Domtar shutdown long expected, experts say

Bangor’s Home Depot sells pinewood planks made in Chile. Personal Digital Assistants and mobile phones like Apple’s iPhone are common. And in Millinocket, a manufacturing capital of supercalender paper, a calendar marked “Made in China” hangs in a town snowmobile clubhouse.

Welcome to the new millennium, where global competition, data technology, shrinking markets and changing consumer tastes forced Canadian paper producer Domtar Corp. on Tuesday to eliminate a paper machine and 150 jobs in Baileyville.

“Diversify or die” is the message of Domtar’s action on Tuesday, state paper industry insiders say.

“These are older mills,” said Paul Quinn, a leading paper industry analyst at Salman Partners Inc. of Vancouver, British Columbia. “They tend to be higher cost, and – definitely in Domtar’s case – when a company takes repeated downtime at a mill, that’s a big signal that it’s a high-cost mill.”

“Success will largely depend on the industry’s willingness to reach out to universities to create new product [and to] the community colleges for work force development,” said John Richardson, commissioner of the Maine Department of Economic and Community Development. It also will depend on the industry’s “willingness to remain competitive in a highly competitive market to produce a totally ‘green-certified’ product,” he said.

Diversification into niche products can reap big dividends, said Keith Van Scotter, co-owner of Lincoln Paper & Tissue LLC.

“Rumors of the Maine paper industry’s demise are greatly exaggerated,” Van Scotter said. “Maine has a lot of wood. It’s got good hardwood for pulp production, and as long as the export market holds, it should be strong.”

Demand in one of Domtar’s markets, uncoated free-sheet paper, has dropped as much as 8.8 percent annually, Quinn said. He speculated that a cycle of a shrinking paper market, increased costs, less profit and staffing cutbacks gradually forced Domtar’s shutdown.

Smaller mills “just don’t get the economies of scale of larger mills,” Quinn said. “The industry itself is contracting, and you have Asian imports coming into the North American market with new mills looking for market share.”

Mike Bilodeau, director of the process development center in the chemical and biological engineering department at the University of Maine in Orono, doesn’t see the shutdown of Domtar’s paper machine as that dire.

“It is just the natural evolution of a machine,” Bilodeau said. “At some point they are not competitive and should be retired.”

“We’re going through the same things the steel industry went through,” Van Scotter said. “You rationalize, consolidate, and production will migrate to where the cost [is least] and quality of management exists.”

“The world demand for paper continues to rise. When we plot that against all the different electronic innovations [such as iPhones], we continue to see the demand,” Bilodeau said.

Besides Lincoln’s mill, which got into tissue-making, mills in Bucksport, East Millinocket, Jay, Millinocket, Rumford, Skowhegan and Westbrook have diversified, streamlined or dumped old equipment, Bilodeau said.

“We shed the assets the company had that weren’t making sense and kept the ones that were,” Van Scotter said. “We took them further in the right direction.”

Big challenges face the state paper industry. About 75 percent of its workers will reach retirement age in five or 10 years, Richardson said, and the state’s electricity costs are also high.

Most sustainable plants have or are installing generators and encouraging work force flexibility in assignments, which Quinn called a key to competitiveness.

Seen by some as the bogeyman of Maine’s paper industries, environmentalism actually will help the industry survive, Richardson said.

Environmental laws “may affect harvest practices, but not the volume of wood produced by Maine forests,” Bilodeau said. “We actually have a bigger inventory of standing timber than we had back in the 1930s and our harvest level has actually increased compared to then.”

Maine’s forests can sustain producing 7 million cords of wood annually, but about 6 million cords are harvested, he said.

The state’s environmental savvy will help Maine because consumers are pushing increasingly for “green” seals of approval on products, Richardson said.

“Global market forces are killing our industry, but one way we could combat that is branding Maine as an environmental state that produces a 100 percent environmentally clean product,” Richardson said. “That will be a marketing tool and an asset for the future.”