Coated groundwood; a look at what you must know to predict available supplies of coated groundwood and position yourself to get what you need - includes related articles on what is coated groundwood and how the survey of coated groundwood paper manufacturers was conducted

Coated groundwood paper is the single most important grade used by magazines in the United States. In fact, about three-quarters of all paper consumed by domestic magazines is coated groundwood. This being the case, it is not surprising that the coated groundwood paper manufacturers in North America look to our industry to purchase nearly 60 percent of their production.

This interdependence creates a kind of partnership--and as in any partnership of mutual dependence and expectation, there are good times and there are bad times. The longer you are in this business, the more you realize that swings occur and recur--from content to discontent and back again, sometimes quickly and other times over the course of several years.

Need any of us be reminded of the frantic months of 1984 when paper was as scarce as gold dust and the next delivery was often only hours away from press time? And then the quick change early this year when inventories purchased in the time when caution was the watchword suddenly became burdensome to our cashflow and taxing to our printers' warehouses?

Looking for answers

Given this propensity for change in the supply of coated groundwood, all publishers need to know as much as possible about the future availability of this paper. The FOLIO: Coated Groundwood Paper Survey was designed to compile and present information useful to magazine publishers in this regard. The survey focuses on North America, since it is apparent that the United States and Canada will more and more share a common market. (Paper from offshore will continue to be a factor, but North American sources of coated groundwood are those that received FOLIO:'s in-depth analysis.)

There are today 15 companies in the United States and Canada that (in 1985) have the capacity to manufacture an estimated total of 3,929,000 tons of coated groundwood paper. There may be a few othr mills in North America that produce a small amount of coated groundwood, but the 15 companies covered by this survey produce the majority--certainly more than 95 percent.

Defining the questions

The survey was designed to answer several questions about paper in general and coated groundwood in particular: What types of paper are used in our magazines? How is coated groundwood different from the other types of paper, and what are its characteristics? Who competes with us for coated groundwood supply? Who manufactures coated groundwood paper in the United States and Canada? Of these mills, which ones are major suppliers of paper to magazines? How do they sell their paper? Which mills are nearest to our printers, and what do they have planned for the future? And what do they have to offer--in basis weight range, printing-process end-use application, and surface finish?

The Magazine Publishers Association's annual paper survey of members (1985) received responses from 99 publishers, representing slightly more than 40 percent of magazine paper usage. Because a few classes of magazines, such as those distributed in Sunday newspapers, are not included in MPA membership, the MPA statistics are not wholly representative of all magazine paper usage. Nonetheless, the numbers are revealing. Table 1 shows the respondents' estimated usage by type of paper for 1985 and 1986. The paper classified under "Imports" cannot be precisely defined. However, I would guess that at least three-quarters of it falls under the coated groundwood category also.

Extending the MPA numbers, we can see that perhaps 2.5 million tons of coated groundwood will be consumed by all domestic magazines in 1985.

Even though roughly 60 percent of all coated groundwood paper is consumed by magazines, it is impossible to ignore the other users of this paper because they compete with us for the available supply. Catalogs, free-standing inserts, coupons and certain types of books are other major users of coated groundwood, with certain of these segments growing significantly faster than magazines. Not only has their growth been high, but their switch from other grades to coated groundwood has been heavy. The tonnage demands of certain of these other users will certainly not grow as rapidly in the next five years as they have since 1980. But their near-term growth will probably still outstrip magazines, making for continuing compensation for paper supply.

Canada as a supplier

Because Canada has historically been a small factor in the coated groundwood paper manufacturing picture in North America, most surveys have not included data about Canadian production and supply. But this picture is changing, and I am therefore encouraging all coated groundwood paper buyers to start now to think in terms of total North American capacity. For total paper, our two countries have in recent years been each other's largest trading partners--partly because of geographical proximity and partly because of similarities in paper specifications and "expectations" of customers.

My numbers indicate that for coated groundwood paper, Canada's capacity will be an increasingly large factor, growing from less than 6 percent of North American supply in 1985 to more than 9 percent by 1988. Table 2 illustrates this growth and compares it regionally to capacity in the United States. Of course, a good portion of Canada's paper remains in Canada to satisfy their domestic demand, but an ever-growing amount will be coming to the United States in future years.

