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Domtar to Shut Down 2 Paper Mill Facilities, Make Job Cuts

Zacks Equity Research

Domtar Corporation UFS is set to permanently shut down two of its paper machines at the Ashdown, AR pulp and paper mill, and the Port Huron, MI paper mill. Notably, the move will reduce Domtar’s annual uncoated freesheet papermaking capacity by around 204,000 short tons. The company plans to retrench 100 employees. While the Ashdown paper mill will be immediately shut down, operations at Port Huron machine are likely to be closed by mid-November.
The company expects to incur $39 million charges related to the shutdown of its facilities, out of which $37 million will likely be recorded in third-quarter 2019.

The company took the measure in light of the weakening market demand for uncoated freesheet paper and increased imports. Also, the closure will enable the company to balance its paper production with customer demand. It will continue to serve its customers by delivering high-quality products and services.

The Ashdown mill will now operate one paper machine, with an annual uncoated freesheet paper production capacity of 200,000 short tons, with approximately 725 employees. The Port Huron mill will produce a wide range of technical and specialty papers utilizing three machines with an annual production capacity of 95,000 short tons.

The Ashdown mill operates one of the world’s largest fluff pulp machines with the flexibility to produce softwood pulp. The mill will start producing an incremental 70,000 Air Dried Metric Ton (ADMT) of softwood and fluff pulp following the shutdown of its operation.

Domtar, along with Neenah Paper, Inc. NP, Verso Corporation VRS and Clearwater Paper Corporation CLW, belongs to the Paper and Related Products industry.

In the second quarter, revenues of Domtar’s Pulp and Paper segment declined 2.4% year over year to $1,096 million. Elevated level of outages affected productivity in the Pulp and Paper segment during the quarter.

In April 2019, Domtar announced its plans to upgrade and modernize operations at the Espanola pulp and paper mill to prepare the facility for capital projects over the next three years. Following the shutdown, the company eliminated 70 jobs at the mill. Further, the company expects to incur maintenance costs of $36 million and reduction of pulp production by approximately 60,000 tons due to shutdown at Espanola facility. These measures will also affect Domtar’s results in the second half of the current year.
The company projects improved paper volume for the current year. The Personal Care segment is anticipated to benefit from its margin-improvement plan and increased sales volume, aided by a strong order book. Nevertheless, Domtar anticipates raw-material cost inflation will strain margins in the second half of the year. Global demand for softwood and pulp is also likely to be volatile due to consumer inventory swings. The company believes costs, including freight, labor and raw materials, will likely flare up in the ongoing year.

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