competitive  i s e i t h e r hardwoods  or  36 o r southern p i n e .  These two p u l p s s e l l a t $15 t o $25 below  n o r t h e r n B/K and a r e used f o r f i l l e r p u l p s i n low grade papers and cheap boxboard. The o n l y a v a i l a b l e s t a t i s t i c s showing i n t e r n a t i o n a l t r a n s f e r s o f p u l p a r e t h e import/export s e r i e s .  It is'  p o s s i b l e t h a t by assuming t h e t o t a l s t o be market p u l p , a s l i g h t bias i s introduced.  C e r t a i n companies t r a n s f e r  c a p t i v e p u l p t o s u b s i d i a r i e s i n o t h e r c o u n t r i e s , b u t these shipments  appear as imports t o t h o s e c o u n t r i e s .  Because t h e  c u r r e n t q u a n t i t y o f i n t e r n a t i o n a l c a p t i v e p u l p shipments i s not s i g n i f i c a n t ,  f o r the purpose o f t h i s study e x p o r t s by  p r o d u c i n g c o u n t r i e s w i l l r e p r e s e n t t h e w o r l d market p u l p sales. Most c o u n t r i e s produce  k r a f t pulp, but only four  are s i g n i f i c a n t i n world trade f o r bleached k r a f t .  These  a r e Canada, Sweden, t h e U n i t e d S t a t e s , and F i n l a n d . Others, such as France, R u s s i a , C h i l e , New Zealand, and Norway, s h i p l e s s than 1% o f t h e t o t a l o f t h e f o u r major suppliers. A t e n - y e a r h i s t o r y o f e x p o r t s by t h e s e c o u n t r i e s t o major areas i s d i s p l a y e d on t h e next page. I t i s important t o n o t e t h a t shipments  have r i s e n  by 2,557,000 tons i n t h e t e n - y e a r p e r i o d and a r e t h r e e times t h e 1955 l e v e l .  Canada has always been t h e l a r g e s t e x p o r t e r  and h e r average annual increment,  103,000 tons, i s t h e h i g h e s t  o f t h e f o u r c o u n t r i e s , f o l l o w e d i n o r d e r by Sweden (78,500 tons), Finland  (39^600 t o n s ) , and t h e U.S. (25,000 t o n s ) .  TABLE 3-11 EXPORTS OF BLEACHED AND SEMI-BLEACHED KRAFT PULP 1955-1964 (OOO's S.A.D.T.)  From Sweden To U.S.A. Europe L. America As.,Afr.,Pac. Total From F i n l a n d To U.S.A. Europe L. America As.,Afr.,Pac Total From Canada To U'.S.A. Europe L. America As.,Afr.,Pac Total From U.S. To Canada Europe L. America As./Afr.,Pac. Total Grand T o t a l Source:  .955  1956  1957  1958  1959  1960  1961  1962  1'963  1964  82 231 20 13 346  87 173 22 20 402  65 317 19 15 416  76 392 11 19 498  91 477 11 29 608  70 537 10 24 641  70 536 4 22 632  89 700 17 26 832  69 893 16 38 1,016  82 994 13 42 1,131  12 50 14 3 79  13 64 7 1 84  17 82 7 3 109  9 91 10 3 113  10 116 10 3 139  11 108 1 3 123  26 155 <- 7 7 195  29 268 6 15 318  24 314 5 19 362  22 414 4 35 475  601 61 4 4 670  611 62 3 9 685  667 62 1 19 749  777 95 12 16 900  890 120 23 26 1,059  897 173 18 32 1,120  986 156 30 48 1,220  1,093 153 33 53 1,332  1,173 211 16 128 1,528  1,259 267a 22 149 1,697  •  7 164 29 6 206  11 164 12 4 191  11 162 12 11 196  7 130 11 5 153  5 171 11 6 194  6 365 19 18 408  9 359 29 34 431  7 314 30 46 397  11 337 50 102 500  10 375 51 119 555  1,301  1,362  1,470  1^644  2,000  2,292  2,478  2,879  3^406  3^858  Woodpulp S t a t i s t i c s ,  USPPA, 1955-1965.  38  Sweden and F i n l a n d s e l l a p p r o x i m a t e l y 90% o f t h e i r outputs t o Europe w h i l e Canada has c o n c e n t r a t e d on t h e American market.  The U n i t e d S t a t e s has s h i p p e d from  t o 80% o f her exports t o Europe.  70  The o t h e r areas appear t o  he r e s i d u a l s a l t h o u g h t h e e f f e c t o f l a r g e shipments  by a l l  f o u r c o u n t r i e s t o the Far E a s t (Japan) i n r e c e n t y e a r s i s quite evident. To determine a n a l y s i s o f imports was  the major i m p o r t i n g c o u n t r i e s , undertaken.  In L a t i n America,  Far E a s t ( e x c l u d i n g Japan), A f r i c a , and Near E a s t a r e n o t broken  down by grade.  However, t h e  markets a r e shown i n T a b l e 3-12 In a b s o l u t e terms,  an the  imports  significant  which f o l l o w s on page 39.  t h e American market  demonstrates  t h e l a r g e s t change w i t h an average increment o f 70,000 t o n s p e r y e a r o v e r the t e n - y e a r p e r i o d . r a t e o f growth appears importance  i n Japan.  However, t h e g r e a t e s t  To a new  mill,  the  o f Western Europe as a u s e r o f b l e a c h e d k r a f t  a p o t e n t i a l market f o r the p r o d u c t i s v i t a l .  and  Most o f t h e  n a t i o n s have quadrupled t h e i r i n t a k e s , and I t a l y i s now i m p o r t i n g t e n times t h e q u a n t i t y she purchased T a b l e 3-10  in  1955.  c l e a r l y i l l u s t r a t e d the r a p i d i n c r e a s e  o f b l e a c h e d k r a f t p r o d u c t i o n i n t h e v/orld.  This established  t r e n d w i l l c o n t i n u e , as was p o i n t e d out p r e v i o u s l y .  Further  evidence o f t h i s t r e n d can be seen i n t h e usage o f B/K the f u r n i s h o f paper i n Western Europe, on page 40.  in  tabulated i n Table  3-13  TABLE 3-12 IMPORTS OF BLEACHED AND SEMI-BLEACHED KRAFT PULP 1955-1964 (000's S.A.D.T.)  Area United States Canada  Australia Japan L a t i n America, Source:  1961  1962  1963  1964  952  1,068  1,237  1,279  1,378  25  17  ^ 13  11  13  11  1959  1956  1957  697  714  740  842  988  18  19  13  Western Europe U.K. France Germany < Holland Belgium Italy Switzerland Balance T o t a l W. Europe  1958  1955  i  3  1960  184 67 137 22 21 25 26 _40 522  174 65 151 23 22 30 27 _8l 573  236 77 158 29 31 41 26 39 637  258 85 167 40 46 40 23 62 721  296 106 212 53 47 63 31 88 896  389 148 285 64 50 92 38 131 1,197  393 155 309 55 57 95 44 106 1,214  432 188 397 54 69 135 39 131 1,445  501 249 459 90 87 228 40 108 1,762  580 294 547 126 82 253 41 134 2,057  15  30  39  37  28  56  26  33  44  53  3  15  45  5  2  3  14  43  180  210  F a r E a s t (Japan e x c l u d e d ) , A f r i c a and Near E a s t i  D e t a i l e d Grade S t a t i s t i c s not a v a i l a b l e .  E x t r a c t e d from Woodpulp S t a t i s t i c s , U.S.P.P.A. f o r Years 1955-1964. to  KD  40 TABLE 3-13 PERCENT OF BLEACHED KRAFT PER TON OF PAPER AND PAPERBOARD WESTERN EUROPE, 1953-1960  %  Year 1953 1954 1955 1956 • 1957 1958 1959 1960 1965 ( e s t . ) II 1970 it 1975 Sources  r-  2.9 3.1 3.6 3.8 4.3 4.9 5.6 6.4 9.0 12.0 15.0  000's Tons Paper Prod. Tons B/K 372 453 575 639 768 890 1,100 1,390 2,610 4,116 6,375  12,827 14,613 15,972 16,816 17,860 18,163 19,642 21,718 29,000 34,300 42,500  Pulp and Paper P r o s p e c t s i n Western Europe, FAO, Rome 1963, p . 453.  Below i s shown t h e t r e n d o f market b l e a c h e d k r a f t t o t o t a l chemical p u l p . TABLE 3-14 BLEACHED KRAFT MARKET PULP c . f . CHEMICAL PULP (000,000 Tons)  Year  Chemical Pulp  1955 1956 1957 1958 1959 1960 1961 1962 1963 1964  32.4 34.3 34.9 35.3 38.8 42.6 45.3 47.3 49.8 54.7  Market 1.30 1.36 1.47 1.64 2.00 2.29 2.48 2.88 3.41 3.86  B/K  % Market B/K 4.0 4.0 4.2 4.6 5.2 5.4 5.5 6.1 6.8 7.1  ErtiEE  - L j - - - |_  "farm" 1  i ; ; i;  : ; 1 . ! | i.t-  4-  i j1  1  T  I •  I  1\j  1 I'll L I  1111 ill! ill  j 11 j 111 j  1111  F i g u r e 1.  /UO  ff  11  i  11  i  111  i  4 j j i  "{-n •  -  j!  m  i  tt£*  11  1  1  I11  II  1.1 i 11  | ; j j t IT I I j r Itr 11 i 1 1 i + F f f li [ | | [ | - [ | | L | i •f t i n P - 4ix n i i n i 1 1 1 IN Mil Mill lill II1! 1II1111111 I M 1 I M | M l 1 Ml 1111111111! 111 i I I 1 1 1 I I 1 1 1111 1 11 1 1 I I 1 1 1 1 I I 1 1 1 IMI I ' l l 1 l 1  4  1  -H-H ~|TJ7JTJTJT|T  llliilL  1 1 11  -r  ±H?  ill  1  j  1  |  III II lill i lill II I I I I I I /<?&$'  (0  4f 111 i jj1 i  1 1 1 1i  1 1  II  Bleached k r a f t market p u l p as a p e r c e n t of t o t a l chemical p u l p .  jif •  II  i 11 11 11 i 11 ii  III/?7iTII  1  I 11 M  42  Conclusion P r o j e c t i o n o f t h e t r e n d o f B/K market p u l p as a percent o f t o t a l chemical pulp leads t o the c o n c l u s i o n t h a t B/K  market p u l p w i l l be 11.0% o f c h e m i c a l i n 1970, and 15%  by 1975. TABLE 3-15 PROJECTED DEMAND FOR B/K MARKET PULP 1970 and 1975  1970 Chemical  Pulp  B/K  as % o f Chemical  B/K  Market Pulp  1975  64.4 M i l l i o n  Tons  11%  83 M i l l i o n Tons 15%  7.1 M i l l i o n Tons  12.4  M i l l i o n Tons  Proposed A l l o c a t i o n o f B/K Market Pulp by Area T a b l e 3-16 c o n t a i n s a proposed  t e n t a t i v e breakdown  o f t h e p o t e n t i a l f o r B/K p u l p f o r b o t h 1970 and 1975, upon t h e p r o j e c t e d demand f o r paper,  based  and t h e h i s t o r y o f i m p o r t s .  TABLE 3-16 PREDICTED DISTRIBUTION OF B/K MARKET PULP, 1970 & 1975 . (000,OOO's Tons)  1970  .. Area North America Western Europe L a t i n America Oceania Japan Far E a s t & Others  2.0 3.7 .5 .1 .5 .3  Total  7.1  1975 3.5 6.0 1.1 .2 1.0 .6 12.4 f  43 A n a l y s i s o f Proposed  Distribution  The U n i t e d S t a t e s , i n s p i t e o f p o s s e s s i n g l a r g e uncut f o r e s t s , has imported c e r t a i n grades o f p u l p t o s u p p l e ment her own  production.  demand by U.S.  Canadian B/K  manufacturers  h i g h q u a l i t y paperboard,  has always been i n  o f p r i n t i n g and w r i t i n g  paper,  and f i n e paper s i n c e p u l p made from  southern p i n e o r n o r t h e r n hardwoods cannot t e r i s t i c s r e q u i r e d i n t h e s e grades. p r i n t i n g grades have i n c r e a s e d 18%,  supply t h e c h a r a c -  In t h e p a s t f i v e y e a r s , and t h i s t r e n d s h o u l d  c o n t i n u e as s c h o o l and c o l l e g e attendance  grows.  Light-  weight f i n e paper has e x h i b i t e d a 21% growth d u r i n g the p a s t f i v e y e a r s due  i n p a r t t o the i n c r e a s e i n postage  rates,  m a i n l y t o t h e dramatic growth o f b u s i n e s s papers and printouts.  Northern  computer  softwood p u l p i s a n e c e s s i t y i n f i n e  paper grades t o impart s t r e n g t h and a smooth s u r f a c e . packaging paperboard  but  Modern  t e c h n i q u e s have c r e a t e d a demand f o r h i g h q u a l i t y s u i t a b l e f o r h a l f and f u l l - t o n e c o l o u r r e p r o d u c t i o n .  To date, the most a c c e p t a b l e p u l p f o r top l i n e r on board been n o r t h e r n B/K.  Paperboard  has  s a l e s have r i s e n 23% i n the  l a s t f i v e y e a r s and s h o u l d c o n t i n u e t h e i r r a p i d growth. T h e r e f o r e , an i n c r e a s e i n U.S.  demand f o r B/K  imports  from  Canada and S c a n d i n a v i a i s e v i d e n t . Western Europe's p e r c a p i t a p r o d u c t i o n o f paper i s r u n n i n g t e n t o f i f t e e n y e a r s b e h i n d North America's, r a p i d l y c a t c h i n g up. the f o l l o w i n g t a b l e .  