Industry Profiles: Paper Mills

Overview

With output of 87 million metric tons as of the late 1990s, the United States is the world's largest manufacturer of paper and paperboard. It produces a significantly greater amount of paper and paperboard than Japan, its nearest rival, and consistently supplies about one third of total world production. While the $59 billion U.S. paper industry remains generally healthy, foreign competition has increased as new regions—notably Asia and Latin America—have developed strong paper industries. At the same time, the paper industry has suffered periodic fluctuation in prices, and consequently in sales, mainly due to varying production capacities and shifts in demand. In the early 2000s, the paper industry was suffering from the negative impact of an overvalued U.S. dollar. This caused a decrease in domestic market share, as well as weak international demand for U.S. paper products. In turn, a large number of paper mill closings took place, along with corresponding workforce reductions. Although rates of domestic paper consumption rose from 1997 to 2000, the majority of that demand was being met by imports from foreign competitors.

Domestic U.S. paper and paperboard mills—of which there are approximately 500—historically have produced more than 90 percent of the paper consumed in the United States. Most of these mills are integrated producers of paper and pulp, the raw ingredient in paper. Pulp that is consumed internally at the mill is known as captive pulp, while pulp sold on the open market is termed market pulp. Many of the same integrated mills may also make paperboard, also known as cardboard, although statistically paper and paperboard production are often tallied separately.

History of the Industry

American papermaking began just over 300 years ago in Philadelphia. In September of 1690, an entrepreneur named William Bradford, a recent English immigrant, built the first American paper mill on the shore of Wissahickon Creek in Philadelphia. At the time, paper manufacturing had not yet become an important part of the colonial economy. The small amount of paper consumed in the colonies was produced in Holland and France. However, economic growth in the colonies soon created a booming market for paper. Bradford and other papermakers were soon ready to produce products for this market. Bradford built his mill with the assistance of William Rittenhouse, an immigrant from Holland, and other financial backers. The mill produced about 20 pounds of pulp, paper, and board a day. While at the time there was some mechanization of papermaking, it was largely a handmade process.

After 1690, the population of the American colonies grew quickly and so did the number of U.S. paper mills. By the time of the American Revolution—in which printed materials played a key role—there were more than 45 mills producing about 300 tons of paper per year. This production was used by more than 50 printers throughout the new nation.

At the beginning of the 1800s, an event occurred that would revolutionize the paper industry throughout the world. A Frenchman, Louis-Nicolas Robert, invented a machine to produce paper. Eventually, the machine patents were purchased by two English papermakers, the brothers Henry and Sealy Fourdrinier. After modification, the Fourdrinier machine began to catch on in England, and it later was produced in the United States as well. The name Fourdrinier is still used today to describe certain paper machines. The development of the paper machine changed what had been a lengthy and time-consuming handmade art into a manufacturing process.

The other event that forever changed papermaking occurred in the middle of the nineteenth century. After 1851, the preferred fiber source for papermaking began to change from old rags to wood pulp. This event, along with the invention of the paper machine, in effect created the modern paper industry. The size and speed of paper machines increased rapidly between 1850 and 1916. Paper use was booming by 1889, when the annual U.S. production of paper reached 1 million tons. This figure doubled in the next 10 years.

At the end of World War I, the United States began a period of rapid economic growth and the paper industry grew along with the general economy. Several new associations, including the Paper Industry Management Association and the Technical Association of the Pulp and Paper Industry, were founded and developed during this time. Paper containers and packaging, a growing use of corrugated medium and linerboard to make shipping boxes, and a host of new products, such as tissues and sanitary napkins, all emerged as major trends in the post-war era. It was during this time that Canadian mills became dominant in newsprint manufacture, producing the majority of American newsprint. It is only recently that U.S. manufacturers have produced the majority of newsprint consumed in the United States.

It was also during this period that the Pacific Northwest became a major pulp producer. The southern United States, however, saw the greatest growth. Prior to this time, it was difficult to use southern pine to make paper because of its high resin content. However, new processes were developed using southern pine to make bleached and unbleached kraft paper. Southern pine was ideal for this type of paper because its long fibers produced very strong paper and board. Kraft production in the South shot up from just 258 tons per day (TPD) in 1919 to 9,128 tons a day in 1940. By the end of World War II, this total was up to about 13,000 (TPD).

The growth of southern paperboard mills—and other board mills around the country—was greatly enhanced by a 1914 Federal Trade Commission decision that legalized the use of corrugated medium packaging in shipping. Prior to that, wooden boxes were used for shipping goods around the country. Military development of paper packaging materials during World War I helped provide new technology and methods for producing superior paper packaging. Southern newsprint production also began during this time, due in large part to the talents of Charles H. Herty. Methods developed by Herty and his relentless promotion of southern papermaking helped create today's paper industry in the South.

