The Newsprint Division operates a mill in Garfield, New Jersey, with an annual capacity of 242,000 short tons. It also has a 33 percent interest in SP Newsprint Company, which runs mills in Dublin, Georgia, and Newberg, Oregon, with a combined annual capacity of 960,000 short tons.

Thomas M. Hahn
President
Garden State Paper Company

Q: The Newsprint Division suffered quite a setback in 1999. What happened?

A: We encountered a number of problems in 1999, but the two most important factors were a dramatic decrease in newsprint prices and operating problems at our Garden State Paper Company, which we believe have been remedied. The average selling price decreased by $64 per ton from the previous year, reducing revenues by more than $15 million.

Q: Why did the price of newsprint drop so precipitously?

A: Newsprint is increasingly a global commodity. There were two major labor strikes in Canada in 1998, and those mills came back into production by December 1998. Consequently, there was a dramatic increase in the amount of newsprint that was available in early 1999 as those mills sought to regain the market share they had lost. We also continued to see lingering effects from the Asian financial crisis of 1997. Reduced demand for newsprint in Asia increased the newsprint supply in North America. In addition, more newsprint manufacturing capacity came on line in Asia, and some of that newsprint found its way into the United States.

Q: What do you see newsprint pricing doing in 2000?

A: We were able to begin implementing a price increase during the last quarter of 1999, and that will certainly help when fully installed over the course of this year. At this time, the major producers have announced an additional price increase beginning in April. If this increase is successful, we expect that 2000 will be a much better year for the Newsprint Division.

Q: Has the growth of the Internet affected the demand for newsprint?

A: This is a question that the industry has been debating. From our point of view, newsprint consumption in the United States has increased by about two percent in each of the past two years. While many people predict that increased Internet usage eventually will reduce newsprint consumption, we haven’t seen this yet. In fact, the United States saw a considerable increase in newsprint consumption in 1999 due to substantial dot.com advertising.

Q: How has the consolidation in the number of newsprint companies affected the Newsprint Division?

A: We watch the continued consolidation in our industry with great interest. The three largest newsprint manufacturers in North America now control more than 50 percent of newsprint capacity. The major producers have a greater ability to influence the market price for newsprint than do smaller producers like Garden State. We believe, however, that with fewer companies in newsprint manufacturing, there will be more price stability — and at a level that is more acceptable to producers.

Q: Has the deregulation of electricity and natural gas affected Garden State Paper?

A: Yes. We have moved away from our local utility as a supplier of natural gas and have realized savings in this area for the past two years. The deregulation of electricity began in New Jersey during the winter of 1999. We are currently investigating what the best mechanism is for Garden State to purchase some of its electricity from lower-cost producers outside the state.

Q: Do you continue to use old newspapers as your primary raw material?

A: Yes. We continue to make high-quality newsprint using old newspapers. But, we are using different combinations of chemicals and additives to produce a sheet that has the improved printing characteristics that our customers demand. Garden State has established a very reliable supply network of communities, publishers, and recycling operations that supply us with inexpensive raw material.

Q: What are your plans for capital improvements?

A: We plan to install new quality-control systems on both of our paper machines at the Garfield mill early in 2000. These new computer-based systems should help us diagnose and fix process “bumps” faster and better than before. We also are in the final phase of a multiyear project that captures more of our production waste and turns it into fuel that we can burn in our boilers. This project further reduces our expensive waste disposal bill and helps decrease the amount of fossil fuel that we use.

Q: Will all these efforts boost your bottom line?

A: Yes. If the U.S. economy stays healthy and no additional newsprint capacity comes on line in the next two-to-three years, the Newsprint Division should produce better cash flow.