but i s  T h i s consumption g a i n i s i l l u s t r a t e d i n  44 TABLE PER  3-17  CAPITA PAPER CONSUMPTION GAIN, 1950-1964 (Pounds p e r C a p i t a )  320 264 246 208 220 221 479 157  198 164 151 148 132 124 97 83  Sweden U n i t e d Kingdom Denmark West Germany Netherlands Switzerland United States France Sources  1964 Level  Gain  Country  1965 World Review, Pulp Paper, pp. 7 & 11.  and  Consumption o f paper i n Europe s h o u l d make a c c e l e r a t e d g a i n s as income, l i t e r a c y ( I t a l y , S p a i n ) , and acceptance o f the supermarket  increase.  p r e v i o u s l y i n T a b l e 3-12,  f o r e c a s t a dramatic  the FAO  As was  shown rise  i n demand f o r b l e a c h e d k r a f t .  Europe's r e s o u r c e s o f wood  a r e b e i n g taxed t o the l i m i t .  The FAO  i n 1963  examined t h i s  and c o n s e r v a t i v e l y p r e d i c t e d t h a t , - b y 1975,  problem Western  Europe w i l l have changed from a net e x p o r t e r o f p u l p and paper o f 1.4 m i l l i o n tons (1962), t o a net importer o f f i b r e of 6 m i l l i o n tons.  The h i g h e s t percentage o f t h a t f i b r e i s  expected t o be b l e a c h e d k r a f t p u l p . Japan ranks t h i r d i n the world i n p r o d u c t i o n o f paper.  T h i s c o u n t r y has l a r g e uncut f o r e s t s ,  some of,which  a r e on mountainous t e r r a i n , o t h e r s l a r g e n a t i o n a l p a r k s o r v i r t u a l s h r i n e s , and the b a l a n c e b e i n g c u t f o r timber,  45 fuelwood/ and p u l p .  Japan began i m p o r t i n g p u l p i n l a r g e  q u a n t i t i e s i n mid 1962.  S i n c e then, t h e r e has been a steady-  i n c r e a s e i n demand f o r b l e a c h e d k r a f t , and d u r i n g the e a r l y 7 p a r t o f 1966  the demand doubled.  l i k e l y t o r e a c h l a r g e tonnages.  The f u t u r e demand i s The l o c a l manager o f one  of  t h e n a t i o n ' s l e a d i n g T r a d i n g Houses e s t i m a t e s Japan w i l l import a m i l l i o n tons o f b l e a c h e d k r a f t i n 1970  and  two  Q  m i l l i o n by 1975.  However, the Japanese have been g u i l t y  o f e x a g g e r a t i o n o f demand i n the p a s t . perhaps  study,  c o n s e r v a t i v e l y , e s t i m a t e s demand t o be 500,000 and  one m i l l i o n tons i n 1970 L a t i n America slowly.  Therefore, t h i s  and 1975,  respectively.  has developed  i t s pulp industry very  Only C h i l e and B r a z i l have reached the p o i n t o f  e x p o r t i n g p u l p and paper t o o t h e r L a t i n American c o u n t r i e s . Because t h e wood u t i l i z e d i s s h o r t f i b r e w i t h i n h e r e n t weak s t r e n g t h , the q u a l i t y o f t h i s p u l p i s c o n s i d e r a b l y below western  standards.  In o r d e r t o make h i g h q u a l i t y p r i n t i n g ,  w r i t i n g and f i n e paper, bleached k r a f t .  t h e s e c o u n t r i e s must import n o r t h e r n  Imports have grown s t e a d i l y and are  t o i n c r e a s e as the standard o f l i v i n g The  expected  improves.  F a r E a s t , M i d d l e and Near E a s t are an enigma  f o r any f o r e c a s t e r .  Demand has f l u c t u a t e d s i g n i f i c a n t l y i n  the past ten years.  Taiwan f i r s t began i m p o r t i n g o f b l e a c h e d  k r a f t i n 1963  and i n t h e f o l l o w i n g y e a r doubled the i n t a k e .  I s r a e l r e l i e d on s u l p h i t e s up t o 1964 when k r a f t 7 P e r s o n a l i n t e r v i e w w i t h Mr. A. C. McGougan. 8 P e r s o n a l i n t e r v i e w w i t h Mr. K.  Kinoshita.  purchases  46 commenced.  P a k i s t a n ' s demand has gone from z e r o t o 20,000  tons p e r year i n two y e a r s , b u t i s not expected t o i n c r e a s e u n t i l more paper m i l l s a r e b u i l t .  Equally d i f f i c u l t to  p r e d i c t i s t h e p o t e n t i a l i n I n d i a , M a l a y s i a o r Indonesia, who c u r r e n t l y purchase a few thousand  tons each i n a y e a r .  The P h i l l i p i n e s i n d u s t r y , mainly s e l f - s u f f i c i e n t , does buy a s m a l l q u a n t i t y o f k r a f t p u l p , c h i e f l y from U.S. s u p p l i e r s . Demand i n t h e s e areas w i l l i n c r e a s e s l o w l y , but, i n a b s o l u t e tonnages,  t h e y w i l l n o t be a s i g n i f i c a n t  force  i n t h e market. A u s t r a l i a and New Zealand use h i g h t a r i f f s t o keep imported paper out o f t h e i r markets.  A u s t r a l i a must import  p u l p t o meet t h e demand f o r c e r t a i n grades o f paper and board even though h e r p i n e and e u c a l y p t u s f o r e s t s a r e q u i t e s u f f i c i e n t t o meet o t h e r needs.  New Zealand i s a n e t  e x p o r t e r o f p u l p and newsprint and i s attempting t o form a f r e e t r a d e arrangement w i t h A u s t r a l i a w i t h a view t o r e s t r i c t i n g imports from o t h e r n a t i o n s .  T h i s t r a d e agree-  ment i s not a foregone c o n c l u s i o n f o r the p r i c e s t h e New Z e a l a n d e r s charge f o r t h e i r p u l p a r e $10 t o $15 a 'ton above t h a t d e l i v e r e d from Canada.  Therefore, i t i s a n t i c i p a t e d  t h a t B/K p u l p w i l l be imported by A u s t r a l i a i n i n c r e a s i n g quantities f o r the foreseeable future. The demand i n t h e remaining area, A f r i c a , i s v i r t u a l l y impossible t o p r e d i c t .  South A f r i c a ,  Rhodesia,  and Egypt a r e t h e major importers b u t t o g e t h e r they o n l y bought 22,400 tons o f b l e a c h e d k r a f t i n 1964.  Should  47 standards o f l i v i n g  i n c r e a s e much more r a p i d l y than i n t h e  p a s t and t h e i l l i t e r a c y r a t e decreases  a t an a c c e l e r a t e d pace,  then A f r i c a may become a s u b s t a n t i a l buyer o f b l e a c h e d  kraft.  In summary, t h e demand f o r b l e a c h e d k r a f t between now and 1975 w i l l and  increase sharply.  The e s t i m a t e s ,  7.1  12.4 m i l l i o n tons f o r 1970 and 1975 r e s p e c t i v e l y , may  indeed be h i g h l y c o n s e r v a t i v e , but they a r e c o n s i d e r e d t o be r e a l i s t i c , The  based upon c u r r e n t e x p e c t a t i o n s .  Future Supply o f Market Bleached  Kraft  The c u r r e n t major p r o d u c i n g c o u n t r i e s a r e Sweden, F i n l a n d , Canada, and t h e U n i t e d S t a t e s , w i t h R u s s i a a possible supplier.  Each o f these c o u n t r i e s has l a r g e f o r e s t  resources? w i t h t h e e x c e p t i o n o f R u s s i a , each possesses t h e t e c h n i c a l knowledge t o produce h i g h q u a l i t y p u l p . i s attempting  Russia  t o a c q u i r e , from Sweden, the equipment and  s k i l l s n e c e s s a r y t o make market grade p u l p . ^  Russia's  i n t e r n a l demand has n o t been s a t i s f i e d by her own p r o d u c t i o n ' and  she has imported p u l p from F i n l a n d t o meet h e r r e q u i r e -  ments.  A l b e r t W. Wilson,  e d i t o r o f Pulp and Paper, who has  j u s t r e t u r n e d from a t o u r o f S c a n d i n a v i a and R u s s i a ,  suggests  t h a t R u s s i a may become a major e x p o r t e r i n t h e mid t o l a t e seventies but not before.  Besides s u p p l y i n g h e r own needs,  R u s s i a must f i r s t overcome c e r t a i n d e t r i m e n t a l f a c t o r s .  For  example, the v a s t f o r e s t s o f R u s s i a l i e i n E a s t e r n S i b e r i a and a r e n o t r e a d i l y a c c e s s i b l e .  In a d d i t i o n , c o s t s o f  9 A l b e r t W. Wilson, "USSR" Tour", Pulp and Paper, v o l . 40, no. 15, A p r i l 11, 1966, pp. 44-48.  48 r  p r o d u c t i o n and d e l i v e r y c o u l d postpone R u s s i a ' s e n t r y i n t o t h e w o r l d market u n t i l product p r i c e s r i s e . F i n l a n d ' s s p e c t a c u l a r growth o f p r o d u c t i o n o f market chemical p u l p i n the p a s t f i v e years'- (1.2 t o  2.3  m i l l i o n tons) has come t o a h a l t because o f a shortage raw m a t e r i a l .  In f a c t , i n 1964  F i n l a n d imported  from R u s s i a t o supplement her own h i s t o r i c a l l y a world i s approaching expected  cutting.  This  of  pulpwood country,  l e a d e r i n i n t e n s i v e f o r e s t management,  the p o i n t o f d e p l e t i n g her f o r e s t s .  The  i n c r e a s e i n p r o d u c t i o n o f market b l e a c h e d k r a f t i n  the y e a r 1965 ,is 40,000 tons* i n 1966, 1968-1970, 100,000 t o n s . The  100,000 tons?  and  1 0  F i n n i s h Government i s u n d e r w r i t i n g a  feasibility  study o f d r a i n i n g 23 m i l l i o n a c r e s o f swampland t o p l a n t p i n e and  spruce.  1 1  a d r a i n e d and diameter  T e s t s done on a sample r e g i o n showed t h a t i n f e r t i l i z e d area, a t r e e w i l l r e a c h 10 i n c h e s i n  i n t e n y e a r s . . I f t h i s program i s implemented,  F i n l a n d c o u l d , i n t h e 1980*s, once more undergo a r a p i d expansion  o f her p u l p i n d u s t r y .  However, f o r the next ten  y e a r s , t h i s n a t i o n i s not a contender  f o r the expanding p u l p  market. Sweden has not y e t reached but i s now  the p o i n t of o v e r c u t t i n g  being forced to log f o r e s t s p r e v i o u s l y c l a s s i f i e d  as h i g h c o s t a r e a s .  The companies a r e spending  l a r g e sums  10 A l b e r t W. Wilson, "Scandinavia Improves i n World Competition", Pulp and Paper, v o l . 39, no. 40; October 4,1965, p..38. 11 Loc. c i t .  49 of money on f e r t i l i z a t i o n o f t h e f o r e s t s t o s t i m u l a t e f a s t e r growth.  The Swedish Government has f i n a n c e d a r e s e a r c h and  development program t o improve mechanization equipment.  of logging  A l l t h e s e f a c t o r s p o i n t t o Sweden's d e s i r e t o  m a i n t a i n her p o s i t i o n i n t h e w o r l d market. for  Current plans  expansion w i l l add t h e f o l l o w i n g tonnages o f B/K market  pulps  35,000 i n 1965? 75,000 i n 1966? 285,000 i n 1967?  165,000 i n 1968? and 165,000 i n 1969.  Therefore, the t o t a l 12  i n c r e a s e a n t i c i p a t e d by 1970 i s 725,000 t o n s . In  the U n i t e d S t a t e s , e x p o r t s o f bleached  o r i g i n a t e mostly from the south and western  kraft  states.  