While the Great Depression of the 1930s severely hurt other industries, it did not affect the pulp and paper industry as much since paper was being used in new ways throughout the economy. It was around 1930 that machine-coated paper was first manufactured in the United States.

During World War II, the paper industry worked closely with the federal government to make sure that adequate supplies of paper were available both for domestic use and for the armed forces. Paper was one of the main materials used for shipping and storing military supplies. Recycling of paper reached a peak during the war years as well, with paper drives being common in many big cities.

After World War II, the paper industry continued growing. New pulping strategies and tree planting allowed the paper industry to develop the fiber sources it needed to meet the expanding demand. Prior to this time, paper companies tended to cut down trees and not re-plant. It was during this time that southern pine first began to be used to make white printing paper.

During the late 1940s, all areas of the paper industry were growing fast, but some new areas, such as milk cartons and drinking cups, saw exponential growth. Many of the growth trends were centered around the use of disposable paper products, a trend that had started in World War II.

In the 1950s and 1960s, paper machines grew wider and faster, which helped multiply the supply of paper and board. By 1970, however, the paper industry faced sustained challenges to its environmental practices. New clean air and water rules from federal and state governments in the early 1970s forced the industry to install expensive new treatment systems. Many other capital projects were put on hold and then frozen when the economy entered a severe recession in the early 1980s. However, in the mid to late 1980s, the paper industry initiated what has been called its greatest modernization ever. These capital-intensive projects included mill-wide automation, technological innovations, mill modernization, environmental upgrades, and a push for total quality. The U.S. paper industry began competing more effectively in global markets during this time as well.

Significant Events Affecting the Industry

Concerns about environmental damage caused by paper production and use, articulated in the form of government regulations, have led to substantial changes in the paper business. Environmental compliance was a daunting—and expensive—challenge for the paper industry in the 1990s and early 2000s. There is sustained opposition from environmental groups and increased government regulation in nearly all steps of production. For example, the lumber industry in the Pacific Northwest has been drastically reduced in scale. Due to successful court challenges by environmental groups under the Endangered Species Act, tree harvests in the early to mid-1990s dropped to one-sixth of harvesting levels in the mid-1980s. Despite the release of some lands for harvesting and permits for salvage logging issued in 1995, harvesting was still greatly reduced in the mid-1990s.

Pulp and paper mills in the Northwest dependent on lumber operations for raw material have had to look to new sources—even overseas—for wood chips. Many northwestern U.S. mills have converted partially or completely to the use of recycled paper. Also, the pulping and bleaching of wood fiber was the focus of proposals for stringent and costly new federal regulation in the mid-1990s. By the early 2000s, many paper producers were proactively working with government agencies on matters of environmental policy. Additionally, they devoted considerable amounts of resources toward environmental improvements.

While paper recycling represented a major environmental challenge in the early 1990s, the industry's quick response to recycle more paper has convinced many of its critics both in the public and government that the industry is serious about recycling. The U.S. paper industry reached an overall recycling rate of 40 percent in 1993, which increased to about 46 percent in 2000, and is estimated to reach 48 percent in 2001.

Recycling of certain grades, such as newsprint and old corrugated containers, has traditionally been high, while recycling rates for other grades, such as printing and writing papers, are growing rapidly. For example, over 59 percent of all newsprint used in the United States was recovered in 1994, up from just 29 percent in 1980. In linerboard, almost all capacity increases in the early 1990s came from new recycled linerboard mills; and by 1994, over 62 percent of old corrugated containers—known as OCC in the business—was being recovered, up from 47.9 percent in 1986.

Recycling rates for printing and writing paper, while lower than other grades, have also increased dramatically, thanks in part to aggressive state and federal legislation in the early 1990s that sought to increase recycling rates in all grades. In 1993, President Clinton signed an executive order mandating higher levels of recycled fiber in paper purchased by the federal government. In 1994, the recovery rate from printing and writing paper stood at 34.1 percent, up from just 22.9 percent in 1986.

While highly touted as an environmental "silver bullet," recycling itself has some environmental liabilities. Most recycling mills generate a major waste stream and consume large amounts of purchased energy. With recycled newsprint, for example, only 85 percent of incoming newsprint is usable as fiber. The rest is unusable sludge that must be cleaned out of the process and then burned or placed in landfills. In some recycled grades, sludge can be up to 50 percent of the incoming waste paper. Considering that some mills make up to 2,500 tons per day of paper, sludge can pose a major disposal problem. Also, since recycling mills can't burn bark or spent pulping chemicals to generate their own electricity, as is done in conventional integrated mills, they must purchase large amounts of power from local utilities.

