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Q3 PAPER OUTLOOK -- Big Paper Cuts

June 2001

As a weak U.S. economy continues to batter the printing industry, several pulp and paper producers have announced that they are either closing mills or cutting production. In a flurry of first quarter earning statements, companies such as International Paper, Weyerhaeuser and Sappi Fine Paper North America, among others, have announced plans to cut production in response to a softening economy.

In its first quarter earning report, Weyerhaeuser says that it expects the slowing global economy to result in a weaker demand for production in all its major pulp, paper and packaging product lines. This resulted in Weyerhaeuser's decision to institute additional production curtailment in its second quarter.

At the end of April, International Paper announced that it would close its Moss Point, MS, plant at the close of the second quarter. The company says it is closing the mill due to the high costs of running the mill, and the need to better align production with current customer demand. Moss Point produces nearly 200,000 tons of bleached board and bristol papers for products such as greeting cards, paperback book covers, cartons for frozen foods, pharmaceuticals and cosmetics.

John Dillon, chairman and CEO of International Paper, concedes that a slow economy has taken its toll on the company's earnings, which were down to $.05 per share compared to last year when earnings were $.60 per share. "While we can't change the economy, we are changing the company. We are taking actions that are benefiting shareholders in the short-term and positioning the company to win in the long-term. We are matching production to our orders, which has led to reductions in inventories."

Cuts Across the Industry
But International Paper isn't the only company to decrease production capacity in recent months as a result of weak demand.

During the first quarter, Bowater curtailed production by approximately 36,000 metric tons of newsprint and 45,000 metric tons of market pulp.

In February, Uniforet extended the downtime at its Port Cartier, Quebec, pulp mill until June. In a statement Uniforet called the measure "necessary because of the weak conditions that persist on the world pulp market."

In May, Sappi Ltd. reported that it would exit the U.S. uncoated paper and converting paper segments, and focus on its core business of coated fine paper. As a result of this decision, Sappi plans to close its 500-employee paper mill in Mobile, AL, which produces the Spectra-Tech line of uncoated papers. With an annual capacity of 300,000 tons, the mill also manufactures Lusterprint, a high gloss paper used for pet food bags and other converting grades. Lusterprint will now be produced at other Sappi facilities.



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