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Oil prices close another mill


High oil prices and transportation costs have forced the closure of another paper mill in North America. The Katahdin Paper Company is closing its Millinocket, U.S. paper mill in Maine because of record oil prices, putting over 250 people out of work.

My perspective - High oil prices and transportation costs have forced the closure of another paper mill in North America.

The Katahdin Paper Company is closing its Millinocket, U.S. paper mill in Maine because of record oil prices, putting over 250 people out of work.

Fraser Paper, which operates the mill, said high energy costs were a key factor in the failure to create a sustainable business model. In other words the mill had no business plan to maintain profitability in the midst of the worst recession in history.

This sounds a lot like the Stephenville, Newfoundland dilemma. The Government of Newfoundland and Labrador offered up $10 million annually to help offset energy costs but the Stephenville mill could not implement a business plan that could guarantee success.

The CEO for Fraser, Peter Gordon, said in a recent statement the Maine mill consumed more than 400,000 barrels of oil in the paper making process. Government in the area said it will now work with the company to help design an alternative business plan that relies on a more efficient energy source. Regional community officials say they are now looking at the use of a biomass boiler to help power its paper making operations and the region is willing to help.

While the Grand Falls-Windsor mill is blessed with the fact it generates close to 80 per cent of its own hydro needed to make paper, it still has to purchase Bunker C from Come By Chance to make up the additional 20 per cent.

While I don't have access to the recent cost figures, one only has to look at where the price of oil is trending to realize the mill's cost per tonne is likely rising monthly in that department. Coupled with the fact the local operation is struggling to manufacture 600 tonnes daily is another cause for concern that must be addressed.

Unless the Grand Falls-Windsor mill can produce more tonnes on a consistent basis, it will have squandered its hydro advantage. Some have suggested it already has. The production board outside, near the mill entrance, tells the story and should be watched closely.

In the meantime the mill must now find a way to offset increasing high fuel prices with improved operating efficiency. The problems facing the local operation never seem to go away. It appears if the high Canadian dollar doesn't bite you, high energy costs will.

While local management is now making the necessary changes with its labour component to reflect on overall costs, one has to wonder if it will be enough. Sending people out the door one day may keep the accountants happy for the moment but everyone should make sure that if people go home the work goes home as well. I'm of the belief that until the local mill gets an immediate infusion of capital as well as a new set of operating standards, it will continue to battle the cost curve, which is trending up, not down.

The task now at hand is not an easy one for the managers, supervisors and employees that are charged with the responsibility of turning this troubled business around. Finding ways to lower costs and to improve overall operating efficiency in the midst of rising fuel costs are the key to future success in the paper industry. Being competitive now means you live to fight another day. A narrow window of opportunity exists in the world marketplace for suppliers that are cost and quality competitive.

This recent closure of the Millinocket paper mill in the United States does not come as a surprise to industry watchers. Mills that can't provide a sound business plan to cope in these troubled times will close. Stephenville is an example of that. The fact that the United States government committed to helping with a sound business plan for the mill is encouraging. But you know what they say. Once the horse has left the barn, there's no getting him back in.

On a somewhat positive note, the local mill in Grand Falls-Windsor is moving forward in these troubled times. A go-forward game plan has managers burning the midnight oil and those critical decisions designed to set the course for the future will be made soon.

We should not be overly optimistic that all of the mill problems can be solved overnight, but small pockets of success are being achieved. As oil prices continue to spiral out of control this summer we can at least be thankful the operations hydro advantage is there to help.

The focus now is to make the tonnes to pay the bills.

(Roger Pike writes from Grand Falls-Windsor. He can be reached at roger.pike@nf.sympatico.ca.)

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