Instead of converting the idle D-2 newsprint PM as originally planned, the company will convert the still operating D-3 newsprint machine to 355,000 tons/yr of lightweight recycled linerboard and corrugating medium by Nov. 1, the company said. Newsprint production on D-3, which has been "slightly below breakeven" in profitability, would end in mid-September (see related article on p. 7).
The company said it will take a non-cash $30 million charge to discontinue newsprint production.
The new plan reduces the capital cost of the project from the original $160 million for converting D-2 to $115 million for converting the D-3, increases the amount of new containerboard capacity from 300,000 under the original plan to the 355,000 tons/yr, and provides an exit from the declining newsprint market. As a result, the plan could provide more bang for the buck with the cost of the project dropping from $533 per annual ton to $324. The company said the D-3 project is expected to produce an after tax discounted cash flow of 30-35% compared to less than 20% for the D-2 conversion.
"The D-3 conversion project provides us needed capacity with a much higher return than the D-2 project," said PCA CEO Mark Kowlzan.
Needed capacity at higher return.PCA on Oct. 25 said it would undertake a "technical review" of the original D-2 conversion plan developed by Boise, which PCA acquired late last year for nearly $2 billion, including debt.
At the time the deal was announced, PCA indicated that DeRidder was the crown jewel of the acquisition-- a low-cost Southern production base that would enable PCA to supply containerboard for its expanding box system. The company's box shipments over the past three years expanded at a 6.2%/yr rate compared with flattish growth for the industry as a whole, according to PCA's 10-K report.
"Without the D-3 project, we estimate our outside purchases of containerboard would be about 250,000 tons in 2015 in order to support PCA's total containerboard demand," Kowlzan said in announcing the new plan this week. "We will also be able to supply more containerboard to our long-term export customers as we have had to withdraw some tons from this market the past several years to support our domestic demand."
The company also said that by discontinuing newsprint production, about 100,000 tons of "low cost" virgin fiber would become available for containerboard production, reducing the amount of "higher-cost" old corrugated container (OCC) fiber required.
Few new project details. The company provided no further details on the project or how capacity was increased at a lower capital cost.
DeRidder's newsprint machines are wide with nearly 300-in. trims, optimum for supplying the the latest wide new corrugators, such as PCA's new 110-in. corrugator in Waco, TX, according to contacts. The capacity of the D-2 newsprint machine, permanently shut in early 2009, was about 186,000 tons/yr. The newer, faster 3,940 ft/min D-3 capacity is 232,000 tons/yr of newsprint.
D-2 was installed in 1969 while D-3 was added in 1980. One main difference between the two machines is in their formers. D-3 is equipped with a twin-wire Bel Baie II former, while D-2 has a Bel Form top former. The twin-wire former on D-3 would be unusual for a containerboard machine, one technical consultant said, although PCA runs a twin-wire former on its No. 4 machine at the Tomahawk, WI, medium mill.
Nearly one million tons/yr.The mill's existing D-1 linerboard machine has a 300-in. trim and capacity to produce 620,000 tons/yr of mainly heavyweight linerboard grades. The machine is one of the lowest cost machines in North America in cash manufacturing costs (first and second quartile), according to analysts. The machine now runs almost 100% on unbleached kraft pulp fiber.
When the D-3 machine starts up, the DeRidder mill's containerboard capacity would total 975,000 tons/yr. Total existing unbleached kraft pulping capacity at the mill is now about 576,000 tons/yr, according to RISI Mill Intelligence. The main capital cost for the D-3 project would probably be for the new OCC recycling system, according to a technical consultant.
The D-3 machine would allow PCA to optimize its mill system by shifting lightweight grades to the newly converted machine to allow its other machines to focus more on heavier weight grades, the company indicated earlier. D-3 would also provide the company with medium in the South to supply its box plants in the Southeast/Texas region and further West, a contact said.
In addition to DeRidder, PCA runs kraft linerboard mills in Valdosta, GA, and Counce, TN, and three semichemical medium mills in Tomahawk, WI, Filer City, MI, and Wallula, WA. PCA is the fourth largest North American containerboard/box producer with a total containerboard capacity of 1.7 million tons and 98 corrugated box plants. DeRidder would become the second largest mill in PCA's mill system, slightly below Counce in capacity.