North America’s pulp and paper industries are reeling in the wake of the steepest and fastest drop in product prices in anyone’s memory. In just 60 days last fall, prices for old corrugated containers dropped from $116 per ton to just $30 per ton. Indeed, to some seasoned observers, it appears that, in 2008, the industry was swept away by a perfect storm – a combination of skyrocketing prices for raw material and energy and plummeting prices for its finished products.

Deteriorating market conditions have sparked the usual round of production cuts, plant closures, mergers, consolidations and buy outs. In May of last year, Memphis based International Paper bought Weyerhaeuser’s entire containerboard, packaging and recycling operation for $6 billion in cash. I-P chief executive, John Faraci, said at the time that he believed the transaction would in the long run make the public-traded paper company a more profitable producer of paper and packaging materials. To tighten its focus on corrugated packaging material and fine grades of paper the company also sold timberlands, sawmills and several beverage packaging operations.

Elsewhere in the beleaguered pulp and paper sector, Bowater and Abitibi-Consolidated merged in hopes that their combined operation will be more profitable. The combined company, named AbitibiBowater Inc., will be the eighth largest pulp and paper maker in the world, with 31 pulp and paper facilities and 35 wood product facilities in the United States, Canada, the United Kingdom and South Korea. It will also own more third-party certified timberland than any other company in the world.  

In other buyout news, Ohio-based NewPage bought Stora Enso North America for $2.6 billion in cash and promissory notes and beverage carton maker Graphic Packaging agreed to buy privately held Altivity Packaging for $1.75 billion. New Page is majority owned by Cerberus Capital Management, which formed the company in 2006 after it bought Mead Westvaco’s coated fine papers division. The addition of Stora Enso’s eight mills makes NewPage the largest manufacturer of coated paper in the U.S.

Just how many new deals get done in 2009 is impossible to know. The global recession has wreaked havoc in on Wall Street. Both Boise and Smirfit-Stone saw their share prices fall below $1, pushing the market capitalization values well below annual revenue totals. The weakening U.S. dollar will help some companies in export markets, but much tighter credit standards will make it difficult for many companies to refinance their sagging operations, much less fund future mergers and buy outs. Equally troubling for some U.S. pulp and paper producers is the likelihood that renewed public and investor interest in woody biomass-to-energy facilities will drive up raw material costs at a time when they can least afford it.

The situation is made more complex by the Byzantine array of forces that constantly tug away at North American pulp and paper producers, not least blistering competition from state-of-the-art facilities in Asia and South America, where land, labor and regulatory costs are a fraction of what they are in the U.S. and Canada and where, more importantly, pulpwood trees grow to maturity in just five years. Also clouding the picture, the global economic recession, a scarcity of new capital to fund the purchase of newer, more efficient technologies, shifting and difficult to forecast consumer demand for certain grades of paper and packaging material, rapidly fluctuating currency exchange rates that no doubt keep industry executives awake at nights and, alas, the Internet, which is wrecking havoc in the publishing world and causing many of the largest companies in the world to completely rethink their marketing and advertising strategies.