Source:

Shipments from Catalogue 42-214, Annual, "Other Machinery and Equipment Industries," Statistics Canada, Ottawa, 1984. Export and Import data from internal sources of the U.S. Department of Commerce, International Trade Administration. Shipments were calculated at an exchange rate of US$0.71. = C$1.

January 1, 1989, at the end of which the existing Canadian and U.S. tariffs will be abolished. Removal of tariffs is expected to contribute to increased bilateral trade and easier interplant shipments within the industry.

Some

In the past U.S.-based suppliers of paper machinery have been willing to use Canadian facilities to produce equipment for jobs in the United States when it has appeared to be cost effective. problem has existed in maintaining the Canadian shops at optimum work levels. Most Canadian facilities of U.S.-owned firms have production capabilities similar to comparable U.S. facilities and are regarded as export capable. A recent Canadian publication listed some 90 firms selling to the paper industry in Canada as export capable. 2 This includes many firms such as boiler manufacturers and control suppliers not in the primary paper machinery industry. As indicated earlier, Canadian plants are generally equipped to produce most types of equipment required by their domestic industry.

2 Pulp and Paper Journal, February 1986, Second Export Report and Capability Guide. For background on the Canadian industry see the following: Pulp and Paper Canada, Annual Directory, 1986; Pulp and Paper, North American Factbook '84-'85; Pulp & Paper, 1988 Factbook; and Pulp and Paper Journal, Directory Issue, May '86.

The Role of Government Assistance. The Government of Canada and provincial governments provide marketing and export assistance to Canadian exporters. The primary Federal agency providing such assistance is the newly created Department of Industry, Science, and Technology, which has incorporated functions previously performed by the Department of Regional Industrial Expansion (DRIE). Additional specialized agencies exist to direct aid to Atlantic Canada and to Western Canada. These agencies are authorized to provide loans, grants, or other forms of assistance for industrial research and for erection of mills and factories. Provincial assistance has also come in the form of loans, grants, or tax abatements.

Other forms of assistance include export credit guarantees, which are available for large foreign projects in a fashion similar to those offered by other member countries of the Organization for Economic Cooperation and Development (OECD). Marketing assistance is provided by the Ministry of External Affairs. The Ministry's USA Marketing Division, U.S. Trade and Investment Development Bureau has sponsored Canadian exhibits at TAPPI and other major trade shows in the United States.

Various regional development incentives have been made available to Canadian producers by DRIE.3 The present government has pledged not to provide further subsidies to pulp and paper mill projects, but continues to offer financial help for mill construction. The Federal Government, through DRIE, has also provided some assistance to paper machinery R&D. A recent such instance saw grants totaling $2 million given to Hymac, Ltd. of Laval, Quebec. These grants assisted a $3 million R&D project to produce a thermomechanical pulp refiner. Expansion of Hymac's domestic market share would likely reduce the need for imports supplied from the United States. Although DRIE has provided assistance to Canadian paper machinery producers, its major impact on the industry has come through assistance to paper mill projects. This assistance has probably benefitted U.S. suppliers and their Canadian subsidiaries by providing support for both greenfield projects and machine rebuilds. Such assistance has not been without controversy both for its effect on U.S. paper producers and competing Canadian suppliers. Assistance has also been provided by provincial governments. Such assistance appears to be on the decline in part due to budget stringency imposed on the Federal Government.

Among the most controversial projects in recent years was support for a Domtar, Inc. project at Windsor, Quebec. The first of two twin-wire fine paper machines started up late in 1987. The project will include

3 For an overview of the Canadian paper machinery industry, see "Marketing Opportunities for Canadian Pulp and Paper Equipment Manufacturers," Government of Canada, Department of Regional Industrial Expansion, Report X6381/1, August 15, 1985.

a 175,000 tons per year (tpy), 330-inch trim, uncoated free sheet Beloit machine and a Kamyr digester.4 The assistance provided Domtar was valued at approximately $85 million from both Federal and provincial sources. Domtar had originally sought a grant of approximately $88 million, which was rejected. Instead a loan package was substituted. The financing was provided through the Quebec Industrial Development Corporation (SDIQ), a provincial government financing agency. SDIQ began issuing five 10-year $22.5 million loans at approximately annual intervals on May 1, 1985. Domtar is expected to repay the first loan in 1995 at current dollars. The Canadian Federal Government will reimburse the Quebec Government for one-half of the interest cost under the terms of an industrial development agreement.

