After a sale worth 110 million US dollars, the Pine Bluff paper mill takes stock

The Pactiv Evergreen paper mill at 5201 Fairfield Road in Pine Bluff. Suzano SA of Brazil paid $110 million for the mill, a similar mill in North Carolina and the Pactiv Evergreen Cadron Creek chip mill in Menifee, Conway County. (Steve Lewis)

Brazilian pulp and paper giant Suzano has a vision for the mill it is acquiring in Pine Bluff, but what exactly it will look like is “the $64,000 question,” says Arkansas forestry expert Matthew Pelkki.

For many of the roughly 800 workers at the Pactiv Evergreen plant in economically struggling Pine Bluff, this is actually an $80,000-a-year question.

Suzano announced last month that it paid $110 million in cash for the 68-year-old Arkansas plant and a similar one in North Carolina. Suzano, the world’s largest pulp producer, plans to continue operations with the current team in Pine Bluff.

Pelkki said he has no reason to doubt it, but in the long term he sees other options for Suzano that could have a big impact on jobs in the region’s wood industry. The company could invest in modernizing the mills or integrate them into the vertically integrated approach it has perfected in South America.

The machines could even be scrapped and sold piece by piece, says Pelkki, director of the Arkansas Center for Forest Business and professor at the University of Arkansas at Monticello.

The average Arkansas paper mill pays more than $80,000 a year, and Pactiv’s paper mill helps support 2,200 other jobs outside its gates in forestry, transportation and support facilities. Pelkki says the stakes are high.

“How many jobs in Pine Bluff pay $80,000 a year?” Pelkki asked. “That’s well above the Arkansas average. It’s more than the starting salary for assistant professors at the University of Arkansas.”

In a written statement to Arkansas BusinessSuzano said the acquisition is part of the company’s strategy to become “a significant and competitive player in the global packaging segment.” The company described the Pine Bluff plant as a “high-value asset with an ideal location” from a logistical perspective.

“We intend to work closely with existing suppliers to ensure we can capitalize on new growth opportunities for the plant,” the statement said. “We have been in business for over a century and have a clear understanding … of the tremendous value of working closely with suppliers, on-site teams and local communities.”

Jobs for current employees

Suzano, of Salvador, Brazil, said the plant offers low energy costs, access to abundant local wood and is close to rail, road and water transportation options.

Daniel Thomas, a U.S.-based spokesman for Suzano, said the Pine Bluff plant “produces paperboard and cup material for liquid packaging, which are used to make fresh-keeping cartons, paper cups and other fiber-based food and beverage packaging.”

The acquisition includes Pactiv Evergreen’s Cadron Creek chip factory in Menifee, Conway County.

Suzano said the deal is subject to customary regulatory approvals. “Upon approval … all existing labor contracts and jobs will be immediately transferred to Suzano,” the statement said. “In total, this transaction will affect approximately 850 employees” in Pine Bluff, Waynesville and Menifee. “We believe that the ample supply of local lumber is a real benefit to the mill and therefore do not anticipate any changes to current relationships with suppliers.”

Pelkki said he was taking the company at its word, but acknowledged that business strategies could change.

“They have a lot of experience in pulp and paper processing,” he said. “But they are also a vertically integrated company, which means that at least in Brazil they grow their own trees for processing.”

U.S. companies have largely abandoned this approach. “International Paper, Clearwater, Georgia-Pacific and Domtar essentially sold off their forest lands in the 1990s and 2000s and put them into real estate funds,” Pelkki said. “They don’t own the trees anymore. They buy them from someone else.”

Pelkki’s concern about the Pine Bluff region’s economy is that Suzano could take a leaf out of Georgia-Pacific’s book, which already imports eucalyptus wood from Brazil to supply its tissue mill in Crossett.

“There is such an oversupply of eucalyptus,” he said. “It can grow three to four times faster than swamp pine. In 10 years you can get lumber-sized trees. I fear Suzano will consider using the same process (in Pine Bluff).”

If the company commits to eucalyptus, it could stop using Arkansas pine, Pelkki said. “Because we’ve seen this happen before, there’s a chance it could happen again. And when that happens, the lumber industry will no longer have a source to ship lumber to. And neither will the landowners. And then the workers who work on the green end, the ones who manage and process the incoming trees, will no longer be needed at the mill.”

“Hope for the future”

Local business representatives are more confident.

Allison JH Thompson, president and CEO of the Economic Development Alliance for Jefferson County, said her organization is “very positive” about the Pactiv-Suzano deal.

“This facility has been for sale for some time, and this company has the size and the means (to succeed),” Thompson said in a phone interview. “My hope for the future is that they not only acquire it, but invest in it and take it to the next level. That often happens when a new owner acquires a facility.”

She noted that the plants are Suzano’s first major investment in North America. “We hope they really want to make this plant their flagship,” she said. “From what I understand, they want to leverage the experience that the plant already has.”

Suzano stated on its website on July 12 that the company will “work with the Pactiv Evergreen team and leverage their operational knowledge and experience in the paperboard business to improve the structural competitiveness and profitability of the acquired assets.” The company described the Waynesville and Pine Bluff plants as “already comparatively well positioned on the North American packaging industry cost curve.”

The company said the deal will increase Suzano’s production capacity by about 420,000 tons of cardboard per year.

Sold for a bargain price

UAM professor Pelkki believes that Suzano can easily afford to invest in the two US factories that Pactiv Evergreen sold, according to him, “for a ridiculous price”.

Why did Pactiv sell? “Only the people at the company know, so I can only speculate,” Pelkki said. “The factory is quite old (opened in 1956), and so is the one in North Carolina.”

“Pactiv Evergreen will not exit the pulp and paper business, but in this industry, companies compete internally with other mills they own,” Pelkki added. “In the United States, companies choose the mills that have better margins.”

He pointed out that Suzano paid $110 million for two U.S. paper mills that would cost $2 billion each to build from scratch. “A single paper machine in those mills costs almost $400 million.”

Both factories are able to produce more paper products than before, he noted.

“Suzano could look at this and say: we are going to invest in this plant and modernise it. That would be absolutely great and that is exactly what I hope.

“But I can’t be all unicorns and rainbows,” Pelkki continued. “I have to think about what the bad side could be. If things completely fall apart for Suzano, they could probably scrap those two factories and get their money back.”

Suzano expects to complete the acquisition by the end of this year.