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Thursday, Truist Securities shared insights on Domtar (NYSE:UFS)’s contemplation of converting its Gatineau, QC newsprint mill to containerboard production, a move driven by the persistent decline in graphic paper demand. This week, Gatineau mill workers agreed to a new labor deal, contingent upon the conversion’s fruition, signaling progress in Domtar’s long-term strategy to repurpose its assets amidst changing market needs. According to InvestingPro data, the company, currently valued at $26.56 billion, is positioned for substantial growth with analysts forecasting a 43% increase in revenue for fiscal year 2025.
In 2018, before its acquisition by Paper Excellence, Domtar unveiled a plan to potentially repurpose up to four mills, aiming to produce approximately 2.5 million tons of containerboard and around 570,000 metric tons of pulp. The Kingsport, TN mill conversion, one of the outlined projects, was completed by June 2023, marking a shift from uncoated freesheet to containerboard production. This strategic pivot appears well-timed, as InvestingPro analysis shows the company trading at an attractive valuation relative to its near-term earnings growth potential, with 8 additional exclusive insights available to subscribers.
While additional containerboard capacity could pressure the supply-demand balance in the industry, the actual outcome of mill conversions remains uncertain. These projects are complex, often taking about two years, and face logistical challenges and increased costs. For instance, the conversion of the Kingsport mill has led to diverse production, including kraft paper and exports of various paper products.
The industry is also experiencing a significant capacity reset, with approximately 2.3 million tons of capacity reductions announced or completed in 2025, representing about 5.5% of the total supply. Assuming these closures are fully realized, the industry could see an operating rate of approximately 96.7%, compared to 91.2% in the first quarter, potentially mitigating the impact of new capacity additions.
In other recent news, Georgia-Pacific announced the permanent closure of its Cedar Springs mill in Georgia, effective August 1, 2025. This facility, which produces a significant portion of the company’s containerboard, will reduce North American capacity by approximately 2.5%. Analysts from Jefferies and Citi view this development as a positive step for the containerboard market, with potential benefits for companies like International Paper, WestRock (NYSE:WRK), and Packaging (NYSE:PKG) Corporation of America. The closure aligns with broader industry trends of reducing supply to meet declining demand, which has been down by 8.7% since 2022. Citi analysts suggest that these actions could help stabilize containerboard prices, which are expected to remain steady despite potential price erosion. Additionally, International Paper has made a key amendment to its pension plan to facilitate a business divestiture, allowing certain executives to retain pension benefits post-divestiture. This move was approved during the company’s recent annual meeting, where shareholders also ratified Deloitte & Touche LLP as the independent auditor for 2025. These developments reflect ongoing adjustments in the containerboard industry amid fluctuating demand and strategic business decisions.
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