BRUSSELS, April 29, 2013 (RISI) -Longview Fibre Paper and Packaging, one of the largest mills on the West Coast, has not only survived since its acquisition by Brookfield Asset Management in 2007 but thrived in a region where many mills have closed in the last decade.
"We're no longer a diamond in the rough," says president Randy Nebel, referring to the way the mill was regarded at the time of the $2.15 billion acquisition, with the focus on the company's valuable timberlands (PPI, April 2010). The big Longview, WA, containerboard/kraft paper mill had been struggling to stay above breakeven and was on the road to potential closure itself.
Since taking over the sprawling complex, new ownership has focused on a strategy of productivity improvement, cost reduction, and incremental expansion in higher value grades in growing markets to restore profitability.
The 588,000 acres of prime Washington/Oregon timberlands have been part of another Brookfield company, Longview Timber LLC.
Production is forecast to hit 3,150 tons/day this year, higher than the mill produced prior to the acquisition - even though the number of paper machines on site has been reduced from nine to five and employment has been cut by about 25% since 2006.
Longview is now the only US producer of high performance (HP) extensible multiwall sold into global markets, a leader in growing kraft specialty and lightweight kraft and containerboard grades, and a strong regional corrugated container player. It also produces some unbleached kraft market pulp (UKP).
Total production in this year's plan would break down to 1,175 tons/day of kraft paper and 1,975 tons/day of containerboard.
Under its current five-year plan, Longview expects production will increase an additional 11% by 2017, which would take it to around 3,500 tons/day. The mill also has the potential of adding the "next new high performance (HP) extensible multiwall machine" someday in the future, according to Nebel.
PMT Italia did the rebuild work on PM 11 including a press section and ceramic coated roll
New shoe press
Mill output this year will benefit from projects completed last year on its PM 11 kraft machine and PM 10 containerboard machine, which will boost production 35,000 to 40,000 tons/yr.
In December, Longview completed a $15-million project that included a new shoe press, drying and sheet handling improvements on the No. 11 machine, which produces TEAKraft and FibreShield, the company's growing semi-extensible and extensible kraft paper grades.
PMT Italia supplied the AEGOTMFLX shoe press on PM 11. The scope of the rebuild included the AEGO FLX shoe module mated to a ceramic coated AEGOTMFLX roll with a new double doctor. The equipment was successfully delivered, installed and started up under a tight schedule due to the cooperative efforts of the Longview and PMT project teams.
The project will enable PM 11 to increase production by about 20,000 tons/yr, reduce basis weight of paper, and improve paper quality in terms of tensile strength and uniformity across the web.
"The machine made and sold paper within 10 minutes of startup," says Paul Duncan, mill manager. "The press section installation time may be an industry record."
Since the acquisition, Longview has been streamlining the complex mill and improving machine efficiencies. The company has boosted production on its five remaining paper machines by 50% over their 2006 level.
Longview currently has capacity to produce 1.6 million tons/yr of pulp and 1.3 million tons/yr of kraft paper/containerboard, giving the mill excess unbleached pulp capacity of about 300,000 tons/yr.
Since a significant portion of the pulp capacity cost is fixed, increasing production on the company's paper machines offers a way to expand margins and profitability.
Longview has spent about $165 million on capital projects since the acquisition in 2007-which contrasts with $650 million invested in the assets by the predecessor family controlled company from 1997-2007. The earlier investment provides Longview with "significant financial and operating leverage."
Nebel has likened Longview to more like a "post-1990s" mill, except for the paper machines, because of the extensive capital investment in the front end and closure of older equipment. He estimates replacement cost of the mill and the company's seven box plants in the West at "well over $2 billion."
Brookfield, a Toronto-headquartered global asset management company, reportedly was trying to sell the company several years ago and may again look at the opportunity, according to analysts.
The rebuild will help PM 11 increase production by 20,000 tons/yr
Profits on the rise
Longview achieved significantly improved EBITDA in the fourth quarter from a year ago, according to analysts, who track the privately owned company's bonds. Longview said its EBITDA margins are now in the top quartile compared with breakeven at the time of acquisition.
In addition to productivity gains, Longview has been benefitting from price increases implemented last fall on containerboard and extensible kraft paper as well as declining wood costs. Containerboard producers have announced a second $50/ton price increase for April.