Key Competitors

Founded in 1898 by the merger of 18 northeastern pulp and paper companies, International Paper Company (IP), located in Stamford, Connecticut, is the world's largest paper company. In 2001, IP had total sales of $26.4 billion, approximately three-quarters of which was from pulp, paper, and converted products sales. That year, the company employed more than 100,000 workers in approximately 50 different countries. Operating via a number of different business divisions, IP is one of the largest producers of printing and writing papers, kraft paper and packaging, containerboard and corrugated boxes, and folding boxboard. Additionally, the company claims to be the nation's largest private landowner, holding claim to more than 10 million acres of forestland.

Atlanta-based Georgia-Pacific Group (G-P) has major interests in building products, pulp and paper, and paper chemicals, although it has spun off its forest management holdings into a separate entity called The Timber Company. In November 2000, G-P acquired Fort James Corporation and became the world's top producer of tissue products. In 2001, G-P had total sales of $25 billion, of which $8.5 billion came from paper-related sales. In that year, it employed 75,000 people and operated in more than 600 locations. G-P produces containerboard and packaging, communications papers, market pulp, and packaging products. In 2000 it had the capacity to produce 2.8 million tons of communication paper (16 percent of total U.S. capacity) and 2.4 million tons of market pulp (9 percent of total U.S. capacity).

Irving, Texas-based Kimberly-Clark Corporation (K-C) is a leading global manufacturer of products for personal, business, and industrial uses. In 2001, K-C employed 64,000 workers and had total sales of $14.5 billion, a large percentage of which came from pulp, paper, and converted product sales. K-C is best known for its Kleenex, Huggies, Scott, and Kotex brand consumer products. In December 1995, it completed a stock-for-stock merger with Scott Paper Company, a global producer of sanitary tissue products. The $9.4-billion merger made KC the largest tissue manufacturer in the world. Following the merger, K-C operated manufacturing operations in 42 countries, with products available in more than 150 countries. According to the company, each year about 25 percent of the world's population uses its products.

Industry Projections

The paper industry's cyclical nature influences all projections of its growth. During the early 2000s, it was emerging from a weakened economy along with other industry sectors. As global competition became more of a factor, worldwide demand for U.S. paper products was initially forecast to increase in the early 2000s. However, the overvalued U.S. dollar and a growing trade deficit presented serious challenges for the nation's producers at home and abroad. Growth in Asia likely will lead to a decline in the United States' share of worldwide production. According to the U.S. Department of Commerce, this was expected to decline slightly, from 29 percent in 2000 to 27 percent by 2004. As the world continues to shift from a paper-based society to a digital one, some have painted a bleak picture for the paper industry's future. Despite this trend, the overall market for certain categories of paper products appears to be strong.

Global Presence

While U.S. companies collectively form the largest national paper industry, there are many major paper companies based outside the United States. Important paper-producing countries include Japan, China, Germany, Finland, Sweden, and Canada. In addition, aggressive new paper operations have emerged in places like South America and Southeast Asia, which are increasingly influencing the international dynamics of the paper business. According to Pulp & Paper, in early 2000, Europe, Asia, and Latin America together accounted for nearly 70 percent of paperboard and paper consumption worldwide, while the remainder was attributed to North America.

Employment in the Industry

The U.S. paper industry employs more than 123,600 people, and the broader paper, pulp, and converted product industry employs more than 551,500 workers. Employment in the broader group declined from 574,274 in 1997 to 551,560 in 2000. The same downward trend applies to employment at paper mills. According to the American Forest & Paper Association, from 1997 to 2002, seventy-two paper mills closed their doors, resulting in a workforce reduction of about 32,000 people.

Sources for Further Study

annual survey of manufacturers. washington, dc: u.s. department of commerce, economics and statistics administration, u.s. census bureau, february 2002.

"overvalued dollar threatens u.s. paper industry." washington: american forest & paper association, 11 march 2002. available at http://www.afandpa.org.

"paper and allied products." u.s. industry and trade outlook. new york: mcgraw-hill and u.s. department of commerce, 2000.

paper, paperboard, pulp capacity and fiber consumption. washington, dc: american forest & paper association, 1996.

"recycling levels remain high despite drop in consumption, af&pa says." washington: american forest & paper association, 12 march 2002. available at http://www.afandpa.org.

routson, joyce, et al. "north american industry outlook bright over next two years." pulp & paper, january 2000.

smook, gary a. handbook of pulp & paper terminology: a guide to industrial and technological usage . bellingham, wa: angus wilde publications, 1990.

thesaurus of pulp and paper terminology. atlanta, ga: institute of paper science and technology, 1991.

wright, helena. 300 years of american papermaking. washington, dc: smithsonian institution, 1991.