Shutdown feared at Catalyst Paper

Gordon Hamilton, Vancouver Sun
Published: Wednesday, May 30, 2007
Catalyst Paper has called a meeting today with union leaders from its four pulp and paper operations in what is widely believed to be an announcement that it intends to shut down capacity.

"I would say things are not looking too bright at Catalyst," said investment analyst Paul Quinn of Salman Partners. "It's really difficult right now for Canadian producers with the Canadian dollar where it is and fibre costs going up.

"I wouldn't rule out temporarily shutting down some capacity."

Catalyst has mills at Port Alberni, Powell River, Crofton and Campbell River. It could close one entire mill or several machines at a number of mills. The company lost $25 million in the first quarter of 2007.

Catalyst is the coastal region's prinicipal pulp and paper company, with 3,800 employees. Besides the four paper mills, it runs the province's only plant producing recycled paper.

The meeting with union leaders comes after Catalyst's board of directors met Tuesday in Vancouver. Representatives of the company's largest shareholder, Third Avenue Management of New York, were on hand for the meeting.

Catalyst is being squeezed by poor paper markets and because its operating costs are all in Canadian dollars. But the majority of Catalyst's business is conducted in export markets, so its transactions are for the most part completed in US dollars. As the Canadian dollar climbs versus the greenback, the company's revenue stream is less able to cover its operating costs.

The Canadian dollar closed above 93 cents US on Tuesday.

The last time Catalyst temporarily shut down capacity was in early 2005 when one paper line was closed at Port Alberni. That shutdown lasted for almost two years before the company declared it permanent.

Port Alberni Mayor Ken McRae was prepared for the worst Tuesday, saying he expects the company will announce it is closing further capacity there. Catalyst's Port Alberni mill produces lightweight coated paper and directory paper. Lightweight coated prices are weak and the directory machine has high operating costs.

"We have been hearing so many stories -- that the mill has been sold to someone else, that they are going to shut down another machine. You never know. The machines are old, eh?" said McRae.

"Whatever they do, they will do. And we will just move on."

ghamilton@png.canwest.com