Woodchip costs for Longview dropped considerably in 2012 from a year ago due to more supply from Pacific Northwest lumber mills with the recovery in housing and fewer pulp and paper mills in the region competing for residuals. RISI'sInternational Woodfiber Reportshows softwood chip prices in the Pacific Northwest declining 18% in the first quarter from a year ago (vs. 5-8% increases in the South) and Longview is achieving additional cost savings from having to chip fewer logs.
Longview remains focused on reducing fiber and energy costs, its two major cost components. Nebel says the company is now first quartile in energy cost per ton, but was previously "off the charts."
But management has decided to delay installation of a proposed $100-million circulating fluidized bed biomass boiler and 65-MW turbine generator because the price of electricity is "too low to put in a new boiler." He said the project could still move ahead in five years if rates increase.
Table 1 - Longview´s mill capacity by PM
|Kraft paper||Capacity tons/day||Main grade||Basis wgt range (lb/3000 ft2)||Maximum trim||Other capabilities|
|PM 5||170||LW, specialties||20-60||185||Some colors, bleached, soft calendered, wet strength|
|PM 11||540||FibreShield, TEA-Kraft||38-65||236||Extensible, multiwall, wet strength, LW containerboard|
|PM 12||465||LW specialties||25-68||242||Converting, OCC content, LW containerbd|
|PM 7||815||Linerboard||42-90||168||Saturating, UKP, wet strength|
|PM 10||1,160||Linerboard, medium||23-45||242||Heavy weight kraft paper|
|Paper/board total||3,150||(1,134,000 tons/yr)|
|LW=lightweight. UKP=unbleached kraft pulp.
Note: PMs 6 and 9 have been shut for several years and unlikely to run again.
Source: Longview Fibre Paper and Packaging, Inc.
Refocusing product mix
Since its acquisition, Longview has reduced its product mix from more than 200 products in 2006 to more than 70 currently, with a focus on lightweight and specialty grades. "We're not afraid of making lightweight and that is positive for the mill of the future," Nebel notes.
He says Longview is more interested in "dollars than tons" and its products "have to make money or we don't make them." He adds that the company views itself "as renting time on its machines and expects to get paid for that time."
The company's kraft paper grades include HP extensible and semi-extensible multiwall, natural multiwall kraft, kraft specialties, and OCC content bag paper. It also produces kraft linerboard and semichemical corrugating medium, with about 60% of production supplied to the company's seven box plants in the West, which mainly serve less cyclical agricultural, food and beverage markets.
Closure of a number of containerboard and kraft paper mills on the West Coast over the past decade has helped Longview's competitive position, particularly the shutdown of West Fraser's Eurocan extensible sack kraft and linerboard mill in British Columbia in early 2010. Longview is a major supplier of corrugating medium, a grade which has been in tight supply in the West.
One of Longview's most successful product development initiatives in recent years was the 2009 launch of FibreShield, its high performance extensible multiwall kraft paper grade. This followed the introduction of its TEA-Kraft semi-extensible paper in 1997.
Only a "handful" of paper producers can produce high tensile strength "A" grade HP extensible used for applications like packaging cement. The list includes Mondi and BillerudKorsnas in northern Europe and Tolko Industries in Canada, all with access to northern softwood fiber.
High tensile strength, lower basis weights and porosity are key quality characteristics of HP multiwall which have been driving increased use of HP extensible multiwall by global cement manufacturers seeking to reduce packaging costs by moving to two-ply sacks. Porosity enables such customers to run filling lines at high speeds (300 sacks/min) because the sacks release air as they are filled.
Longview is now producing 70,000 tons/yr of FibreShield and about 100,000 tons/yr including TEA-Kraft on PM 11 for customers in more than 35 countries.
The shoe press project will lower the RISI cost estimate on Longview's PM 11 to $359/ton in the first quarter, Longview estimates. This would be down from RISI estimates of $379 in the fourth quarter as compared with a range of $486-$518/ton for five competing machines making "A" grade extensible in northern Europe and Canada, according to RISI Analytical Cornerstone.
Next HP multiwall PM?
Global demand for high-performance extensible is growing at around 4%/year, driven by demand from emerging markets like Asia, Latin America and the Middle East, according to Lou Loosbrock, senior VP, container division and kraft paper.
The total world sack kraft paper market is estimated at around 4.5 million tonnes/yr, with extensible accounting for 2.5 tons/yr.
With global growth in demand creating the need for a new machine every two or three years, "the next new HP multiwall machine in the world should be here," Nebel says. Such a machine would possibly have capacity of around 200,000 tons/yr.