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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,

* 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.

* 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. Other 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.

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,

* 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.

commenced operation during 1988 at Western Canadian sites. At one 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 og former, now widely used on paper machines. The Beloit Bel Baie" 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

industry ample stature in world markets and substantial influence on Finnish Government policymakers.

The manufacture of paper machinery represents a greater contribution to Finland's gross national product (GNP) than the industry does to the GNP of any other country. With its 1984 production of paper machinery valued at $334 million (largely papermaking and pulp-making machinery), Finland ranked fourth worldwide, trailing the substantially larger economies of Canada, West Germany, and the United States. In no other country do paper machinery producers play so central a role in the economic life of the country or rank so high among the nation's manufacturers. Consequently, the Finnish paper machinery industry has a reasonable expectation that government policy-makers will address its trade and tariff concerns.

Industry Overview. The Finnish paper machinery industry possesses broad capability to produce most types of papermaking and pulping machinery. Finnish suppliers can equip a mill from wet end to dry end. The Finnish paper machinery industry, unlike that of the United States, is characterized by significant integration of pulp and paper producers with machinery manufacturers. Several of the leading suppliers--including Ahlstrom, Enso-Gutzeit, and Rauma-Repola--have extensive forest product interests. This allows the firms to integrate R&D activities for machinery with forest product development. Furthermore, the firms achieve economies of scale impossible to reach simply as machinery manufacturers.

Finnish firms have been particularly successful in providing pulping systems for most forms of modern mechanical pulping including thermomechanical pulping, chemi-thermomechanical pulping, and pressurized groundwood pulping. Finland also has successfully exported paper machine dryers and finishing equipment, areas in which Finland has proved to be a strong competitor to U.S.-based producers. Major Finnish paper machinery manufacturers are shown in Appendix A.

Finnish paper machinery producers have moved extensively to set up shop abroad. Most overseas subsidiaries have been acquired within the past 10 years, substituting for a policy of direct exporting. At an earlier stage, joint venture and licensing agreements have also been a major means for Finnish penetration of foreign, especially North American, markets. These included (1) the now terminated agreement between Ahlstrom and Beloit licensing Beloit to produce its pump line in Canada for sale in that country and (2) Wartsila's agreement with its subsidiary Wartsila-Appleton for the manufacture and sale of finishing equipment in North America, which has been superseded by the Valmet, Oy. takeover of Wartsila's paper machinery activities. In current agreements, Rauma-Repola acts as a licensee of Gauld Equipment Co. (Theodore, Alabama) for the production of pressure screens.

In turn Rauma-Repola is a licensor of Sumitomo Heavy Industries of Japan. Beloit is the majority partner in the operation of Beloit-Rauma in Brazil. Rauma-Repola is the parent firm of Neles, Oy, a major supplier of valves to the paper industry, which in September 1988 acquired from Combustion-Engineering its Jamesbury, Inc. subsidiary, a leading U.S. supplier of valves to the paper industry. Rauma recently purchased the product line of Murray Machinery, Inc., a long established U.S. producer of woodyard equipment.

Valmet, Oy: The New Giant. Following a policy of aggressive acquisitions both at home and abroad has brought Finnish-based Valmet, Oy to the position of the number one paper machinery producer in the world. Valmet, a state-owned Company, was formed in 1951. Valmet and its subsidiaries have shipped over 800 paper machines and 3,500 paperboard machines. With the formation of Valmet Paper Machinery, Inc. (VPMI) on January 1, 1987, the firm clearly established its preeminence among worldwide paper machinery makers. VPMI is a result of the creation of two new firms merging the shipbuilding and paper machinery operations of Valmet Corporation and Oy Wartsila AB. Valmet controls a 65 percent interest in the new VPMI while Wartsila Marine Industries, Inc., the shipbuilding Company, is 30 percent held by Valmet. In 1987, VPMI sales were estimated at $770 million, of which sales of $95 million were in the North American divisions. Paper Machinery Division sales totaled $450 million, and sales of finishing equipment totaled half as much, or an estimated $225 million. Major VPMI operations within Finland include (1) paper machine Works, technical services, and a foundry which are at Jyvaskyla; (2) Pansio Works, located at Turku, which Manufactures air systems, sawmill machinery, and process filters; (3) Jarvenpaa Works, Jarvenpaa, which makes paper finishing machines; and (4) Valmet-Ahlstrom, Karhula, at which paperboard machines and pulp drying lines are produced.

Total worldwide Valmet employment was estimated at 6, 900 in 1987, up 60 percent from 4,300 in 1984. Valmet now has topped Beloit as the world leader in industry employment.

Valmet Paper Machinery, Inc., at its formation was the parent Company for two wholly owned subsidiaries and five joint venture holdings. These are shown in Table 25:

Since the initial formation of VPMI, Valmet has announced further mergers and joint ventures. In March 1987, Valmet formed Valmet-Enerdry (Knoxville, Tennessee) to supply paper machine and mill air dryer systems. In July 1987, Valmet-Ahlstrom, Inc. incorporated the paper machinery interests of the Finnish-based Ahlstrom, a maker of narrow width paper machines, folding boxboard machines, and pulp drying lines. In September 1987, Valmet acquired majority control of the Italian firm, Rotomec, S.p.a., a maker of coating, laminating, and printing machines. The firm also acquired a minority share in the Finnish-based Jylhavaara, Oy (United Paper

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