In what will be a fourth containerboard mill closure since 2020, including three in the last year alone, WestRock told customers on Aug. 1 that it will permanently close its 510,000 tons/yr linerboard, kraft bag paper, and pulp mill in Tacoma, WA. The mill will stop production by Sept. 30.
“The shutdown includes both paper machines and all associated equipment,” a letter from the company said.
The mill capacity was listed in the WestRock 2022 annual report as 275,000 tons/yr of white top linerboard, 105,000 tons/yr of linerboard, 60,000 tons/yr of kraft bag paper, and 70,000 tons/yr of market pulp. The company runs an OCC pulping line at the mill as well as a pulper for making unbleached softwood kraft pulp.
On an earnings call on Aug. 3, WestRock leaders told analysts of its strategy to firm up the company’s large containerboard and corrugated box system, increase integration, and noted that the Tacoma mill was too high cost to operate. Tons made at the mill in the Pacific Northwest would be made elsewhere within the WestRock mill system at a lower cost, the firm added.
“We’ve been proactively optimizing our footprint by closing less efficient facilities and consolidating production and larger plants. Our goal is to improve our cost structure, drive efficiencies, and improve our return on invested capital,” WestRock CEO David Sewell said on Aug. 3, according to a copy of the call transcript.
“Our recent announcement to close our Tacoma mill is another example of this strategy,” Sewell said. “Similar to our previous mill closures, the Tacoma mill required significant investment to remain competitive, and we did not see a path to achieving our return targets. By closing the mill, we can shift capital toward other projects with greater returns.”
“The mills that we would reallocate (Tacoma) capacity to and I’m just going to use generalities, are around $200 to $400 a ton cheaper than the mill we closed,” CFO Alex Pease told analysts.
Pease said that “all of these mills” shut or to be shut by WestRock “were, in the current conditions, not generating positive EBITDA.”
CFO Pease added: “The headline that everybody should hear … is that, the mills that we’ve closed, we’re going to reallocate the strategic substrates to other mills in the network, so there won’t be any EBITDA leakage associated with that. It’ll actually be EBITDA and ROIC accretive. On Tacoma, … with the exception of the pulp, all of that other capacity will be reallocated around the network again, so it’ll be net margin and EBITDA dollar accretive.”
The Tacoma mill employs about 400 people. Employees will receive severance and outplacement assistance in accordance with WestRock policy and labor union agreements.
Only part of the Tacoma business will be shared across other Westrock mills
In announcing the Tacoma shutdown, the company said “we will transition containerboard and natural kraft paper demand for the Tacoma mill to other WestRock mills,” and added that the company will “leverage existing capacity at its West Point, Virginia, and La Tuque, Canada, mills to continue delivering premium white top liner to customers in the North American and international markets.”
“WestRock will no longer produce bleached kraft paper, and the pulp produced at the Tacoma mill will not be transitioned to other mills,” the company said in a letter to customers.
One contact was surprised WestRock was exiting bleached kraft paper, a smaller paper packaging market yet one that also has been consistent demand-wise. Three other pure bleached kraft paper mills now operate, contacts said: Georgia Pacific in Palatka, FL, Canfor in Prince George, BC, and McKinley Paper in Combined Locks, WI.
One contact added that “without Tacoma, there is definitely a shortage of bleached bag on the West Coast. Canfor can take some of the slack … (and) perhaps NORPAC will start making recycled bleached as they did a few years back. Another option is Catalyst who has the bleaching op in place.”
A similar point could be said for white top linerboard in the West, as well.
The shut comes in about two months or less even as white top linerboard prices on the open market in North America have hardly decreased. Levels dropped $20/ton after prices for the grade increased by about $220/ton in 2020, 2021, and into early 2022, according to Fastmarkets’ PPI Pulp & Paper Week’s price survey. At the same time, unbleached kraft linerboard pricing is down $90/ton since October last year. Reports two weeks ago claimed that European white top producers were looking for US business, several contacts said.
The biggest issue, however, was the containerboard/box dishevel with containerboard production down about 13% in the last year. The box market imploded in the last year from aggressive supply chain destocking, with actual shipments down 7.3%, based on figures released by the Fibre Box Association on July 28. Contacts believe US actual shipments will decline in 2023 for full-year vs 2022, which means that there would be two consecutive years of negative shipment growth.
That extent of a box demand decline hasn’t happened since 2007-2009 during the Great Recession.
1.25 million tons of containerboard capacity retired in the past year
Contacts this week were not surprised by the WestRock closure. The mill, which was operated by Simpson Paper before WestRock, has two machines, Nos. 13 and 14, that were installed in 1948 and 1961, respectively, and a pulp line installed in 1936.
“I felt they might do that,” said one veteran linerboard contact.
“This mill made many things. Very sad, of course – many good people,” added another linerboard contact.
During this slowdown, WestRock responded by shutting older high-cost assets, a move that some Wall Street analysts believe is overdue. They shut mills like no other company in North America in the last year.
The Tacoma mill shut is the fourth by WestRock, since 2020. The company at the end of August plans to permanently shut the 550,000 tons/yr North Charleston, SC, kraft linerboard, and saturating kraft and folding carton mill. In June 2022, WestRock shut its 353,000 tons/yr kraft linerboard Panama City, FL, and market pulp mill. WestRock also shut a 200,000 tons/yr corrugating medium mill in St. Paul, MN, at the end of 2022.
This means that the company retired about 1.25 million tons of containerboard capacity in the past year, on a net basis, based on WestRock and Fastmarkets Mill Benchmarking capacity data.
Also, WestRock shut three old and small containerboard machines that gave way to a new 710,000 tons/yr kraft linerboard machine in Florence, SC, in fourth quarter 2020. With the shuts of three machines, the new PM’s net capacity increase was just 30,000 tons.
The impact of permanent mill shutdowns and downtime on containerboard capacity
The capacity shuts by WestRock during the downturn come along with a large combination of market-related and maintenance downtime since September last year, P&PW reported. As demand for corrugated boxes has plummeted, US containerboard production has dropped by five million tons in the last year, compared to production in the Covid-19 surge peak year in 2021. Major integrateds like International Paper and WestRock, the two largest integrated producers in North America, have taken the lion’s share of the downtime, market contacts tell P&PW.
These WestRock mill closures also come as a slew of new recycled containerboard capacity has started up in North America. Four recycled containerboard machines have started up since January this year. The total capacity of the four is about 1.7 million tons/yr. A fifth one will be started by Pratt Industries in late September/early October in Henderson, KY. After the Pratt startup, the added capacity startups equal 2.4 million tons, or an estimated 6.6% of this year’s US production.
The four PMs started this year were by Domtar in Kingsport, TN, ND Paper at its Biron mill in Wisconsin, Atlantic Packaging at its Whitby, ON, mill, and Cascades at its Bear Island mill in Ashland, VA.
All told, in making the announcement of the Tacoma shutdown, WestRock said that it was “committed to improving its return on invested capital as well as maximizing the performance of its assets. The combination of high operating costs and the need for significant capital investment were the determining factors in the decision to cease operations at the mill.”
This article was taken from PPI Pulp & Paper Week, our newsletter for pulp, paper and packaging market news and prices for North America. Speak to our team to learn more about our news and market analysis, prices, forecast and more.