Southern  p u l p i s s i m i l a r i n c h a r a c t e r i s t i c s t o p u l p made from Douglas F i r and thus i s n o r m a l l y used i n lower grades o f p r i n t i n g and w r i t i n g papers  as w e l l as i n boxboard.  s i m i l a r t o B.C. p u l p i n q u a l i t y . planned of  Western p u l p i s  Expansions  f o r 1966-1969 t o t a l $2.7 b i l l i o n .  1 3  a r e new m i l l s However,  t h i s c a p i t a l i s going i n t o market p u l p p r o d u c t i o n .  little The  major p a r t i s f o r c a p t i v e p u l p and s e l f - c o n t a i n e d p u l p and paper o p e r a t i o n s .  Expected a d d i t i o n a l tonnages o f b l e a c h e d  k r a f t market p u l p ares  50,000 i n 1965?. 200,000 i n 1966? 14  320,000 i n 1967? and 220,000 i n 1968.  The t o t a l o f 790,000  tons w i l l p r o b a b l y be i n c r e a s e d b e f o r e 1970 by  expansions  s t i l l unannounced. 12 Pulp and Paper, v o l . 39, no. 40, p . 37. 13 G. Hodges, "Outlays Race Toward Record", Pulp and Paper, v o l . 39, no. 49, December 6, 1965, pp. 43-57. 14 These f i g u r e s were e x t r a c t e d from t h e Hodges' a r t i c l e .  50 The most i n t e n s e r u s h t o b u i l d market p u l p  mills  i s o c c u r r i n g i n Canada w i t h s t r o n g encouragement from provincial  government.  B r i t i s h Columbia  The e x p l o s i o n i s c o n c e n t r a t e d i n  where t h e wood i s p l e n t i f u l and  low c o s t as compared t o O n t a r i o and Quebec. papers have used a f i g u r e  relatively  Vancouver news-  o f 3,000,000 tons i n c r e a s e d  p r o d u c t i o n expected by 1970,  but t h e m i l l s c u r r e n t l y i n  expansion o r under c o n s t r u c t i o n do not as y e t t o t a l figure.  In a d d i t i o n t o B r i t i s h Columbia;  i n c o n s t r u c t i o n i n O n t a r i o and Quebec. k r a f t market p u l p t o be "on stream" i s i;810,000 t o n s .  T a b l e 3-19  Supply Versus Demand t o  that  t h e r e a r e new  3.9 m i l l i o n  i n the next f i v e y e a r s  presents the p e r t i n e n t data.  1970  tons would r i s e t o 7.1 m i l l i o n  by 1970.  supply-demand p i c t u r e f o r the same p e r i o d t o t a l s : TABLE 1970  mills  The t o t a l b l e a c h e d  The f o r e c a s t f o r demand showed t h a t the 1964 of  every  3-18  SUPPLY c f . DEMAND  OOO's S.A.D.T. Finland Sweden U.S. Canada T o t a l New B/K 1964 B/K T o t a l World Supply T o t a l World Demand Surplus  240 725 790 1,810 3,565 3,858 7,423 7.100 323  level The  51  TABLE 3-19 NEW SUPPLY BLEACHED KRAFT MARKET PULP, CANADA 1965-1969 (OOO's S.A.D.T.)  Area and M i l l British  1965  1966  55 45  55  1967  1968  1969  Columbia  B.C. F o r e s t Can. F o r e s t Intercontinental Kamloops MacMillan Bloedel Northwood P r i n c e George P&P Rayonier Skeena Tahsis B.C. T o t a l  40 60 200  100 90 45 60 30  125  170 55  280  60 285  50 90 140  50 30 80  260 75 435  125  Ontario Abitibi Great Lakes Ontario T o t a l Quebec Consolidated Domtar Quebec T o t a l GRAND. TOTAL  200  420  100  165 165  Too  530  535  125  52 The s i z e o f the s u r p l u s i n 1970 does not appear t o be t o o s i g n i f i c a n t . ,  The importance o f the b u i l d - u p  be seen c l e a r l y i n the graph. F i g u r e  F i g u r e 2.  2.  Supply c f Demand; Bleached market p u l p . 0  kraft  can  53  In a b s o l u t e terms the s u r p l u s f o r each y e a r from 1964 t o 1970 i s shown i n T a b l e 3-20.  TABLE 3-20 SUPPLY c f . DEMAND (000»s S.A.D.T.)  Year  Supply  Est. Demand  1964 1965 1966 1967 1968 1969 1970  3,858 4,143 4,928 6,113 7,083 7,423 7,423  3,858 4,143 4, 750 5, 300 5,900 6,500 7,100  Surplus  178 813 1,183 923 323  Comments on t h e C o n t r o v e r s y T a b l e 3-20 c o n f i r m s t h e b e l i e f s o f the i n d u s t r y l e a d e r s o f B r i t i s h Columbia,  i . e . ; g i v e n a growth o f w o r l d  demand a t 5% p e r annum and supply as those m i l l s w i t h  full  e x p e c t a t i o n o f b e i n g i n p r o d u c t i o n , t h e r e w i l l be a s u r p l u s o f p u l p f o r t h e next f o u r y e a r s .  A t t h i s p o i n t , we w i l l  examine i n d e t a i l t h e f i g u r e s s u p p l i e d by Trade and Commerce M i n i s t e r Loffmark on December 2, 1965 (see Chapter I ) . First,  t h e M i n i s t e r ' s a p p r e c i a t i o n o f t h e demand  f o r B r i t i s h Columbia  p u l p appears  t o be based upon t o t a l  w o r l d f i g u r e s w h i l e t h i s study l i m i t e d  r  t h e a v a i l a b l e markets  54 t o those n o r m a l l y s o l d t o by B r i t i s h Columbia Canadian  exporters.  e x p o r t f i g u r e s show t h a t R u s s i a , China, and E a s t e r n  Europe have n o t imported any Canadian  B/K i n t h e p a s t t e n  y e a r s - t h e r e f o r e , those areas have been, and s h o u l d be, l e f t out o f the demand p i c t u r e . Secondly, paper i s seldom, i f ever, made from one type o r grade o f p u l p e x c l u s i v e l y .  I t i s composed o f a  mixture o f s u l p h a t e s , s u l p h i t e s , groundwood, and s e l e c t e d waste paper.  T h e r e f o r e , any demand e s t i m a t e f o r p u l p must  be based upon t h e expected usage o f the p u l p grade i n q u e s t i o n and n o t on t o t a l demand.T h i r d l y , t h e f i g u r e s quoted by Mr. Loffmark bear no r e l a t i o n t o those p r o v i d e d by t h e i n d u s t r y . F o r i n s t a n c e , t h e M i n i s t e r s t a t e d t h a t 1964 w o r l d p u l p demand was 92 m i l l i o n s h o r t tons, b u t Pulp and Paper compiled a t o t a l o f o n l y 85 m i l l i o n t o n s . F i n a l l y , t h e M i n i s t e r gave p r o d u c t i o n f i g u r e s f o r B r i t i s h Columbia  i n 1964 t h a t d i f f e r s i g n i f i c a n t l y  from  t h o s e p r o v i d e d by t h e Bureau o f Economics -and S t a t i s t i c s , which comes under h i s p o r t f o l i o .  T h i s d i s c r e p a n c y i s noted  i n T a b l e 3-21. In c o n t r a s t t o t h e above, t h i s study has c a r e f u l l y deduced the demand f i g u r e s by p r o j e c t i o n o f p a s t e x p e r i e n c e u s i n g a s t a t i s t i c a l technique t h a t has shown i t s m e r i t . Supply f i g u r e s a r e supported by a h i g h l y r e l i a b l e  source.  T h e r e f o r e , we must conclude t h a t t h e i n d u s t r i a l l e a d e r s have  55 attempted  t o present a precise appreciation o f the s i t u a t i o n ,  and t h a t Mr. Loffmark has not r e c e i v e d s u f f i c i e n t l y a c c u r a t e d a t a upon which t o make p u b l i c  forecasts.  TABLE 3-21 COMPARISON OF B.C. PRODUCTION TONNAGES, 1964 (000,OOO's S.A.D.T.)  Mr.  Loffmark  Bureau*  T o t a l Pulp Produced  3.5  2.8  Converted t o Paper  1.8  1.4  Shipped as Pulp  1.7  1.4  * Bureau o f Economics and S t a t i s t i c s , Summary o f Economic A c t i v i t y 1965, Department o f I n d u s t r i a l Development, Trade, and Commerce, V i c t o r i a , B.C., December 1965, p . XIV.  SUMMARY The demand f o r b l e a c h e d k r a f t market p u l p was d e r i v e d from t h e expected consumption o f paper and paperboard i n those areas which n o r m a l l y purchase p u l p from Columbia  producers.  British  The supply e s t i m a t e i s based upon a l l  announcements o f new m i l l s c u r r e n t l y under c o n s t r u c t i o n , o r t h o s e w i t h a reasonable chance o f b e i n g b u i l t .  The r e s u l t  i s a s u r p l u s o f p u l p f o r t h e p e r i o d 1966-1970, w i t h 1968 being the year o f g r e a t e s t surplus or, i n other  terms,  56 lowest  operating  rate.  Since  construction of  a mill  requires  from two and o n e - h a l f t o t h r e e y e a r s , any company commencing today would have p u l p "on stream" i n mid 1969, when t h e s u r p l u s i s b e i n g reduced.  The above data would i n d i c a t e , t h e r e f o r e ,  t h a t the optimum time f o r commencement o f c o n s t r u c t i o n o f a bleached k r a f t market p u l p m i l l would be t h e s p r i n g o f 1968.  57  CHAPTER IV ANALYSIS OF SELLING PRICE AND PRODUCTION COST DATA ANALYSIS OF FACTORS AFFECTING NET MILL VALUE The  f i v e f a c t o r s which determine t h e n e t i n f l o w o f  cash t o a B/K m i l l ares  s  Selling  1.  Selling Price  2.  Exchange Rate  3.  Freight  4.  S e l l i n g Commission  5.  Insurance C o s t s .  Rates  Price Normally, p u l p i s s o l d on t h e i n t e r n a t i o n a l market  on a d e l i v e r e d b a s i s . d o l l a r s , cost; a l l countries  P r i c e s a r e quoted i n U n i t e d  States  i n s u r a n c e and f r e i g h t (C.I.F.) i n c l u d e d , i n except t h e U n i t e d Kingdom, A u s t r a l i a and New  Zealand, where t h e monetary u n i t i s pounds s t e r l i n g ( C . I . F . ) . A few c o u n t r i e s ,  such as Taiwan and Venezuala, i n s i s t on a  p r i c e free at ship States  (F.A.S.).  A l l pulp sold i n the United  i s quoted i n U.S. d o l l a r s F.O.B. m i l l ,  a l l o w e d t o buyers a t r a i l  full  freight  siding.  P r i c e s a r e announced f o u r times a year, f i f t e e n t o t h i r t y days p r i o r t o t h e b e g i n n i n g o f each q u a r t e r . increases  have always f o l l o w e d  t h i s pattern,  Price  but o f f i c i a l  58  announcements o f p r i c e drops have o c c u r r e d a t o t h e r  times.  European p r i c e s have always been s e t by t h e Scandinavians, w h i l e American p r i c e s a r e n o r m a l l y s e t by Canadian  producers.  Canadians a l s o e s t a b l i s h t h e p r i c e s i n Japan and A u s t r a l i a . In t h e remainder o f t h e world, by t h e Scandinavians,  although,  o f f i c i a l prices are dictated i n a c t u a l f a c t , they merely  a c t as g u i d e l i n e s f o r b a r g a i n i n g o r t e n d e r i n g . The u n i t o f measure i s not u n i f o r m l y P u l p i s s o l d i n s h o r t , l o n g , and m e t r i c t o n s .  standard. Short tons,  (each 2/000 pounds),' a r e common t o North America, Japan, the P h i l l i p i n e s / South A f r i c a , and I s r a e l .  Long (2,240 pounds)  tons a r e used f o r t h e U n i t e d Kingdom, A u s t r a l i a ; New P a k i s t a n / M a l a y s i a , and Egypt. uses m e t r i c  Zealand/  The remainder o f t h e w o r l d  (2,204 pounds).  * The p r i c e o f B/K i s s u b j e c t t o c o n s t a n t change and i s q u i t e d i f f e r e n t i n each major a r e a .  An example o f  p r i c i n g i s i l l u s t r a t e d belowg TABLE 4-1* DECEMBER  Area U.S. Europe U.K. Japan Australia Argentina  1965 BLEACHED KRAFT PRICES  Price  Currency  $145-$155 $144.00 56.10.0 $139.00 60.0.0 $189.00  U.S. U.S. h U.S. L U.S.  * P r o v i d e d by l e a d i n g B.C. E x p o r t e r .  Ton Short Metric Long Short Long Metric  59 The f o l l o w i n g t a b l e i s t h e h i s t o r y o f p r i c e s i n t h e American  market. TABLE 4-2*  AMERICAN PRICES 1955-1965 FULLY BLEACHED KRAFT (G.E. 89/90)  Year 1955 1956 1957 1960 1962 1963 1964  P r i c e Range US $/S.A.D.T.  Month January April October April October November October April October October  $142.50-147.50 147.50 150.00 155.00 157.50-162.50 160.00 140.00 133.00-145.00 148.00-150.00 145.00-155.00  * Woodpulp S t a t i s t i c s , USPPA, October 1965, p . 131. In a d d i t i o n t o t h e above; t h e r e a r e lower p r i c e s for  lower G.E. B r i g h t n e s s .  lower than 89/90.  F o r example; G.E. 84-86 i s $2  Semi-Bleach  (G.E. 68/75) has s o l d f o r as  much as $20 below B/K p r i c e s b u t r e c e n t l y has been o n l y  $6  t o $8 lower. European p r i c e s have f o l l o w e d o f producer m i l l i n v e n t o r i e s .  the inverted  When B r i t i s h buyers  graph  literally  ceased b u y i n g i n t h e f a l l o f 1960 due t o slower paper demand and h i g h p u l p i n v e n t o r i e s lowered p r i c e s 10%.  a t t h e i r m i l l s ; the Scandinavians  In 1961 Weyerhauser was o v e r s t o c k e d and  i n s t i g a t e d a p r i c e drop o f $20 i n t h e U.S. market. r e c e n t p r i c e c o l l a p s e i n Europe was d i s c u s s e d  The  i n Chapter I .  60 P u l p p r i c e s have not y e t r e c o v e r e d t o the 1957-1959 l e v e l / and  i t i s u n l i k e l y t h a t t h e y w i l l do so u n t i l  e a r l y 1970's. Scandinavians  In o r d e r t o move p r i c e s h i g h e r i n 1963, v o l u n t a r i l y and e f f e c t i v e l y reduced  t o 90% o f t h e i r r a t e d c a p a c i t y .  The  same c o u n t r i e s a r e  o r d e r t o reduce t h e i r i n v e n t o r i e s and p o s s i b l y r a i s e p r i c e back t o the e a r l y 1965  due  level.  the  production  p r o p o s i n g a month's moratorium o f p r o d u c t i o n i n 1966  o f B/K  the  A l e a d i n g B.C.  f e e l s t h a t c u r r e n t p r i c e s f o r Europe w i l l not  in the exporter decrease  t o i n c r e a s i n g c o s t s / c h i e f l y labour, i n S c a n d i n a v i a .  1  However, t h e same company i s not so o p t i m i s t i c about American p r i c e s which, they f e e l c o u l d drop t o the $130-$135 l e v e l the end o f t h i s y e a r .  Japanese p r i c e s w i l l p r o b a b l y  by  remain  a t t h e i r c u r r e n t low l e v e l because a r i s e i n p r i c e o f $5 a t o n i n 1964 there.  encouraged the Scandinavian  s e l l e r s t o compete  A f t e r the removal o f t h e p r i c e increment,  d i n a v i a n B/K The  the Scan-  t r a d e r s l o s t i n t e r e s t i n t h i s market. f o r e c a s t o f bleached k r a f t p r i c e s deduced f o r  t h i s study appear i n T a b l e 4-3  on page 61.,  Exchange Rate Canadian e x p o r t e r s r e c e i v e from $9.75 to $11,625 Canadian d o l l a r s f o r every ton s o l d i n U.S. o f the exchange r a t e .  c u r r e n c y because  T h i s i s a s u b s t a n t i a l amount when  1 On March 15; 1966; Greaker C e l l u l o s e f a b r i k , a Norwegian producer o f b l e a c h e d s u l p h i t e / shut down due t o h i g h losses;' wood c o s t s r o s e $1 m i l l i o n i n the p a s t t e n y e a r s , and the r e c e n t drop i n p r i c e s c o s t Greaker another $1 m i l l i o n . Pulp and Paper; v o l . 40/ no. 13; March 28, 1966, p. 9.  61 p r o f i t p e r t o n a f t e r t a x i s o f t e n under $20. exporters  The e s t a b l i s h e d  r e c a l l t h e 1955-1960 p e r i o d when the exchange r a t e  lowered t h e i r r e t u r n by as much as $7 p e r t o n . t h a t t h e exchange r a t e w i l l remain u n a l t e r e d five  I t i s assumed  f o r t h e next  years. TABLE 4-3 FORECAST OF BLEACHED KRAFT PRICES (Per Ton)  Area U.S. Wo Europe Japan Australia Others  1966-1970  1971-1972  $140.00 144.00 139.00 £.60. 0.0 $137.00  $155.00 160.00 145.00 £.65.0.0 $140.00  1973$165.00 170.00 155.00 £.68.0.0 $150.00  F r e i g h t Rates F r e i g h t r a t e s can be d i v i d e d i n t o two c a t e g o r i e s r a i l and water.  R a i l r a t e s t o t h e American market have  remained s t a t i c f o r the p a s t f i v e y e a r s and a c t u a l l y decreased t e n cents p e r hundred pounds i n 1964 i f the producer loaded The  120,000 pounds i n each f o r t y - f o o t boxcar.  f o u r f r e i g h t zones i n t h e U n i t e d S t a t e s a r e P a c i f i c ,  Mid West, Great Lakes, and E a s t e r n .  The  corresponding  average f r e i g h t r a t e s p e r S.A.D.T. a r e $17.50, $22.25, $24.50 and  $27.00 f o r B.C. s h i p p e r s .  The d i s t r i b u t i o n o f U.S. p u l p  b u y i n g paper m i l l s a c c o r d i n g t o F r e i g h t zones i s s P a c i f i c , Mid West; 40%; Great L a k e s / 20%; and E a s t e r n , 35%.  5%;  62 By assuming p u l p s a l e s t o those areas i n p r o p o r t i o n  to  the  buyers g i v e s an average f r e i g h t r a t e o f $24.13 Canadian p e r S.A.D.T. An  i n t e r i o r m i l l s e l l i n g t o o v e r s e a s markets  the problem o f t r a n s p o r t i n g t h e p u l p t o a dock v i a  faces  rail,  s t o r i n g the p u l p u n t i l the s h i p a r r i v e s , and p a y i n g f o r t r a n s p o r t a t i o n c o s t ex warehouse t o s h i p ' s s i d e . B.C.  i n t e r i o r m i l l w i t h e x p e r i e n c e i n t h i s area  C a s t l e g a r p l a n t o f Columbia C e l l u l o s e . 2 p e r ton i n 1964  was  The  only  i s the  average c o s t  $7.45.  Water r a t e s are h i g h l y v a r i a b l e and t h e demand f o r bottoms.  Shipping  open-rated areas (U.K.  depend upon  c o n f e r e n c e s have a f i x e d  r a t e s u b j e c t t o change w i t h a 90-day n o t i c e .  v a r y monthly.  The  the  Also there  and North Europe) where t h e r a t e  are can  In s p i t e o f the f a c t t h a t a f o r e c a s t o f water  r a t e s can be i n v a l i d a t e d by the s i g n i n g o f a major wheat export contract,  some e s t i m a t i o n  a r r i v e a t a m i l l net  i s required i n order  to  value. TABLE  4-4*  EXPECTED AVERAGE WATER FREIGHT RATES 1966-1970  Area  Rate-Can$/S.A.D.T.  Western Europe Japan Australia Others * Provided 2 Personal  Interview  $27.50 19.00 34.25 30.00  by a l e a d i n g B.C. w i t h Mr.  Exporter.  J . L i v i n g s t o n ; Columbia Pulp Sales,  63 Selling  Commission Many market p u l p producers employ p u l p agents  s e l l t h e i r output.  to  For example, M a c M i l l a n B l o e d e l L i m i t e d  have used P r i c e and P i e r c e L i m i t e d o f London s i n c e t h e 3 company began p r o d u c t i o n o f B/K p u l p .  R e c e n t l y , however,  t h i s f i r m began t o market p u l p through i t s own i n the U n i t e d Kingdom, American,  s a l e s companies  and Japanese a r e a s .  The  average agents" commission i s 3% o f the F.A.S. v a l u e ,  and  it  2%%  i s f e l t t h a t a company s a l e s f o r c e w i l l c o s t about  An independent it  m  m i l l would be more s u c c e s s f u l i n marketing i f  employed agents because e x p e r i e n c e d s a l e s p e r s o n n e l a r e  d i f f i c u l t t o o b t a i n and, hence, command a h i g h s a l a r y .  Pulp  s e l l i n g i n v o l v e s knowing the buyers, b e i n g f a m i l i a r w i t h  each  buyer's p e c u l i a r i t i e s , having an e x t e n s i v e t e c h n i c a l background o r support from t h e f i r m ' s own  t e c h n i c a l sources,  p o s s e s s i n g knowledge o f f r e i g h t r a t e s and d e l i v e r y  problems,  and,  sell.  f i n a l l y , having a standard q u a l i t y product to  Insurance  Costs The  s e l l e r i s r e q u i r e d under .a'C.I.F. c o n t r a c t t o  pay f o r t h e marine i n s u r a n c e / and, risk.  i n some c o n t r a c t s , war  Insurance r a t e s ; on the average,  and, t h e r e f o r e , average most Canadian  a r e $0,125 p e r $100.00  18 t o 20 c e n t s p e r t o n .  e x p o r t e r s p l a c e i n s u r a n c e on t h e i r  In a d d i t i o n ; accounts  r e c e i v a b l e through t h e Export C r e d i t Insurance C o r p o r a t i o n . The premium f o r t h i s study i s an average d e r i v e d from p r e s e n t r a t e s o f $0.20 p e r $100  f o r the U.K.  3 MB&PR, Annual Report  1965/  p.  and $1.40/$100 f o r Taiwan.  12.  64  AN AVERAGE M I L L NET VALUE  C a l c u l a t i o n o f a M i l l Net T h e method f o r c a l c u l a t i n g t h e m i l l i n T a b l e 4-5.  The f o l l o w i n g terms o f r e f e r e n c e  (a) S e l l i n g p r i c e s w i l l  Pound  S t e r l i n g = $3.00  (c) Water  (e)  freight rates rate  (g)  b e u n c h a n g e d a t 7.5%. Canadian.  a s p e r T a b l e 4-4.  $ 2 4 . 1 3 p e r S.A.D.T.  Interior-to-ship cost  (f) S e l l i n g  were employeds  b e a s shown i n T a b l e 4 - 3 .  (b) U.S. E x c h a n g e r a t e w i l l  (d) R a i l  net i s illustrated  costs  $ 7 . 4 5 p e r S.A.D.T.  3% o f F.A.S.  Insurance costs  value.  $0.55 p e r S.A.D.T. TABLE 4-5  CALCULATION OF M I L L NET 1966-1970  Area  Price  U.S. $140.00 W. E u r . 1 4 0 . 4 3 Japan 139.00 Aust. 160.71 Others 137.00  Marine & ECIC + E x c h a n g e - F r e i g h t - Comm. - I n s u r . = M i l l N e t $10.50 10.53 10.43 —  10.28  $24.13 34.95 26.45 41.70 37.45  $3.-79 3.48 3.69 3.57 3.29  $0.55* 0.55 0.55 0.55  $122.58 111.98 118.74 114.89 106.20  65  Determination  o f Market D i s t r i b u t i o n  An i n t e r i o r m i l l should c o n c e n t r a t e i t s s a l e s i n t h e U n i t e d S t a t e s market s i n c e ; f o r the p a s t t e n y e a r s , Western Canadian m i l l s have r e c e i v e d an average i n c r e m e n t a l m i l l n e t o f $7.50 a t o n t h e r e as compared w i t h t h e h i g h e s t r e t u r n from a l l o t h e r c o u n t r i e s . t o t h e lower  T h i s h i g h m i l l n e t i s due  f r e i g h t c o s t s as w e l l as t h e h i g h e r p r i c e s .  One Canadian m i l l , North West Pulp and Power a t Hinton, A l b e r t a , s e l l s i t s t o t a l p r o d u c t i o n i n t h a t market; b u t , on the o t h e r hand, C e l g a r a t C a s t l e g a r , B.C., approximately  sells  60% o f i t s product t h e r e and the b a l a n c e goes  t o Europe and t h e F a r E a s t .  By d i s t r i b u t i n g s a l e s t o a  number o f c o u n t r i e s , t h e f i r m w i l l r e c e i v e a lower r e t u r n but a c q u i r e a degree o f s a f e t y .  