Heavy! The world's largest paper giant has three production lines connected. Why are the European and American paper industries accelerating the reduction of overcapacity?

On October 18, International Paper Company (NYSE: IP), the world's leading paper manufacturer, announced that the company will permanently close its containerboard paper mill in Orange, Texas, USA, and permanently stop the operation of two pulp equipment. Production, respectively, is the #20 pulp mill in Riegelwood, North Carolina and the #4 pulp mill in Pensacola, Florida.

International Paper said the permanent closure of the Orange containerboard mill will reduce the company's containerboard production capacity by approximately 800,000 tons. After the closure of the factory, the company still has 17 remaining containerboard paper factories in North America, with an annual production capacity of 13 million tons. The closure of the plant will be carried out in stages and completed by the end of the year.

The closure of the two pulp lines at Riegelwood and Pensacola mills will reduce its pulp production by 500,000 tons (including 300,000 tons of fluff pulp and 200,000 tons of southern bleached softwood pulp). It is expected that Olan The pulp lines at the containerboard and Riegelwood mills will cease production at the end of this year, and the Pensacola pulp line is currently idle and out of production. After the closure of these two pulp lines, International Paper has eight remaining pulp mills with an annual production capacity of 2.7 million tons.

"We firmly believe in the attractive long-term fundamentals of the company's business, and these actions further strengthen our competitive platform. The broad capabilities of our optimized mill systems give us the flexibility to meet our customers' current and future needs." International Paper CEO Mark Sutton said in a statement.

In recent years, the European and American papermaking industries have launched a wave of capacity reduction actions. Paper giants have shut down their papermaking and pulp production lines in response to the upcoming decline in paper demand and high inflation expectations.

In North Carolina, papermaker Pactiv Evergreen closed its low-margin 620,000 t/year containerboard and offset paper (UFS) paper mill in Canton, North Carolina, in June to ensure the company remains competitive. The company will also close a converting plant in Olmsted Falls, Ohio, and seek strategic replacements for its paperboard mill in Pine Bluff, Arkansas, and its converting plant in Waynesville, North Carolina plan.

Vesrock is closing four "less efficient processing plants" in the corrugated packaging and consumer goods sectors. Vesrock last year closed its kraft linerboard and pulp mill in Panama City, Florida, and canceled corrugated board production in St. Paul, Minnesota. Earlier this year, the company announced the closure of its North Charleston, South Carolina (linerboard, containerboard and kraft paper) mill.

Graphic Packaging Co. shut down its coated recycled containerboard machine in Tama, Iowa, in the second quarter of this year due to increased production at its Kalamazoo, Mich., plant and high operating costs in Tama.

The reason why European and American companies are closing paper factories in such a big way is, on the one hand, to cope with the upcoming overall economic downturn, and on the other hand, the demand for paper will decrease in the digital era.

In the United States, the American Forest and Paper Association, a trade group representing the paper and wood products industry, reports that demand for paper used for printing and writing has dropped by about 50%, while demand for newsprint has fallen by about 90% since 1990. But during the same period, demand for various packaging papers increased by about 33%. Since 1990, total U.S. demand for paper and paperboard has declined by less than 20%.

Total revenue for the 21 largest pulp and paper companies in North America surveyed by Pulp & Paper Weekly fell 59.4% to $1.17 billion in the first quarter of 2023 compared with earnings in the first quarter of 2022. The industry's margins in the first quarter were also 18.9% lower than in the fourth quarter. Additionally, industry revenue fell 8.3% year over year to $27.95 billion, which was the same as sales in the fourth quarter of 2022.

It is worth noting that while European and American giants are closing factories in large numbers, Chinese paper giants continue to expand production capacity. This kind of counter-cyclical behavior that ignores economic laws has to make people sweat for the industry.