US Paper Industry: Current and Future Challenges, 1998 Engineering Conference Proceedings

The returns in the paper and forest products industry have historically lagged the market; this underperformance has been more pronounced in the 1990s. The industry faces numerous structurai impediments to profitability including low growth, overcapacity, commodity nature of the product, fragmentation and capital intensity. The managements have developed behavioral patterns that have proven detrimental to the industry. These factors include the eternal optimism that prices are always about to recover, the belief that ones assets are all low cost, and an unwillingness to close ineficient capacity. Future capacity additions in Asia (and Latin America) will further pressure the U.S. as the variable costs to manufacture paper are much lower in these regions. The U.S. companies have consolidated and restructured in efforts to focus on their core profitability. Most have also significantly reduced their future capital expenditures plans and capacity additions are now at their lowest levels in years. However, these changes will not prove to be ticient. The only options available to U.S. manufactmers are to grow through acquisition, specialize or shrink by returning capital to shareholders.