Analysts suppose Canadian paper companies to follow Domtar and close facilities

Dec 01, 2005. /Lesprom Network/. Canadian paper industry analysts expect more cutbacks similar to Domtar Inc.'s plan to chop 1 800 jobs and either close or sell some higher-cost manufacturing operations in a bid to restore profitability. “There are a lot of potential curtailments to come,” said Mark Bishop of RBC Dominion Securities Inc., who expects smaller, second tier producers to shut operations as they wrestle with the rising Canadian dollar, trade tariffs, and rising fuel costs. Mr. Bishop said he is watching for possible announcements from companies such as Kruger Inc., St. Mary's Paper Ltd. and Norampac Inc., a packaging joint venture owned jointly by Domtar and Cascades Inc., which he said, may also be under pressure. “We continue to believe that a further 400 000 tonnes of uncoated freesheet capacity needs to be closed in order to maintain operating rates in the mid-90% range required to shift pricing power back to the producers,” he said. Domtar senior executives said other parts of its operations will remain under scrutiny after announcing on Wednesday a series of measures that is expected to reduce its Canadian paper production capacity by 40%, leading to a pretax cost of $505-million. They include the permanent closing of its paper mill at Cornwall, Ontario, and two paper machines in Ottawa next March, moves that will eliminate more than 1 100 jobs. The company is also closing its sawmills at Grand Remous and Malartic in Quebec, and transferring the wood fibre allocations to other Quebec mills, a decision that will affect 200 jobs, some of which may be transferred. As well, the company has hung a for sale sign on its Vancouver coated paper mill, which employs 285 people. Another 300 positions are expected to be trimmed through further cost cuts and the elimination of corporate and divisional positions. Domtar chief executive officer Raymond Royer described the decision to close mills as difficult but necessary. “The pulp and paper sector is facing unprecedented challenges,” he said on Wednesday during a conference call with analysts. “Today's actions are a stepping stone to helping Domtar succeed in returning to profitability in a difficult environment,” he said. Domtar's actions come on the heels of similar restructuring moves by other Quebec forestry giants such as Abitibi-Consolidated Inc., Cascades and Tembec Inc. It follows an announcement last week that the federal government is ready to offer $1.5-billion worth of forestry aid to help the industry withstand the impact of the U.S. -Canada softwood lumber dispute.