Modest to rapid growth

According to our definition of coated groundwood paper (see sidebar), total North American capacity in 1985 euals 3,929,000 tons. It grows modestly (by 208,000 tons) to 4,137,000 tons next year as the impact of three new machines begins to be felt. It then spurts rapidly (by 496,000 tons) in 1987 to 4,631,000 tons as these three machines proceed up their learning curves and are joined by a fourth. An additional 251,000 tons becomes available in 1988 as these four machines come close to top production levels and a fifth machine is started up for a total capacity that year of 4,882,000 tons.

Included in these numbers are the effects of certain anticipated speed-ups or rebuilds of old machines, plus the shutdown of one small machine.

New capacity announced

The five announced new machines in the survey and their times of impact are as follows:

* Bowater, Catawba, South Carolina--early 1986.

* Repap, Miramichi, Newcastle, New Brunswick, Canada--third quarter 1986.

* International, Pine Bluff, Arkansas--October 1986 (machine conversion).

* Consolidated, Biron, Wisconsin--1987.

* Blandin, Grand Rapids, Michigan--second half 1988.

The first four are now in various stages of construction, and Blandin will start construction early next year.

In no case have I anticipated any new capacity other than that which has been formally announced by the paper companies. The same holds true for speed-ups and rebuilds. However, there are other possibilities in the wings that I will discuss later in this article.

In total, coated groundwood tonnage in North America will increase by 953,000 tons between 1985 and 1988, for a growth of more than 24 percent. And if other developments occur, that number could even be larger.

Geography and the big players

In addition to showing the coated groundwood capacity tonnage numbers, Table 3 ranks the 15 companies by size for 1985 and 1988. It also shows the mill locations and gives the basis weight spreads. (More on basis weight later in this article.)

Champion (with its mills obtained in the purchase of St. Regis) remains number one throughout the period, even though no new machines have been announced. But International and Consolidated, the number two and three companies in terms of coated groundwood tonnage, close the gap considerably as this period progresses.

Repap is a special situation--it is really a combination of three companies, with Midtec Sales Corporation providing the exclusive marketing and sales service for each. Midtec (Kimberly, Wisconsin) is the only one of the three operating in 1985, but next year, it will be joined by Miramichi (Newcastle, New Brunswick, Canada). And I list Repap's Nitec (Niagara, New York) mill only because the machinery exists and it could be restarted after an additional investment. Even without Nitec production, taken as a whole, Repap moves up from eighth place in 1985 to number four in 1988.

Bowater moving up

Bowater is the other ascender, moving from fourteenth to number eight. And Blandin, while maintaining the number seven slot in 1985 and 1988, will almost certainly move up as it reaches its mill potential of about 445,000 tons annually by 1990.

Table 2 summarizes the geographical dispersal of total groundwood tonnage. It is especially interesting to note the static position of the northeast United States during the four-year period. But the Repap-Miramichi mill in New Brunswick, Canada, can most comfortably support the Northeast in terms of proximity, so the comparison is not quite so startling as at first glance.

The West is another area of no growth; only the West Linn, Oregon, mill of Crown Zellerbach is located west of the Rocky Mountains. Given the growing demand for coated groundwood paper in the West, I expect that Blandin's larger operation in Minnesota will join certain other Midwest and Southern mills in an effort to fill part of that requirement. But Blandin's newly announced machine, in my opinion, is still somewhat doubtful in terms of timing and perhaps viability.

Magazine penetration It's not enough for us to look at total tonnage numbers, since we are first and foremost interested in magazine tonnag. When paper is made, each grade competes for machine time with every other grade that the paper machine can manufacture. And the same paper can be directed to different market segments. But for our general guidance, it is helpful to know how much of each company's groundwood coated paper now goes to magazine end use.

Table 4 provides my estimate of the percentage of this paper produced by various companies that is used by magazines. Some companies gave me the figures right to the percentage point, others gave me rough estimates, and a few declined to release any numbers. But, after talking with many sources, I am able to represent each company in the survey, at least within a certain general classification percentage range. Again, I cannot predict if each company's orientation will continue as it is currently projected.

In the August issue of FOLIO: (page 96) I reviewed the pluses and minuses of buying paper from printers, merchants and mills. In that article I suggested that, for certain publishers, it is not advantageous or practical to buy directly from mills, but that a merchant or printer should be chosen.

