Displaying items by tag: liquor

The $6.5 billion in controversial black-liquor credits earned in 2009 by 21 publicly traded pulp and paper companies was far more than their total profit for the year.

Despite the government’s unintended largesse, the 21 companies had combined net income of about $3 billion, according to an exclusive Dead Tree Edition analysis of documents filed with the Securities and Exchange Commission.

Without the U.S. government subsidy, only nine of the companies would have been profitable in 2009, In fact, three recipients – Weyerhaeuser, NewPage, and Sappi – together lost $1.1 billion last year despite receiving nearly $800 million from the black-liquor program that expired on Dec. 31. AbitibiBowater, the one recipient that has not reported earnings for the 4th Quarter, almost certainly lost hundreds of millions as well.

At least one-fourth of the country’s capacity to make kraft pulp is in the hands of privately held companies that don’t have to file with the SEC. Assuming they took advantage of the “alternative fuel mixture” program in the same way that their publicly held peers did, the federal government probably shelled out between $8 and $9 billion to pay to do what they would have done anyway – use black liquor, a pulp byproduct, as a fuel source for their pulp operations.

Several of the public companies' reports state that they expect to receive no subsidies for black liquor this year. And they're right.

But don’t tell that to Congress or the news media. Obama Joins in on the Black Liquor Two-Step documented how sloppy reporting by leading news organizations had allowed Democratic Congress members to claim they were saving money by excluding black liquor from the new Cellulosic Biofuel Producer Credits (CBPC) -- a program that black liquor couldn't qualify for anyway.

In the 12 days since that was published, the black-liquor silliness in Washington has gotten even worse, with Republicans joining the shell game. Sen. Jim Bunning (R-KY) tried to play taxpayer hero this week by proposing to “pay” for a new jobs program by closing the non-existent CBPC loophole. But Democrats blocked that effort because they have already committed to using the bogus savings for healthcare reform.

Bunning's effort to exclude black liquor from CBPC "is absolutely meritorious and should be adopted whatever else Congress does," The Washington Post opined in a fact-challenged editorial. "This particular piece of corporate welfare showers paper companies with about $2.5 billion per year . . . that encourages them to generate power with 'black liquor,' an 'alternative fuel.'" Nope. Not a dime has been paid to pulp and paper companies under CBPC.

Here are the 21 publicly traded companies, listed according to the amount of credits they received. The first number is the amount of black-liquor credits reported, the second is 2009 net income:

* International Paper: $2.06 billion in black liquor credits; $2.36 billion net income
* Smurfit-Stone Container: $654 million; $8 million
* Domtar: $498 million; $310 million
* MeadWestvaco: $375 million; $225 million
* Weyerhaeuser: $344 million; $-545 million
* NewPage: $304 million; $-308 million
* AbitibiBowater: $284 million (estimated); $-801 million through 3rd Quarter
* Verso Paper: $239 million; $106 million
* Temple-Inland: $218 million; $206 million
* Boise: $208 million; $154 million
* Rayonier: $205 million; $313 million
* Kapstone Paper and Packaging: $178 million; $80 million
* Packaging Corporation of America: $176 million; $266 million
* Clearwater Paper: $171 million; $182 million
* Graphic Packaging: $147 million; $56 million
* SAPPI: $136 million; $-251 million
* Buckeye Technologies: $130 million; $154 million
* P.H. Glatfelter: $108 million; $123 million
* Rock-Tenn: $75 million; $279 million
* Appleton Papers: $18 million; $25 million
* Wausau: $14 million; $21 million

Source: Dead Tree Edition

The Obama Administration announced today that it wants to close the non-existent "Son of Black Liquor" loophole to help "pay" for new healthcare legislation.

A few hours later, Senate Democrats won a key vote on jobs legislation that, in some versions, would be paid for partly with the "savings" from closing the same mythical loophole.

Meanwhile, the watchdogs of the news media acted more like lapdogs, taking Administration and Congressional statements at face value without bothering to check the facts. For example, a New York Times article on Obama's proposal states flatly, and falsely,: "Rescinding the 'black liquor' tax credit could generate as much as $24 billion in revenue over 10 years, helping to pay for a chunk of the health care legislation."