Recently, demonstrators from the Matane area of eastern Quebec appeared in Quebec City to request provincial support for a longdelayed paper mill project in their area, indicating that public expectations of such government-backed industrial support remain substantial.

Subsequently, the Federal Government announced a package designed to assist construction of a 190,000 metric tpy bleached

chemi-thermomechanical market pulp mill at Matane. Groundbreaking for the mill took place in September 1988, with completion expected in 18-20 months. Donohue, Inc. will operate the mill in partnership with Rexfor, the Quebec Government forestry agency. The aid package, estimated at $348 million (C$287 million), will consist of investment tax credits, training grants, funds from a first mortgage, monies under existing Federal-provincial development programs, and Federal funding assistance to the Matane municipal government for roads and municipal services. About half of the projected cost will be borne in the form of loan guarantees from the Quebec Government.5

Capital Spending and the Sales Outlook. The Canadian pulp and paper industry ranks second nationally by value of shipments, with 1983 shipments of $8,714,000 and topped all Canadian manufacturing industries that year with employment of 87,882. In 1987, paper and paperboard mill installations totaled 77 and pulp mills numbered 34,

4 The Quebec Government holds a 25 percent share in Domtar. See Post's Pulp and Paper Directory, 1986, p. 248-49 for a description of equipment at the Domtar Windsor mill. The Domtar proposal may be easily followed in the trade press including Pulp and Paper Canada and Paper Trade Journal, especially issues between February and April 1986. 5 See American Papermaker, October 1988, p. 1, and Pulp & Paper, October, 1988, p. 21, for notice of the groundbreaking. See Pulp & Paper, August, 1988, p. 50, 54-55, 57, for paper industry size. Some of the information in this paragraph was derived from U.S. Department of Commerce, International Trade Administration internal sources.

with Quebec, Ontario, and British Columbia having the most. The industry is spread across the country with mills in every province except Prince Edward Island. Newsprint is the leading paper grade, accounting in recent years for approximately 8 million metric tons (mmt) out of total paper production of about 11 mmt. Newsprint exports to the United States have averaged around 6 mmtpy. Linerboard, at over 1 mmtpy is the leading paperboard grade. major paper grades include groundwood printing paper, and book and writing papers. Woodpulp production has ranged between 17 mmtpy and 20 mmtpy. of that total, mechanical pulps have accounted for approximately 7 mmt. Market pulp, which is sold directly to the pulp user, has averaged about 7 mmtpy.

Other

Although estimates vary between Canadian-based and U.S.-based sources, there is general agreement that capital expenditures by mills for new machinery are rising in Canada, although those for machine rebuilds declined in 1986. Statistics Canada figures show total capital spending by Canadian mills at $1.63 billion for 1986, up 16.7 percent on the heels of a spectacular 57.7 percent rise to $1.39 billion in 1985. This followed sharp drops in the 1982-83 recession from the 1981 level of $1.26 billion. A major private survey of pulp and paper mills' 1987-89 capital expenditures estimated that pulping systems account for 38 percent of all such expenditures. At $1.90 billion, these expenditures were 57 percent above the estimate for 1986-88. Capital expenditures for new machines more than doubled to $1.7 billion, accounting for 34 percent of planned expenditures. Spending for machine rebuilds totaled $685 million, up 21 percent for the year after declines in the 2 previous years. Expenditures for woodyard equipment are traditionally much higher than in the United States, due to the larger proportion of pulp to paper mills in Canada. During 1987-89 planned capital spending for woodyard equipment rose 23 percent to $145 million, as against the 1986-88 estimate. A survey by the Canadian Pulp and Paper Association (CPPA) estimated that growth in paper and paperboard capacity would average 2.34 percent a year through 1988. Newsprint capacity was estimated to grow by 1.27 percent a year over the same period, and kraft pulp capacity by 0.7 percent annually, well under the 10-year average of 1.78 percent. Approximately 48 percent of the planned 1987-89 capital expenditures will be in Quebec. British Columbia (19 percent) and Ontario (16 percent) were the next leading provinces for mill spending. 6