S a l e s o f woodpulp a r e  a f f e c t e d by economic c o n d i t i o n s and market d i v e r s i f i c a t i o n w i l l p r o v i d e a more s t a b l e r e t u r n than market c o n c e n t r a t i o n . In T a b l e 3-16, t h e e s t i m a t e s o f f u t u r e demand f o r ••• B/K show t h e l a r g e s t market w i l l be Western Europe, f o l l o w e d by t h e U n i t e d S t a t e s , Japan; and Others.  An e x c e l l e n t  s t r a t e g y f o r t h e I n t e r i o r m i l l would be a c o n c e n t r a t i o n o f s a l e s e f f o r t i n the U.S., coupled w i t h s e l e c t e d customers i n Western Europe/ A u s t r a l i a , and Japan.  By t h i s means, the  f i r m would have a b a l a n c e i n d i s t r i b u t i o n and c o u l d expect t o earn a s u i t a b l e r e t u r n f o r t h e r i s k i n v o l v e d .  Therefore,  the f i r m s h o u l d s e t as s a l e s t a r g e t s 55% t o U.S.A., 30% t o Europe; and t h e balance e v e n l y d i s t r i b u t e d t o A u s t r a l i a , Japan, and  Others.  66  At  t h i s point, i t i s p o s s i b l e to p r o j e c t the  Weighted Average M i l l Net, 1966-1970, as i n T a b l e 4-6. TABLE 4-6 WEIGHTED AVERAGE MILL NET 1966-1970  Area  % of Sales  M i l l Net  55 30 5 5 5 100  $122.58 111.98 118.74 114.89 106.20  U.S. W. Europe Japan Australia Others Total  Weighted Value $67.42 33.59 5.94 5.74 5.31 $118.00  •  Conclusion T a b l e 4-6 e s t a b l i s h e s an expected m i l l n e t o f $118.00 p e r t o n . However; t h e v a r i a n c e from t h i s c o u l d be s u b s t a n t i a l . the A p r i l  I f American  value  p r i c e s were t o f a l l t o  1963 l e v e l , and the Japanese p r i c e t o drop t o  $130.00, t h e r e s u l t i n g m i l l n e t would then be $111.40. In c o n t r a s t , t h e m i l l n e t a t 1965 p r i c e s would have been $126.60. A q u e s t i o n c o u l d be asked h e r e . of  "Is a m i l l net  $111.40 r e a s o n a b l e , o r c o u l d t h e s e l l i n g p r i c e s be even  lower than e s t i m a t e s ? "  One method o f answering  that question  i s t o examine t h e c o s t s o f t h e S c a n d i n a v i a n p r o d u c e r s t o determine how f a r p r i c e s i n Europe might  decrease.  A r e c e n t a r t i c l e by t h e manager o f t h e Husum B/K M i l l i n Sweden; r a t e d as t h e producer o f t h e f i n e s t  B/K p u l p  67 i n t h e world, compared h i s c o s t s w i t h h i s e s t i m a t e o f Canadian. These c o s t s , converted from Crowns p e r m e t r i c t o n to.Canadian d o l l a r s p e r s h o r t t o n , a r e p r e s e n t e d i n T a b l e 4-7. TABLE 4-7* COMPARISON OF SWEDISH AND WESTERN CANADIAN B/K COSTS  Factor  Sweden  New M i l l i n Western Canada  Wood Chemicals Salaries Fuel Electricity Miscellaneous Interest & Depreciation 6% f o r 15 y e a r s Ship t o Europe Total  $ 65.64 12.54 8.42 0.94 1.87 4.68  $ 46.80 12.54 17.78 2.81 1.87 4.68  28.09 9.36 $131.44  37.45 18.72 $142.65  * Mr. B. A r e n s j o , Manager, Husum M i l l , . "Sweden v e r s u s Western Canada"/ Paper Trade J o u r n a l , v o l . 150, no. 4, January 24, 1966, p . 26. The c u r r e n t p r i c e i n Europe was g i v e n as $144.00 U.S. p e r m e t r i c t o n o r $140 Canadian p e r s h o r t .  Since the  Swedish p r o d u c e r s ' p r o f i t margin i s only. $8.99 p e r t o n , i t i s u n l i k e l y t h a t they would i n s t i g a t e a f u r t h e r decrease i n price.  The l o w e r i n g o f t h e p r i c e i n t h e U n i t e d S t a t e s t o $130  would p r e c l u d e t h e Scandinavians  from s e l l i n g i n t h a t market.  T h i s would enable Canadian producers t o improve t h e i r n e t s by s e l l i n g more p u l p t o the U.S.  mill  The Japanese p r i c e i s  c l o s e l y l i n k e d t o the cost o f producing pulp i n that country. Volume might be g r e a t l y i n c r e a s e d a t t h e $130 l e v e l , b u t any  68 p r i c e below t h a t would l i k e l y meet r e s i s t a n c e from t h e Japanese Government who want t h e n a t i o n a l p u l p maintain  full  industry t o  employment.  Should t h e A u s t r a l i a n p r i c e decrease t h r e e o r f o u r pounds, most p r o d u c e r s would cease s e l l i n g i n t h a t The  "Others" p r i c e was estimated  area.  a t an extremely low l e v e l .  T h e r e f o r e / a m i l l n e t o f $111.40 can s a f e l y be assumed as the minimum l e v e l f o r p l a n n i n g  purposes.  MILL PRODUCTION COSTS Actual production  c o s t s o f B.C. p r o d u c e r s o f B/K  are not a t t a i n a b l e f o r p u b l i c a t i o n .  However, Sandwell and  Company L i m i t e d , one o f the foremost c o n s u l t a n t s  i n this  industry, kindly divulged t y p i c a l costs f o r m i l l s  located  on t h e c o a s t and i n t h e i n t e r i o r o f B r i t i s h Columbia (see Appendix I ) . TABLE 4-8 TYPICAL PRODUCTION COSTS OF BLEACHED KRAFT PER S.A.D.T.  Factor Wood Chemicals Fuel Other M a t e r i a l s Electricity Labour Admin. & Overhead Miscellaneous Total  Coast  Interior  $35.00 ' 11.95 2.90 6.25 3.05 . 7.15 6.60 2.10  $31.00 . 17.10 3.55 6.90 3.65 8.60 7.10 1.60  $75.00 •  179.50  69 "Other m a t e r i a l s " i n c l u d e s r e p a i r and maintenance costs.  A d m i n i s t r a t i o n and Overhead covers  s u p e r v i s o r y wages,  management s a l a r i e s , employer-paid b e n e f i t s , employer-paid benefits, municipal  taxes, and  insurance.  i n t e r e s t c o s t s a r e not i n c l u d e d .  Depreciation  Wood c o s t s f o r the  and  interior  a r e lower because the supply o f c h i p s i s g r e a t e r than  the  demand, and the p r i c e o f a sawlog i s lower than t h a t o f a coastal log. Cost  Trends  ———————  r Wood c o s t s have remained q u i t e steady  f o r the  p e r i o d 1959-1963 i n s p i t e o f r i s i n g wage c o s t s i n the  logging  industry. TABLE B.C.  Chips  1959 1960 1961 1962 1963  $15.68 15.57 15.01 15.65 15.45  * Dominion Bureau o f 36-204, 1959-1963.  A ton o f B/K o r balsam. needs 2.6  WOOD COSTS (Per Cord)  Year  no.  4-9*  r e q u i r e s 2.25  Pulpwood $16.41 16.68 17.07 15.40 15.68 Statistics,  cords o f f i r ,  hemlock,  B/K  manufactured from cedar, w i t h i t s lower d e n s i t y ,  cords.  I t i s assumed t h a t wood c o s t s w i l l remain a t  the average l e v e l o f 1959-1963.  70  The  c o s t o f chemicals has  a c t u a l l y decreased i n  r e c e n t y e a r s as the advent o f the new  c a u s t i c and  p l a n t o f the Food and Machinery C o r p o r a t i o n  a t Squamish  f o r c e d Hooker Chemicals t o lower t h e i r p r i c e s . p r i c e s are h i g h e r  chlorine  owing t o the c o s t o f r a i l  Interior  transportation.  Economies o f s c a l e show t h a t f o r a m i l l p r o d u c i n g 700 a day  o r more, i t i s cheaper t o b u i l d i t s own  tons  chemical p l a n t .  •4 c h e m i c a l c o s t s are assumed t o remain as shown.  Therefore,  Labour c o s t s a r e s u b j e c t t o an average i n c r e a s e  of  5 4%.  But p r o d u c t i v i t y i n c r e a s e s have n u l l i f i e d the e f f e c t  on p r o f i t s .  An  example o f t h i s i s the m i l l a t Hinton,  A l b e r t a / whose p r o d u c t i o n  has  r i s e n from the 1958  rated  c a p a c i t y o f 147,000 tons t o 190,000 i n 1965 w i t h o u t the 6 a d d i t i o n o f any major equipment. T h e r e f o r e , wage c o s t s per 7 ton a r e expected t o be unchanged. F u e l and unchanged. new  e l e c t r i c i t y c o s t s should  also  be  I t i s p o s s i b l e t h a t w i t h the completion o f  power sources on the Peace and  power r a t e s may  be  Columbia R i v e r s  the  that  lower.  4 "Chemical Costs", pp. 21-24.  Canadian F o r e s t I n d u s t r i e s , March  1966,  5 D.B.S., #36-204, 1959-1963. 6 North Canadian O i l s L i m i t e d , Annual Report 1965,  p.  6.  7 A s i m i l a r c o n c l u s i o n was reached by the R o y a l Commission on Canada's Economic P r o s p e c t s . The Outlook f o r the Canadian F o r e s t I n d u s t r i e s . Queen's P r i n t e r , Ottawa, 1957, p. 225.  71  Summary On t h e b a s i s o f the p r e c e d i n g •cost p e r t o n should f i v e years.  i n f o r m a t i o n , the  remain a t t h e 1966 l e v e l f o r t h e next  However, a p e s s i m i s t i c view would add 2% p e r  annum and a r r i v e a t an average c o s t f o r t h e 1966-1970 p e r i o d o f $82.70 f o r an i n t e r i o r  mill.  72  CHAPTER V FINANCIAL PROSPECTS FOR  AN  INDEPENDENT MILL  In t h i s chapter, we w i l l examine t h e p o s s i b l e outcomes f o r an independent  B/K  i n t e r i o r o f B r i t i s h Columbia,,  m i l l t o be b u i l t i n t h e In Chapter  t h a t ; t o date, not one o f the new  I I , i t was  m i l l s i s a true' independent/  but r a t h e r has one or more c o r p o r a t e p a r t n e r s who experienced,  stated  are  f i n a n c i a l l y sound producers w i t h e s t a b l i s h e d  o u t l e t s i n t h e w o r l d markets. The d a i l y papers a r e c o n t i n u a l l y announcing proposals f o r b u i l d i n g of pulp m i l l s i n t h i s province. l a t e s t count shows twelve m i l l s on t h e proposed  list.  Of t h i s assemblage o f companies, f i v e are i n conjunction with existing firms. i n Alexandra  i s B.C.  planned  The major s h a r e h o l d e r  Forests Products.  A sawmill i s  now  under c o n s t r u c t i o n , but no p l a n s f o r s t a r t i n g t o b u i l d p u l p m i l l have been announced.  The  the  The B u l k l e y V a l l e y p r o j e c t  has been taken over by Bowaters and B a t h u r s t Paper.  This  consortium r e c e i v e d t h e r i g h t s t o the wood w i t h t h e unders t a n d i n g t h a t p r o d u c t i o n c o u l d be put o f f u n t i l the end o f Canal Development i n v o l v e s t h e f i r s t o f the Japanese i n t o B.C.  f o r e s t i n d u s t r y , and  1971.  participation i s a combin-  t i o n o f M i t s u b i s h i and Honshu Paper, a l e a d e r i n the Japanese paper i n d u s t r y .  73  TABLE  5-1  PROPOSED B/K  Name  Location  A l e x a n d r a Forest. Bulkley Valley C a n a l Development C a r i b o o P&P C a t t e r m o l e Timber Crow's Nest G r e a t e r Peace R i v e r Iskut Pulpower P a c i f i c Logging Peace R i v e r K r a f t Rupert E n t e r p r i s e s U n i t e d Pulp Sources  MILLS  Size Tons/day  Tentative S t a r t - u p Date  750 600 350 750 200 600 500 N/A N/A N/A N/A 850  1970 1972 1968 1972 no date no date no date no date no date no date no date no date  P a r s n i p R. Houston Canal F l a t s Quesnel P a r s n i p R. Nelson F t . S t . John Iskut Nelson Taylor Grand Forks Squamish  "How t o F i n d Your Way Among t h e B.C. M i l l P r o j e c t s " , Paper Trade J o u r n a l , November 8, 1965, pp. 54-55. Cariboo P & P  i s a p a r t n e r s h i p o f Weldwood and  P r i c e B r o t h e r s o f Quebec.  