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Reasons to build a new mill

Week of 24 Sept 07

Many companies keep putting up with the same old assets for what they think are sound financial reasons. The more I watch the industry, the more I think this is a false sense of the economies of the business—that the full financial picture is not being properly analyzed. It is illogical to think that just because a business is not growing by leaps and bounds that there is no justification for renewing assets. In fact, that may just be the reason for renewing assets.

In a number of paper and paperboard grades here in the United States, new mills are being built, stealthily, quietly and without fanfare. These mills are being built by private companies. They are some of the lowest cost mills in the industry in their respective grades, both in installed capital costs and in operating costs. I am familiar with mills in four or five completely different paper grades serving completely different end use markets that have done this.

As for published data, those who publish such data just may have suspect information when it comes to some of these mills, for what would possibly motivate a private owner to share their excellent results?

The approach in the industry today is if we can not make money, we must get out of the grade. In many cases, such as a declining grade, this is an appropriate response. However, in other grades, it may not be. About five decades ago, a famous marketing company decided to try their hand at making diapers. Their first attempt did not sell at a price point that was attractive to customers. This left them with two choices—drop the idea or find a way to make them less expensively. They found a way to make them less expensively and nearly drove cloth diapers out of business. Granted, this was a retail example, but it applies to business-to-business paper and paperboard sales just the same. One must also recognize that just because their company does not decide to find new ways to deliver superior products at lower cost does not mean that others are taking the same approach.

So what does a new mill provide that an old one can not?

Category (Relative Value)

1. Improved technnology ($$)

2. Better logistics ($$$)

3. Better Maintenance ($$$)

4. Workforce right sizing and right costing ($$$$)

5. Improved workplace culture ($$$$)

6. No legacy environmental issues ($$$$)

7. Improved energy efficiency ($$$)

8. Better quality through tighter process control ($$$)

Let us look at each of these topics.

Improved Technology

Most companies stop right here. They think the whole issue of building a new mill is all about pulp and/or paper making technology if increased capacity is not required. This may very well be the least important consideration in building a new mill except in how it might affect operating costs.

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