Merchants and manufacturers

That's all well and good, but merchants are supported in varying degrees by these paper companies. In fact, four mills sell almost exclusively on a direct basis. Table 5 shows the percentage range of each company's coated groundwood paper sold through merchants. (Once more, lacking much specific information, I have provided three general groupings, with no guarantee of 100 percent accuracy.)

Available basis weights

Now that we have a pretty good idea of each company's tonnage, their percentage going to magazines, and the selling methods, let's look at three important paper details--basis weights, printing process and surface finish. Table 3 (far right panel) shows four general basis weight ranges and the paper companies that participate within each range. It also specifies offset and gravure capabilities and gloss and matte availability.

The highest basis weight generally offered in coated groundwood paper is 70#. The only mill to go above that weight is Mead, which makes 80#, and indeed has the ability to go all the way to 100#. On the other end of the scale, the only company that goes down to 30# paper on a regular manufacturing basis is Champion, though I suspect that one or two others have the technical capability.

I asked the 15 paper companies to estimate the future general movements for basis weights in magazine paper. Of the 14 that responded to this question, none estimated a direction higher; six thought the mix could move lower; and eight did not expect any appreciable change. Looking at the 1985 MPA Paper Survey, the respondents seemed to agree--perhaps a very slight shift downward, but almost imperceptible in magnitude.

Printing process

The two printing processes for magazines using coated paper are heatset web offset and gravure. I cannot estimate with great accuracy the percentage of one versus the other in magazine printing, but for total #5 coated groundwood paper consumption, gravure accounts for perhaps 25 percent. Certain magazines with long print runs use this process, but for all magazine printing I think that heatset web offset will grow more rapidly in the future. Each printing process applies the ink differently to the paper, so the paper for each requirement has different properties. For instance, gravure paper has to be smoother than offset paper.

All 15 companies in our survey manufacture offset paper, at least in some basis weight range. But three of the companies--Crown Zellerbach, Mead and Provincial--do not make gravure paper at all. See Table 3 to identify those paper companies that manufacture the type of paper you want within your specific basis weight range.

The great majority of coated groundwood paper used in magazines is glossy in finish, but certain magazines do have requirements for matte grades. Matte paper is coated, but not super-calendered. It does not have the shine of gloss paper, but with special inks it provides excellent hold-out properties for four-color printing in web offset. Certain art directors like the snappy ink holdout without the paper glare, and matte coated paper can be the answer. Therefore, Table 3 (far right panel) also identifies those paper companies that manufacture gloss and matte paper within each basis weight range.

You will note that all companies manufacture glossy paper, at least within certain basis weights. However, three companies--Blandin, Fraser and Krueger--do not provide matte paper at any basis weight. The lowest basis weight commonly manufactured in matte coated groundwood paper is 40#. Crown Zellerbach is the only company in our survey to go down to 36# paper in matte finish.

because the qualities, specifications and other variations in printing paper are encyclopedic, even for coated groundwood grades, many publishers find it useful to have on hand one or two different paper directories. The accompanying Paper Resource Guide lists five directories that you might consider, although I'm not making any recommendations as to which of them may be just right for you.

I mentioned earlier that only announced capacity changes were included in this survey. But there are other moves that could occur, and I list situations that bear watching:

* Krueger currently manufactures uncoated groundwood at its Trois Rivieres mill in Quebec. Its two off-machine coates convert a portion of this tonnage into coated groundwood paper, currently 130,000 tons. Krueger is assessing the expansion prospects for a third coater at this mill to increase coated paper capacity for its Canadian and United States customers. Such a decision could probably be implemented in less than a year from "go." Perhaps 60,000 to 70,000 tons would then be added in this category.

* Weyerhaeuser originally had grand plans for its "greenfield" millsite in Columbus, Mississippi. Its first machine was started up in 1982 and currently produces 175,000 tons annually of coated groundwood paper. The initial scheme was to follow up with a second coated groundwood machine and two uncoated woodfree machines that, when all up to speed, would have made this mill one of the alrgest on the continent. A second coated groundwood machine has been engineered, but for the past many months it has been on the back burner.