The l a t t e r o r i g i n a l l y were  p a r t n e r s w i t h Mr. H e l l e r i n the U n i t e d Pulp and  Newsprint  p r o p o s a l but withdrew s h o r t l y a f t e r t h e $10 p r i c e c u t i n West Coast n e w s p r i n t . F i n a l l y , P a c i f i c Logging i s w h o l l y owned by Canadian P a c i f i c Railway which,  i t i s i n t e r e s t i n g t o note,  a l s o owns 6% o f MacMillan B l o e d e l L i m i t e d . In s h o r t , o f the above l i s t , independents  thus f a r .  actually build a mill,  How  many o f t h e s e independents  and when, i s anyone's guess.  f o r e c a s t i n Chapter I I I demonstrated o f B/K  seven a r e a c t u a l l y  t h a t 5.3 m i l l i o n  p u l p would be r e q u i r e d between 1970  and  1975.  will  The tons  74 Assuming the average m i l l i s c a p a b l e o f p r o d u c i n g 200,000 tons, then approximately 27 new meet the 1975  m i l l s w i l l be n e c e s s a r y t o  demand.  In the summary of Chapter  I I I , i t was  shown t h a t  an optimum date f o r commencement o f c o n s t r u c t i o n would be  1968,  which c o i n c i d e s w i t h t h e p r e d i c t e d p e r i o d o f l a r g e s u r p l u s e s and depressed p r i c e s .  M a c M i l l a n B l o e d e l L i m i t e d have t w i c e  b u i l t e x t e n s i v e a d d i t i o n s d u r i n g such p e r i o d s , and,  as a  r e s u l t ; have had p u l p a v a i l a b l e l a t e r when the demand s o a r e d . I t would appear t h a t t h i s company i s a g a i n c o n t e m p l a t i n g s t r a t e g y , i . e . , t h e i r new  m i l l planned a t Whitecourt,  this  Alberta,  w i t h a t e n t a t i v e s t a r t - u p date o f 1971. • There i s every reason t o presume t h a t t h e f i r m ' s p l a n w i l l succeed once more. F o l l o w i n g on from the above i d e a , we w i l l t h e p o s s i b l e f i n a n c i a l p o s i t i o n o f an independent were t o b e g i n c o n s t r u c t i o n i n l a t e 1966 i n 1970.  examine  mill i fi t  and be i n p r o d u c t i o n  Such a m i l l would then be marketing p u l p as the  s u r p l u s i s b e i n g s h a r p l y reduced. i n T a b l e 3-20,  As has been  demonstrated  p r i c e s would be depressed, but s u b j e c t t o  sharp i n c r e a s e s i n t h e next few y e a r s . FEASIBILITY STUDY Assumptions T h i s f e a s i b i l i t y study i s based upon t h e f o l l o w i n g assumptions? 1. An i n t e r i o r B/K m i l l w i t h an annual c a p a c i t y o f 200,000 tons and market d i s t r i b u t i o n as per Chapter  IV.  75 2. C a p i t a l o u t l a y r e q u i r e d i s $60 m i l l i o n , evenly over a t h r e e - y e a r 3. F i n a n c i n g  spread  period.  $20 m i l l i o n e q u i t y and $40 m i l l i o n i n 6%  20-year bonds.  Annual I n t e r e s t i s $2.4 m i l l i o n .  4. 1970 P r o d u c t i o n  c o s t p e r t o n i s $82.70 p e r t o n  s u b j e c t t o an annual i n c r e a s e o f 2%. i s $64 p e r t o n and f i x e d p r o d u c t i o n 5. Average m i l l n e t v a l u e s  c o s t s a r e $3,740,000.  areg  1970 1971 1972 1973 & 4 1975 - on 6. D e p r e c i a t i o n  Variable portion  $111.40 118.00 126.60 130.00 130.00 p l u s 2% p e r annum  - 5% s t r a i g h t l i n e o r $3 m i l l i o n p e r y e a r .  7. Income Tax - 50%. 8. A f t e r - t a x c o s t o f C a p i t a l - 8%. Break-even A n a l y s i s - 1970 F i x e d Expenses Interest  $3,740,000 2,400,000  Total  $6,140,000  V a r i a b l e = $64.00 p e r t o n M i l l Revenue = $111.40 p e r t o n Break-even Volume =  1 _  X  The  6.14 64.00 111.40  = $14,430,000  Break-even Volume i s e q u i v a l e n t t o s a l e s o f 129,533 tons;  o r o n l y 64.8% o f the m i l l ' s  capacity.  T h i s a n a l y s i s does n o t i n c l u d e d e p r e c i a t i o n expenses because i t i s necessary  t o determine i f t h e m i l l c o u l d  c o n s i d e r i n g only out-of-pocket  costs.  In T a b l e  3-19  p  survive supply  76 was  estimated t o be  7.423 m i l l i o n t o n s .  m i l l ' s production  t o supply,  i n d u s t r y becomes  7100 7623  l a s t three-year  =  By adding t h i s  the o p e r a t i n g  r a t i o f o r the  93.1%, which i s j u s t below the  average o f 94.0%.  The  m i l l would not  only  s u r v i v e , but would show a p r o f i t . Pro Forma Income Statement -  1970  M i l l Revenue P r o d u c t i o n Costs  $22,280,000 16,540,000 5,740,000 2,400,000 3,340,000 3,000,000 340,000 170,000 $ 170;000  Interest Depreciation P r o f i t B e f o r e Tax Tax Net P r o f i t Return on  Investment - 20 Years o f Operation, Discounting  the o u t f l o w s and  a b e n e f i t c o s t r a t i o o f 1.05,  1970-1989  i n f l o w s a t 8% y i e l d s  thereby j u s t i f y i n g  the  building of a m i l l . Conclusion In s p i t e o f depressed p r i c e s , , i t would-be advantageous f o r an entrepreneur t o commence c o n s t r u c t i o n o f a B/K  m i l l i n B.C  a t the end o f t h i s y e a r .  The  income s t a t e -  ment f o r the f i r s t y e a r w i l l show a p r o f i t o n l y i f the can  sell  i t s t o t a l output.  The  break-even p o i n t was  below the i n d u s t r y average o p e r a t i n g the p r o b a b i l i t y t h a t a new and  recover  r a t i o ; and,  mill  far  therefore;  m i l l would meet i t s f i x e d charges  f u l l d e p r e c i a t i o n i s c l o s e t o one.  A f t e r the  y e a r a l l s i g n s p o i n t t o an expected r e t u r n i n excess o f  first 8%.  77  DEFENSIVE STRATEGIES OF ESTABLISHED PRODUCERS An independent  m i l l promoter must a s s e s s the  s t r a t e g i e s o f e s t a b l i s h e d producers and s e t a course o f a c t i o n t o o p t i m i z e h i s chances o f s u c c e s s .  He can o b t a i n  t h e s e r v i c e s o f an agent t o s e l l h i s output and l i k e l y a c q u i r e a competent s a l e s f o r c e .  The  thereby  incremental  c o s t o f ^2% o f s e l l i n g p r i c e i s p r o b a b l y the l e a s t  costly  method o f e n t e r i n g the market.  encountered  D i f f i c u l t y may  be  i n f i n d i n g e x p e r i e n c e d p r o d u c t i o n and maintenance p e r s o n n e l . However, h i g h m o b i l i t y has been t r a d i t i o n a l i n t h e i n d u s t r y . The main concern w i l l be overcoming o f t h e l a r g e c o r p o r a t i o n s , who  the mixed s t r a t e g i e s  through i n t e g r a t i o n ,  formation  o f p a r t n e r s h i p s ; and c o n c l u s i o n o f l o n g term c o n t r a c t s a r e l i m i t i n g t h e o u t l e t s f o r market p u l p . Integration In t h e l a s t t e n y e a r s , paper m i l l s  throughout  t h e w o r l d have been a c q u i r e d by major p u l p p r o d u c e r s .  Crown  Z e l l e r b a c h have c o n t r o l o f Van G e l d e r i n H o l l a n d and s h i p B/K  p u l p here and t o t h e i r South A f r i c a n Company,"Crown  Carelton.  1  M a c M i l l a n / B l o e d e l and Powell R i v e r a c q u i r e d  a 36% i n t e r e s t i n K o n i n k l i j k e Nederlandsche P a p e i e r f a b r i c h (KNP), a Dutch producer o f coated and uncoated p a p e r s . c o n j u n c t i o n w i t h KNP/  In  t h e company i s b u i l d i n g a 60;000 ton  paper m i l l i n Belgium and a 20,000 t o n m i l l i n S p a i n . 1 Crown Z e l l e r b a c h Canada L i m i t e d , Annual Report 1965/ p. 2 MB&PR, Annual Report  1965/ p.  19.  5.  78  C o n s o l i d a t e d Paper C o r p o r a t i o n bought c o n t r o l o f Doeskin Products  Inc. o f t h e U n i t e d S t a t e s and exchanged s t o c k w i t h  R o l l a n d Paper Company t o ensure a market f o r a l a r g e p e r centage o f i t s p r o d u c t i o n from t h e new B/K m i l l a t P o n t i a c ,  3 Quebec.  S t . Regis Paper Company, who c o n t r o l t h e o n l y B/K  m i l l i n A l b e r t a , has 106 m i l l s and p l a n t s i n t h e U.S., Canada/ 4 Great B r i t a i n , Belgium, B r a z i l , A r g e n t i n a , T h i s movement towards f u l l  and A u s t r a l i a .  i n t e g r a t i o n from t h e  t r e e t o t h e consumer reduces t h e r i s k f o r a market p u l p producer  by p r o v i d i n g a c a p t i v e buyer f o r i t s p u l p and  removing a p o t e n t i a l customer from t h e e l i g i b l e l i s t o f t h e competition.  I n t e g r a t i o n i n t o Europe has been pursued by t h e  Swedish s u p p l i e r s w i t h g r e a t v i g o u r f o r many y e a r s .  As  s u r p l u s e s b e g i n t o b u i l d up, one might s a f e l y p r e d i c t t h a t forward  integration w i l l  continue.  Partnership In Chapter I I t h e r o l e o f p a r t n e r s h i p i n t h e f i n a n c i n g o f t h e new m i l l s i n B r i t i s h Columbia was d i s c u s s e d . Such a c t i o n p r o v i d e s t h e p a r t i e s concerned w i t h t h e r e q u i r e d resources.  Columbia C e l l u l o s e needed a p o w e r f u l  sales  o r g a n i z a t i o n i n Europe; w h i l e Svenksa's p r i n c i p a l weakness 5 was t h e s c a r c i t y o f raw m a t e r i a l . The j o i n t p r o j e c t ; 3 C o n s o l i d a t e d Paper C o r p o r a t i o n , 1965 Annual Report, p . 9. 4 S t . Regis Paper Company, 1964 Annual Report, p . 11. 5 Columbia C e l l u l o s e Company L i m i t e d , Annual Report 1964, pp. 1 0 - l l o  79 Skeena K r a f t ; answers both problems. t h e i r marketing Corporationo  Noranda Mines r e s o l v e d  q u e s t i o n by j o i n i n g f o r c e s w i t h t h e Mead  When Canadian F o r e s t Products,  a private  company; was s e a r c h i n g f o r f i n a n c i a l r e s o u r c e s t o b u i l d a 1  new m i l l ,  i t c o n t a c t e d t h e Reed Group, a heavy p u r c h a s e r o f  k r a f t l i n e r b o a r d f o r i t s c o r r u g a t e d c o n t a i n e r p l a n t s , as w e l l as B/K f o r i t s f i n e paper mills» Feldmuhle has always been a l a r g e buyer o f market pulp  ( e s t i m a t e s range from 100,000 t o 150,000 tons p e r y e a r )  and d i v i d e d up h i s purchases B.C.  producers*  e v e n l y between Swedish and  Feldmuhle began i n t e g r a t i o n "back t o t h e  t r e e " by b u i l d i n g t h e Rothesay Newsprint m i l l o u t s i d e St„John/ New Brunswick, i n 1963„  1  When t h e I n t e r c o n t i n e n t a l m i l l comes  ;  "on stream" i n 1968, g r e a t b l o c k s o f p u l p c u r r e n t l y  shipped  t o Feldmuhle w i l l be f r e e d t o t h e market. An example o f a p a r t n e r s h i p i n which a promoter w i t h no e x p e r i e n c e i n t h e i n d u s t r y managed t o win timber r e s o u r c e s over a w e l l - e s t a b l i s h e d f i r m Eurocan P u l p and Paper Company.  (Crown Z e l l e r b a c h ) i s  Mr. Ben G i n t e r formed a  consortium w i t h f o u r F i n n i s h companies t o b u i l d an unbleached k r a f t p u l p and paper m i l l a t K i t i m a t .  In t h i s case t h e  s t a r t - u p date was t h e d e c i d i n g f a c t o r s  Eurocan planned  w h i l e Crown Z e l l e r b a c h proposed tion  0  on 1969;  1970 f o r b e g i n n i n g o f c o n s t r u c -  P r i o r t o t h i s sudden r u s h t o f i n d p a r t n e r s } t h e o n l y  example o f such an arrangement was B.C. F o r e s t P r o d u c t s .  A  p o r t i o n o f t h i s company s s t o c k i s h e l d by S c o t t Paper and B  t h e Mead C o r p o r a t i o n .  Mr. H e l l e r o f U n i t e d Pulp i s rumoured  80  t o be i n search o f an a s s o c i a t e s i n c e P r i c e d e s e r t e d him f o r Weldwood.  Brothers  P a r t n e r s h i p a p p a r e n t l y has  become t h e accepted method o f f i n a n c i n g a m i l l and o f p r o v i d i n g an assured Long Term  o u t l e t f o r the product.  Contracts E s t a b l i s h e d producers o f t e n u t i l i z e t h e t e c h n i q u e  o f l o n g term c o n t r a c t s t o reduce t h e v a r i a b i l i t y o f s a l e s , as w e l l as t o lower marketing c o s t s and e f f o r t .  I t i s not  uncommon t o f i n d c o n t r a c t s o f t e n y e a r s o r more which i n c l u d e growth c l a u s e s along w i t h p r i c e d i s c o u n t s as h i g h as 5°o  0  With a n o v e l approach, Great Lakes Paper Company o f f e r e d s t o c k o p t i o n s t o i t s customers i n r e t u r n f o r l o n g term c o n t r a c t s f o r newsprint. COURSES OF ACTION OPEN TO AN INDEPENDENT MILL An  independent must come t o a t r a d e - o f f between  secure o u t l e t s and p r o f i t . s e l l e r stands  An u n r e s t r a i n e d market p u l p  t o make t h e h i g h e s t p r o f i t s  exceeds supply,  b u t s u f f e r s t h e lowest  situation reverses.  when demand  r e t u r n when t h e  The i n t e g r a t i o n approach i s " n o t open  t o him, g i v e n a l i m i t on funds a v a i l a b l e , w h i l e d e s t r o y s h i s independence.  partnership  Long term c o n t r a c t s a r e d i f f i c u l t  t o o b t a i n u n t i l t h e customer has had a s a t i s f a c t o r y ship with the trader.  In any case,  relation-  t h e lower p r o f i t o f a  l o n g term c o n t r a c t must be weighed a g a i n s t t h e s t a b i l i t y i t  6 Great Lakes Paper Company, Annual Report 1964, p . 9.  81 provides.  As a f u r t h e r r e s t r a i n t , t h e s e l l e r must be  i n choosing h i s customers f o r a number o f buyers the Japanese) have f a i l e d t o purchase  careful  (especially  the minimum tonnages  specified in contracts. Quality For a l a r g e range o f paper p r o d u c t s , any West Coast B/K  p u l p i s s u i t a b l e raw m a t e r i a l .  However, i n t e r i o r  spruce  and p i n e w i l l produce a grade o f p u l p w i t h c h a r a c t e r i s t i c s s i m i l a r t o t h e world's  f i n e s t , i . e . , Scandinavian.  Alberta  H i - B r i t e , t h e p r o d u c t o f the Hinton m i l l , and the f i n e s t p u l p produced  i n Canada, can be e q u a l l e d i n q u a l i t y by u s i n g a  s i m i l a r mix o f i n t e r i o r woods.  High q u a l i t y p u l p a t a com-  p e t i t i v e p r i c e from the i n t e r i o r w i l l o u t s e l l t h e West Coast grade.  typical  T h e r e f o r e , the main advantage o f an  i n t e r i o r m i l l over a c o a s t a l i s s u p e r i o r q u a l i t y p u l p . Customer S e r v i c e By c o u p l i n g h i g h q u a l i t y w i t h emphasis on customer s e r v i c e , the f i r m s h o u l d be a b l e t o remain independent prosperous.  The most f r e q u e n t complaint o f buyers  author's e x p e r i e n c e , was regarding d e l i v e r y dates.  lack of service, Many producers  and  i n the  particularly s h i p p i n g t o Europe  c h a r t e r l a r g e v e s s e l s i n o r d e r t o o b t a i n lower f r e i g h t I n v e n t o r i e s must be b u i l t up t o p r o v i d e f u l l cargoes on  charges. these  s h i p s w i t h t h e r e s u l t t h a t d e l i v e r y dates a r e j u g g l e d t o f i t t h e a r r i v a l time o f t h e s h i p s .  Customers a r e t h e r e b y i n c o n -  v e n i e n c e d by shipments a r r i v i n g e i t h e r b e f o r e o r a f t e r the  82 d e s i r e d date.  Regular  f r e i g h t s e r v i c e between B.C.  and  Europe i s a v a i l a b l e but r a t e s a r e $4 t o $5 p e r t o n more than on c h a r t e r s .  With c o m p a r a t i v e l y  small production,  an  independent i^ould have d i f f i c u l t y i n f i l l i n g a c h a r t e r e d v e s s e l , but by b e i n g f o r c e d t o use r e g u l a r l i n e r s would g a i n t h e advantage o f meeting customer-required  d e l i v e r y dates.  Of p a r t i c u l a r advantage t o the i n t e r i o r  operator  would be t h e a b i l i t y t o s e r v i c e the American market r a p i d l y . All and,  c o a s t a l producers  must barge t h e r a i l  c a r s t o Vancouver  hence, a r e s u b j e c t t o the requirements  of f i l l i n g  a  barge (18 t o 25 c a r s ) , t i d e , weather, and o t h e r d e l a y s . i n t e r i o r m i l l c o u l d have a c a r loaded w i t h i n 10 t o minutes, and have t h e p u l p on t h e way  advice.  15  t h e same day.  F u r t h e r customer s e r v i c e can be p r o v i d e d ^ t e c h n i c a l a s s i s t a n c e and  An  through  Buyers f r e q u e n t l y r e q u e s t  d e t a i l e d s c i e n t i f i c i n f o r m a t i o n on f i b r e  characteristics;  as w e l l as e x p l a n a t i o n s , and o c c a s i o n a l l y a s s i s t a n c e , t o improve the q u a l i t y o f t h e i r manufactured p r o d u c t s . p r e s e n t ; o n l y a few o f t h e major producers  At  have t e c h n i c a l  e x p e r t s on s t a f f t o p r o v i d e such a s e r v i c e . Warehousing Warehousing a t a d e l i v e r y p o r t i s not t h e c u r r e n t i n d u s t r i a l p r a c t i c e due t o t h e i n c r e m e n t a l c o s t s . for  a newcomer such a t a c t i c might be e x p l o r e d .  However, The  firm  would c h a r t e r a s h i p a t a lower f r e i g h t r a t e , warehouse t h e p u l p i n London o r Antwerp; and d e l i v e r t o the customer as Such s e r v i c e would promote good r e l a t i o n s w i t h  buyers.  ordered.  83 Prices . As was  explained  e a r l i e r , o f f i c i a l p r i c e s which  are s e t by both S c a n d i n a v i a n and meaningless i n many markets. s m a l l percentage of p u l p was United  States.  Canadian s e l l e r s ;  can  For example, i n 1962, s o l d a t the  be  only  a  l i s t p r i c e i n the  S i m i l a r l y , a c e r t a i n measure o f  flexibility  i s p o s s i b l e f o r the independent p r o d u c e r . A p r i c e c u t i n i t i a t e d by a producer when accumulates w i l l generate a temporary i n c r e a s e but as knowledge o f the r e d u c t i o n general p r i c e l e v e l w i l l f a l l  stock  i n demand,  becomes widespread  (see Chapter I ) .  To  the  illus-  t r a t e ; when the Scandinavians lowered t h e i r p r i c e s i n i n v e n t o r i e s d i d not v a n i s h level.  The  capacity. c u t t i n g has  and p r i c e s remained a t t h e i r  answer l a y i n r e d u c i n g In the p a s t ,  1960,  therefore,  production  t o 90%  low  of  indiscriminate price-  r e s u l t e d i n lower p r i c e s without any  increase  in  demand. Because o f the w o r l d s u r p l u s o f p u l p , the dinavians  are now  p r o p o s i n g a month's moratorium o f produc-  t i o n by a l l t r a d e r s i n the European market f o r 1966, is  equivalent  Scan-  to a reduction  of operating  which  r a t e t o 91.3%.  A l t h o u g h t h e American s e l l e r s cannot concur w i t h t h i s a c t i o n because o f the f e a r o f government i n t e r f e r e n c e laws);  (Anti-Trust  the S c a n d i n a v i a n i n d u s t r y hopes the American p r o d u c e r s  w i l l not  i n c r e a s e t h e i r s a l e s d r i v e i n Europe.  of c o n t r o l l i n g production  was  The  policy  s u c c e s s f u l i n 1962-3 i n Europe?  i n v e n t o r i e s f e l l w h i l e p r i c e s r o s e $15  t o $25  a ton.  The  84  independent f i r m r e p r e s e n t s such a minor f o r c e i n t h e market t h a t a j u d i c i o u s p r i c e c u t would p r o b a b l y be t o l e r a t e d . T h i s same a t t i t u d e o f t o l e r a n c e by l a r g e  producers  has been demonstrated towards C e l g a r o f Columbia C e l l u l o s e , which has c o n s i s t e n t l y s o l d i t s top grade (equal t o Scand i n a v i a n q u a l i t y ) a t $5.00 below t h e Scandinavian  price.  F i n a l l y , p r i c e f l e x i b i l i t y can be a c q u i r e d e s t a b l i s h i n g d i f f e r e n t i a t e d products  by  at varied p r i c e  levels.  SUMMARY An agents,  independent entrepreneur,  by u s i n g  m a i n t a i n i n g a h i g h q u a l i t y o f product  selling  and  customer  service, plus c a r e f u l handling of i t s p r i c i n g p o l i c y ,  should  be a b l e t o combat the t a c t i c s o f the s t r o n g e s t a b l i s h e d companies.  S i g n i n g o f a number o f advantageous l o n g term  c o n t r a c t s as soon as p o s s i b l e a f t e r commencing p r o d u c t i o n would reduce the v a r i a b i l i t y o f t h e f i r m ' s r e t u r n .  Eminent  newcomers, such as Georgia P a c i f i c and B o i s e Cascade, have a c h i e v e d success of  i n j u s t a few y e a r s .  Given the c o n d i t i o n s  supply and demand p r o j e c t e d i n t h i s study,  an  independent  i n t e r i o r m i l l i n B r i t i s h Columbia should t h r i v e d e s p i t e aggressive  competition.  85  CHAPTER  VI  CONCLUSIONS World Demand f o r Paper and An and  Paperboard  a n a l y s i s o f the growth o f demand f o r paper  paperboard f o r the y e a r s 1955  t o 1964  i n c r e a s e o f 40 m i l l i o n tons over the million.  T h i s dramatic expansion was  w i t h the i n c r e a s e  i n per  disclosed  an  l e v e l of  63.5  1955  found t o be  c a p i t a income and  correlated  population  growth.  