The Hill went further astray by saying the Obama proposal "rescinds the 'black liquor' tax break abused by paper companies that claim undeserved alternative fuel tax credits."

"Current law provides a tax credit for the production of cellulosic biofuels," notes the Obama Administration's summary of its new healthcare bill. "The credit was designed to promote the production and use of renewable fuels. Certain liquid byproducts derived from processing paper or pulp (known as 'black liquor' when derived from the kraft process) were not intended to be covered by this credit. The President's Proposal adopts the House bill's policy to clarify that they are not eligible for the tax credit."

NewPage announced results of operations for the fourth quarter and full year today. It is clear that the company has very serious financial issues, but this does not make NewPage unique in our industry. We won't speak directly to the financials; that is not our area of expertise.

Downtime Reported: Other than the financials, there were a few other items of interest. The company reported that it took 515,000 tons of market related downtime in 2009. See below.

During 2009, we took approximately 515,000 tons of market-related downtime that included the indefinite shutdown of two paper machines one in Rumford, Maine and one in Whiting, Wisconsin," said Suwyn. "We believe inventories have now essentially bottomed out through the mill and printer system, and we have seen some rebound in orders over the past couple of months that have allowed us to restart production on these machines. While a couple of months do not make a trend, our customers indicate print advertising appears to be in the early stages of recovery.

It sounds as if the two indefinitely idled machines have re-started, but I don't believe this has been in the news, so perhaps the press release simply refers to the elimination of other market related downtime.

Still on the same subject, we assume that the uncoated free sheet being produced on coated free sheet machines does not count in this 515,000 tons of downtime. We estimate that more than 200,000 tons of this substitute grade was shipped in 2009. Therefore, the actual shortfall in coated demand for NewPage last year might be over 715,000 tons.

Black Liquor: The final black liquor benefit for NewPage was $304 million. According to NewPage the greatest benefactors of this obscene subsidy were the coated paper buyers.

As previously reported, the U.S. Internal Revenue Code allowed a refundable excise tax credit for alternative fuel mixtures produced for sale or for use as a fuel in a trade or business. This credit expired on December 31, 2009. Income recognized for the credit is included in net income (loss) attributable to the company and totaled $90 million for the fourth quarter of 2009 and $304 million for the full year 2009. We believe that generally the industry passed on most of the benefits of the alternative fuel mixture credit to customers in the form of lower sales prices.

There is no factual basis for this NewPage claim. It creates additional credibility problems for the company.

As we have previously discussed, coated producers that did not benefit from the subsidy continued to operate in 2009. If some of these mills had closed due to prices falling below variable costs, at the same time the subsidized producers continued operating, this would have been evidence that at least some of the subsidy was passed on to buyers. Then if prices increased in 2010 after the subsidy expired, this too would have been evidence that buyers benefited from the subsidy. Neither of these events occurred. The NewPage claim is simply not true.

New NewPage President : Tom Curley was announced as the President and CEO of the company earlier this month. NewPage provided Mr. Curley's background in the press release.

Curley holds an associate degree in Aeronautical Engineering from Daniel Webster College in Nashua, New Hampshire, and a Bachelor of Science degree in Industrial Technology from the University of Massachusetts at Lowell. Beginning his career with General Electric Company, he later joined Caterpillar Inc., Cooper Cameron Corporation, and Rolls-Royce plc. During his career, he has progressed through increasingly responsible roles and, prior to joining NewPage, Curley served as president of the Rolls-Royce Energy business.

Anti-Dumping Duties : The trade action (sponsored by NewPage and several partners) against U.S. imports of Chinese and Indonesian coated free sheet "sheets" has generated some activity lately. The Dead Tree Edition reported here that a group of environmental organizations are warning printers away from the Chinese imports. At the same time, a group called Save Printer Jobs is lobbying against the trade action.

The effort to halt Chinese imports did not stop at our border. An announcement was made today that an organization of fine paper producers in Europe has launched a probe against the Chinese for dumping coated paper in Europe. This is going to add to international tensions.

The U.S. coated trade issue was the subject of a detailed report in our December Reel Time. It is a very complicated problem. The Chinese probably are dumping paper unfairly and illegally. On the other hand, the black liquor subsidy, and numerous other business subsidies, take away our right to complain.