Now that Weyerhaeuser Company has formed a new entity (Weyerhaeuser Paper Company) to focus specifically on its paper activities, that project may finally heat up. I can't believe that the Columbus millsite will thrive with just one machine, and I can't believe that the uncoated woodfree market will make sensible to move that way next. A second coated groundwood machine should at least double the present capacity for Weyerhaeuser in this grade.

* Niagara's parent company, Pentair Industries, is rumored to be studying a possible joint venture with Minnesota Power and Light for a "greenfield" mill in Duluth, Minnesota. This are has been looked at by others recently, and if Pentair proceeds with the project, the grade would either be lightweight coated paper or uncoated supercalendered paper. If lightweight coated groundwood gets the nod, perhaps another 200,000 tons would come on stream.

* Repap was, for a while, seriously considering the start-up of its old Nitec mill in Niagara, New York. Instead, it is moving forward with the coated groundwood project called Miramichi in Canada. Perhaps after that major project is digested, attention might again be turned to Nitec, to provide an additional 80,000 tons to the marketplace. But not, I think, for at least the next few years.

* St. Regis, before it was purchased by Champion, was actively considering a new machine, looking at three or four locations. With the consolidation of these two companies, Champion has had to focus on other more pressing considerations. But in the long term, it will be hard for them to relinquish their number-one position in coated groundwood. Numbers two and three are closing fast. I suspect Champion will resurrect the project in the next two or three years.

Forecast: Supply and demand 1986

It is hard to believe that we could have a tightness of supply within the next three years. Certainly the coated groundwood paper market for most of 1985 has been soft. And paper for most months has been readily available, with stable and even sinking prices. In addition, offshore sources have been flooding in in increasing amounts since 1984 as the relatively strong dollar has combined with soft markets elsewhere in the world to encourage its entry.

Indeed, Robert Farley, senior vice president, Magazine Publishers Association, says that "from the point of view of supply of paper, I would certainly think that the publishers are going to feel comfortable next year."

Time Inc., one of the largest users of coated groundwood paper in the United States, seems to echo that sentiment: "It will continue to be a soft market," says Richard Serafin, purchasing director, Corporate Manufacturing & Distribution Department. "Somewhat soft, I think would be a better term," he adds.

But I point to a few signals. One paper source noted in that inventories are plummeting and that the long pipeline of imported paper is slowing down. He feels that we are in the middle of a correction period that could well run its course during the first quarter of 1986. Advertising pages have not been so robust as had been predicted, but paper consumption is not significantly different from 1984. And in certain other areas of coated groundwood consumption, paper usage is actually somewhat up. Add to these points the fact that my survey indicates an increase of capacity of 1986 of only 208,000 tons in North America, an increase equaling about 5 percent.

A look at 1987 and 1988

At The FOLIO: Show last year in New York, I predicted that the coated paper market would soften shortly. It turned out that the softness came even faster than I expected. Publicly, almost everyone was saying that peper would remain tight, and many publishers were outwardly shopping for additional supplies. But I remember one member of the audience telling me confidentially that he was buying every monthly allocation to which he was entitled, but that he was shortly going to ask his merchant to resell portions of it quietly. His printer was running out of storage space. And a major magazine paper purchaser, one who does not like to be quoted, mentioned privately that his company was selling several lots of paper that he had earlier purchased from offshore.

At last month's FOLIO: Show Magazine Paper Seminar, I predicted that the paper market would tighten sometime during 1986, although the situation should not become desperate. But most of the group felt otherwise, at least from what they said in public. Why do I think demand will come closer to supply? In part because we as a group tend to overreact to market conditions, and I believe there is a likelihood that inventories will be cut back too far before the reality of the situation sets in.

Certainly the increases in supply of coated groundwood paper for 1987 and 1988 are impressive. And others will be announced, both in North America and abroad. But usage should pick up too as we come out of the current business blahs and then approach another national election year.

It has been said that there are as many economists in this country as there are dentists, and it's a toss-up as to which one causes the most pain. Statistics are numerous and often contradictory, and it is hard to gean from them the information we need to make our moves.

It is too early yet to predict the supply: demand equation for 1987 and 1988, but we should all remember what to watch. As magazine publishers, it is very expensive to be wrong when it comes to the supply of paper.

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