C e r t a i n assumptions were made c o n c e r n i n g those v a r i a b l e s ,  and  a p r o j e c t i o n o f demand f o r the non-Communist c o u n t r i e s  showed  t h a t paper demand s h o u l d reach 117.8  tons  by The  1970  and  1975  and  143.'4 m i l l i o n  respectively.  Demand f o r Bleached K r a f t Market Pulp Based upon the expected demand f o r paper/ a  f o r e c a s t was  made o f the a n t i c i p a t e d l e v e l o f p r o d u c t i o n  o f chemical p u l p .  Following  t h i s , the r e l a t i o n s h i p between  c h e m i c a l and  market b l e a c h e d k r a f t p u l p was  extrapolated  to obtain  f o r 1970  1975.  and  The  analyzed  and  a f o r e c a s t o f demand f o r t h a t grade r e s u l t a n t tonnages, 7.1  and  12.4  m i l l i o n tons r e s p e c t i v e l y , were then d i s t r i b u t e d t o major a r e a s , u s i n g p a s t imports and demand as  guidelines.  the expected f u t u r e growth o f  86  Supply o f Bleached K r a f t Market Pulp The  e s t i m a t e o f supply was  d e r i v e d from a v a i l a b l e  data on expansions o f e x i s t i n g m i l l s and c o n s t r u c t i o n i n the major p r o d u c i n g Shortage o r  new  m i l l s under  countries.  Surplus  A year-by-year comparison o f t h e supply demand f o r ; B/K  s u r p l u s i s f o r e c a s t t o occur i n 1968  largest  and w i l l amount t o  o f the B r i t i s h Columbia p u l p  F i n a n c i a l Outcome f o r an  were a n a l y z e d  The  T h i s study c o n f i r m s the p o s i t i o n taken  prominent e x e c u t i v e s  All  and  market p u l p c l e a r l y e s t a b l i s h e d t h a t a  s u r p l u s c o n d i t i o n w i l l e x i s t u n t i l 1970-1971.  m i l l i o n tons.  of,  1.2  by  industry.  Independent M i l l  f a c t o r s a f f e c t i n g s e l l i n g p r i c e s and i n d e t a i l , and  a f o r e c a s t o f the  costs  financial  outcome f o r an independent m i l l i n d i c a t e d t h a t t h e r a t e o f r e t u r n would exceed 8% f o r the p e r i o d 1970  to  1989.  S t r a t e g i e s o f Producers Integration, partnership,  and  long term  contracts,  the t h r e e main s t r a t e g i e s o f p r o d u c e r s , were examined t o p o i n t out t h e i r p o s s i b l e e f f e c t on the c o m p e t i t i v e  situation  o f an independent f i r m . Counter S t r a t e g i e s f o r the Independent  Firm  To overcome t h e t a c t i c s o f e s t a b l i s h e d , a new  competitors,  f i r m must p l a c e g r e a t emphasis on p u l p q u a l i t y ,  87  customer s e r v i c e ,  and a f l e x i b l e p r i c e p o l i c y .  o f b l e a c h e d k r a f t market p u l p f o r e c a s t tons by 1975, an independent  t o exceed  With demand 12 m i l l i o n  and a d o p t i o n o f t h e above c o u r s e s o f f i r m s h o u l d be a b l e t o s u r v i v e i n an  l a r g e l y dominated by a few p r i n c i p a l p r o d u c e r s .  action, industry  88  BIBLIOGRAPHY Government P u b l i c a t i o n s . Bureau o f Economics and S t a t i s t i c s . Summary o f Economic A c t i v i t y 1965. Department o f I n d u s t r i a l Development, V i c t o r i a , Queen's P r i n t e r . Dominion Bureau o f S t a t i s t i c s . Pulp and Paper M i l l s . No. 36-204, 1959 - 1963. Ottawa, Queen's P r i n t e r . Royal Commission on Canada's Economic P r o s p e c t s . Outlook f o r the Canadian F o r e s t I n d u s t r i e s . Queen's P r i n t e r , March 1957. United Nations.  Demographic Yearbook 1964.  The Ottawa,  New York.  .Food and A g r i c u l t u r e O r g a n i z a t i o n . P u l p and Paper Development i n A s i a and t h e F a r E a s t . Bangkok, 1962. .FAO. Pulp and Paper P r o s p e c t s i n Western Europe. 1963. .FAO. Reports o f t h e UN P u l p and Paper A d v i s o r y t o L a t i n America. New York, 1959.  Rome}  Group  .FAO. The P r o d u c t i v e P o t e n t i a l o f Europe's F o r e s t s . FAO/EFC-59/4. Rome, J u l y 1954. .FAO.  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Pulp and Paper, v o l s . 19-40.  New York.  New York.  Pulp and Paper I n t e r n a t i o n a l , v o l s . 7-8. Svensk P a p p e r s t i d n i n g , v o l s , 66-67.  1963-1966.  1955-1965. Antwerp.  Stockhom.  1965-66.  1965-1966.  Articles "Chemical C o s t s " . Canadian F o r e s t I n d u s t r i e s . March 1965. "The 500 B i g g e s t I n d u s t r i a l s " . J u l y 1965.  Fortune, v o l . LXXII, no. 1.  "The 200 L a r g e s t C o r p o r a t i o n s O u t s i d e t h e U.S.". v o l . LXXII, no. 2. August 1965.  Fortune,  Special Studies "A Report t o t h e P r e s i d e n t by t h e P r e s i d e n t ' s M a t e r i a l P o l i c y Commission". Resources f o r Freedom. U.S. Government Printing Office. June 1952. Smith, Dr. J . H a r r y . "Wood Supply i n B r i t i s h Columbia P r e s e n t and P o t e n t i a l " . B r i t i s h Columbia's F u t u r e i n A s i a and the P a c i f i c A r e a . E d i t e d by T. Matthews. Department o f U n i v e r s i t y E x t e n s i o n , The U n i v e r s i t y o f B r i t i s h Columbia. Vancouver 1965. S t a n f o r d Research I n s t i t u t e . Timber Company. 1954.  A Study f o r t h e Weyerhauser  90  Newspapers American Paper I n s t i t u t e , "How Paper Serves America". New York Times, October 8, 1965, pp. A1-A2.  The  " C h e c k l i s t o f Pulp and Paper Expansions". Post, January 22, 1966, pp. 25-40.  The  "Firms H i t Loffmark Pulp C l a i m " . p. 1.  November 30,  The Sun,  " I n d u s t r y Says Loffmark E r r s on P u l p " . December 1, 1965, p. 21. "Loffmark A t t a c k s I n d u s t r y C r i t i c s " . 1965, p. 33. "Loffmark Doubts Pulp G l u t " . 1965, p. 20.  Financial 1965,  The P r o v i n c e , The Sun,  December 1,  The P r o v i n c e , November 30,  McKenzie, A r t . "Loffmark R e t o r t s w i t h Data C l a i m i n g S t r o n g Pulp Demand". The P r o v i n c e , December 2, 1965, p. 17. McMurray, R. "How Pulp M i l l s Stand Today". February 10, 1966, p. 16.  The P r o v i n c e .  Reports - I n d u s t r y Canadian Pulp and Paper A s s o c i a t i o n . September 1965. .Proceedings.  Reference T a b l e s .  F i f t y - S e c o n d Annual Meeting,  .Pulp and Paper i n Canada.  1965.  1965.  P h i l l i p s D i r e c t o r y , World Pulp and Paper M i l l s . U n i t e d S t a t e s Pulp and Paper A s s o c i a t i o n . 1955-1965.  New  Woodpulp  York,  1965.  Statistics.  Reports - C o r p o r a t i o n B.C.  Forest Products.  Columbia  Annual R e p o r t s / 1964,  C e l l u l o s e Company L i m i t e d .  C o n s o l i d a t e d Paper C o r p o r a t i o n .  1965.  Annual Reports, 1964,  Annual Reports, 1964,  1965  1965. i  91 Reports  Corporation  continued  Crown Z e l l e r b a c h Canada L i m i t e d . Great Lakes Paper Company L i m i t e d . I n t e r n a t i o n a l Paper Company.  Annual Report 1965. Annual Report 1964.  Annual Report 1964.  M a c M i l l a n , B l o e d e l and Powell R i v e r L i m i t e d . 1959 t o 1965. North Canadian O i l s L i m i t e d . S t . Regis Paper Company. Personal  Annual Reports,:  Annual Reports, 1958 t o 1965.  1964 Annual Report.  Inquiry  Mr..K. K i n o s h i t a , Manager, Ataka L i m i t e d .  Vancouver.  Mr. J . L i v i n g s t o n e , Columbia Pulp S a l e s , Columbia Corporation. Montreal.  Cellulose  Mr. A. C. McGougan, A s s i s t a n t V i c e - P r e s i d e n t P u l p and Paper Marketing, M a c M i l l a n , B l o e d e l L i m i t e d . Vancouver. Sandwell and Company L i m i t e d .  Vancouver.  APPENDIX I L  J  SANDWELL  A N D C O M P A N Y LIMITED  21 F e b r u a r y 1966  Mr. W i l l i a m F. J . Wood The U n i v e r s i t y o f B r i t i s h Columbia F a c u l t y o f Commerce and B u s i n e s s A d m i n i s t r a t i o n  Reference:  010.554  Dear S i r : W i t h r e f e r e n c e t o your l e t t e r o f 6 F e b r u a r y t h e t y p i c a l r e q u i r e a r e as f o l l o w s : Cost/A.D. ST Coast Wood Chemicals - l i q u o r - bleaching Fuel Other M a t e r i a l s E l e c t r i c Power Labour A d m i n i s t r a t i o n and Overhead Contingency  35.00 2.00 9-95 2.90 6.25 3.05 7.15 6.60 2.10 $75.00  c o s t s w h i c h you  Bleached Pulp Interior  -  31.00 2.05 15.05 3-55 • 6.9O 3.65 8.60 7.10 1.60 $79.50  The above f i g u r e s do n o t c o n t a i n d e p r e c i a t i o n , f i n a n c i a l c h a r g e s , o r s e l l i n g expense. Labour i n c l u d e s b o t h o p e r a t i n g and maintenance s t a f f s .  SANDWELL  AND COMPANY  93  LIMITED  010.551-1-, Mr. ¥. F. J . Wood, U. B. C , 21 F e b r u a r y  1966  A d m i n i s t r a t i o n and overhead i n c l u d e s s u p e r v i s o r y , management and a d m i n i s t r a t i v e s a l a r i e s , employer p a i d b e n e f i t s , m u n i c i p a l t a x e s , i n s u r a n c e and sundry expense. The i t e m , o t h e r m a t e r i a l s , i n c l u d e s among o t h e r t h i n g s r e p a i r and maintenance material. F o r d e p r e c i a t i o n a f i g u r e o f about f i v e p e r c e n t s t r a i g h t 'time o f t h e d e p r e c i a b l e c a p i t a l i s u s u a l l y u s e d f o r 'book' p u r p o s e s . Tax c a p i t a l c o s t a l l o w a n c e s a r e o f course s u b s t a n t i a l l y h i g h e r . F o r semi-bleached  p u l p a s a v i n g o f t h e o r d e r o f $5-00 P e r t o n might be a c h i e v e d .  As f a r as t r e n d s d u r i n g t h e p a s t f i v e y e a r s a r e c o n c e r n e d we a r e r e l u c t a n t t o p r o v i d e d a t a because a.  Wood c o s t s i n g e n e r a l have been i n c r e a s i n g .  b.  Labour r a t e s have been i n c r e a s i n g b u t p r o d u c t i v i t y i s i m p r o v i n g .  c.  C h e m i c a l c o s t s through  intense competition are decreasing.  One cannot i n view o f a l l t h e v a r i a b l e s determine t h e t r e n d i n o v e r a l l c o s t w i t h o u t c o n s i d e r a b l e work i n w e i g h i n g up a l l these f a c t o r s w h i c h v a r y a c c o r d i n g to the m i l l s l o c a t i o n . I n y o u r study y o u s t a t e t h a t y o u w i s h t o show B. C.'s unique p o s i t i o n . IfI m i g h t be p e r m i t t e d a word o f a d v i c e , do n o t f o r g e t t o i n c l u d e f r e i g h t c o s t s w h i c h a r e a s i g n i f i c a n t and e x p e n s i v e i t e m a l m o s t as much as wood. These a r e p a r t i c u l a r l y i m p o r t a n t i n w o r l d markets such as t h e European a r e a .  Yours t r u l y SANDWELL AND COMPANY LIMITED  I . R. Hudson  TRH /br  

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