Five new paper machines were under construction or started up in Canada during 1986. Two machines were supplied by Valmet-Dominion and one each by Beloit, Black Clawson, and Voith. Two market pulp mills,

6

Pulp and Paper, January 1987, pp. 114-116, and ibid, January 1988, p.131-134, and ibid., January, 1989, pp. 112-114. See also Pulp and Paper Canada, June 1985, Capital Expenditures Forecast 1985-88 for a somewhat different estimate. See Pulp & Paper, October 1988, pp. 33-34, for details of the Weyerhaeuser project.

At one

commenced operation during 1988 at Western Canadian sites. of these mills, Millar-Western's 210,000 tpy CTMP mill, at Whitecourt, Alberta, Hymac provided the refiners, S. W. Hooper the screens, and various Canadian firms, including Canadian subsidiaries of U.S. firms, shared the bulk of orders with several third-country suppliers. Three greenfield mills were scheduled for 1989 startup in Canada with four due in 1990, and three more in 1991. Three new paper machines began operation in existing Canadian mills during 1988 including a Tampella (Finland) paperboard machine at St. Mary's Paper in Sault Ste. Marie, Ontario and a 220,000 tpy, 318 inch trim, Valmet uncoated free sheet machine by Weyerhaeuser Canada at the former Prince Albert Pulp Company which it bought from the Province of Saskatchewan. Six new paper machines were due to come on stream at existing mills during 1989 with a further three paper machines to be added in 1990. One is a 175,000 tpy uncoated free sheet machine

at the Domtar mill in Windsor, Quebec, a project which, as earlier noted, received both Federal Government and provincial government assistance.

Among other projects, Reed Paper Ltd. announced at mid-1987 it would invest $108 million over the next 2 years in a 600 tons per day (tpd) TMP pulp line at its 400,000 tpy Quebec City newsprint mill. This project was awarded to Combustion-Engineering. In mid-June 1988, Reed announced sale of the Quebec City mill to Daishowa Paper Co., Ltd., marking the first major Japanese mill investment in eastern Canada. Daishowa indicated the improvements under way would be completed as scheduled.

Research & Development. Canada, like other major paper producing countries, has engaged in extensive R&D in the forest products industry. However, research has traditionally emphasized pulp and paper process technology rather than machinery technical developments. The Pulp and Paper Research Institute of Canada, commonly known as PAPRICAN, based near Montreal, has been the leader in Canadian paper industry research. Additional research has been conducted by provincial organizations, universities, and by private companies. However, private R&D expenditures for this industry have traditionally been low. One reliable source has stated that such private R&D expenditures may not exceed one-half of 1 percent of the industry value of shipments. Among the more notable machine research developments to be commercialized in Canada was the top former, now widely used on paper machines. The Beloit Bel BaieR was first installed at a paper mill in Baie Comeau, Quebec and takes its name from that installation.

Finland

Finland is among the world's top producers and consumers of paper. Its 1987 per capita consumption of 444 pounds of paper places it fifth worldwide, behind the United States, Sweden, the Netherlands, and Canada. Production of pulp (8.5 mmt, sixth worldwide) and paper and paperboard (8.0 mmt, seventh worldwide) gives the Finnish paper