AbitibiBowater Restarts Newsprint Machine at Thunder Bay

In newsprint, it is a certainty that capacity in North America must shrink. Interesting then that AbitibiBowater has gone in the other direction, announcing that a 220,000 tonne newsprint machine in Thunder Bay (PM No. 5) will be operating again as of February 1. This announcement will give buyers a bit of a psychological edge in fending off the price increases scheduled over the next three months in either the eastern or the western U.S. So why would the company add back capacity and undermine the price increase? Although we don’t know, we can imagine a few possibilities.

AbitibiBowater will want to align itself with mills it plans to continue operating after the company comes out of bankruptcy. Perhaps Thunder Bay is one of those mills. It is also possible that closures will be announced at other mill locations to balance off the restart at Thunder Bay.

AbitibiBowater has been and will continue to weigh its options at each mill site. For example, in Newfoundland, both the provincial government and the union were inflexible, even hostile, to the company. That mill was closed. The premier of the province, who pledged that the mill would not close and then promised that a new buyer would be found, has begun to appreciate his limitations. Getting back to the point, AbitibiBowater will, to some degree, play one mill site against another to see where it can get the best deal, and therefore, have the best chance for long-term survival. It is possible that increased cooperation at Thunder Bay enabled the mill to get back into the picture. It is also possible that increased support at Thunder Bay will cause other mill sites to respond and provide additional assistance.

Offshore exports are a large part of AbitibiBowater’s business, and overseas demand has picked up in recent months. It could be that the company feels it has enough additional business lined up to start-up the machine in Thunder Bay without undermining its U.S. order book. Downtime is, of course, very expensive, so if the company could start-up this machine without harming the market, that would be the best outcome.

Perhaps AbitibiBowater is signalling competitors that the market is not going to be saved, this time, by AbitibiBowater capacity reductions.

Whatever the rationale, there is risk in this announcement. Prices moving above $550/tonne, as scheduled for March, is a fantasy anyway. This announcement just increases the leverage of publishers and makes it more difficult for newsprint producers to make gains in pricing that would allow them to get closer to the $550 area.

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