1938: Paper And Pulp Industry

Paper production constitutes an important industry in most industrialized countries, whether they possess suitable pulp materials or not.

Even an approximate breakdown of production by the chief kinds of paper is impossible because of inconsistencies in available information. Of the various kinds, newsprint is probably the most important, followed by paperboards and wrapping and printing papers. Distribution of production in the American industry is considerably different from that of other countries because of the predominance of paper that is used for mechanical purposes. There is some reason for the belief that the production of cultural grades is leveling off; there is no such evidence in the case of the mechanical grade groups.

Paper Consumption.

Constant and marked reduction in prices which, of course, reflects the advance in industrial development and organization, has led to as constant and marked increases in paper consumption. The declining price movement not only has stimulated known uses but has encouraged the substitution of paper for other materials.

Paper Consumption in the United States.

American paper consumption far exceeds that of any other country. The current level of approximately 15,000,000 tons a year amounts to about half the world production. Per capita use in the United States is far and away greater than in any other country. This tremendous use has stimulated domestic production, but in spite of the productive capacity, the United States is the chief importing country in the world. The imports are not confined to paper, almost exclusively newsprint, but include large quantities of pulpwood and wood pulp.

Since imports and exports approximately balance in all grades except newsprint, domestic production may well be considered as representing consumption. The current large imports of newsprint have developed since 1913 when the tariff on newsprint paper was eliminated.

Wood Pulp Production.

Although many materials can be used for paper making, wood pulp has proven to be the best fiber base because of its comparative cheapness and adaptability. More than 90 per cent of the world's paper is made of wood pulp or of waste paper which is simply the reuse of wood pulp.

Wood pulp is rapidly becoming important in other commodities. It is probable that world consumption of pulp in staple fiber, rayon, plastics and a host of cellulose products exceeds a million tons yearly. In these uses wood pulp is competing successfully with other cellulose materials. The high cellulose content and quality consistency of wood pulp are advantageous characteristics which cannot be matched in other source materials at the same cost.

In excess of 26,000,000 tons of wood pulp was produced in the world in 1937, a large part of it in the six leading countries. The United States output by far out-ranked that of all other countries. Slightly more than 7,000,000 tons of the world production entered foreign trade in 1937, going to paper-making countries where domestic supply was insufficient.

The production of wood pulp in the United States has undergone substantial change in recent years as the use of southern woods has developed. Most of the current growth in the industry is in sulphate pulp which is made chiefly of southern pine.

In spite of this growth, however, the United States continues to be the world's chief importer of pulp. Most of the imports are confined to kinds which are still dependent upon spruce pulpwood. Domestic production, although increasing in these grades, is making its greatest strides in other kinds of pulp, which are beginning to be used as substitutes for imported pulps. It may be that through this process the United States will become self-sufficient in pulp in the course of a not too great period of time.

Pulpwood Consumption.

Changes in the type of wood pulp production are due to the fact that new kinds of wood have proven usable by new or modified pulping processes. This has had the effect of increasing the pulpwood supply. The original supply of spruce pulpwood in the United States was not great, and American production was handicapped so long as spruce was required.

Current Expansion.

In recent years the use of paper has grown substantially in spite of the depression. In fact, the paper and pulp industry has exhibited a greater growth tendency than any other well-established industry in the United States. In 1935 when the greater needs of consumption became evident, an extensive expansion wave started and several new mills were added to the industry. Most of this growth occurred in the southern states, where the productive capacity has been doubled.

The manufacture of paper and pulp is a natural resource industry and it is immune to many of the difficulties to which such industries are subject. The most important problem of the industry grows out of this situation — an almost perpetual condition of over-supply. Because of the large size of economic units of production, it is not possible to take up the slack between production and consumption as it occurs. Rather an accumulation of demand builds up which frequently causes price increases sufficient to encourage a substantial flow of capital into the industry. The result of this is that many companies expand at the same time causing an over-supply of productive capacity. Until this excess is absorbed by greater consumption, the excess capacity bears heavily upon the market.

Capital and Overhead Costs.

The amount of capital required to construct a paper and pulp mill is extremely large in comparison with possible annual sales. In the industry as a whole the annual sales of primary products amount to approximately one-half the capital investment. The huge capital requirements are reflected in high overhead costs. The effect of this is to place a heavy premium upon volume of production in order that the distribution of overhead charges may be spread over as great a tonnage as possible. This, obviously, leads to price-volume compromises which have far-reaching effects upon market conditions during periods of slack demand. The perennial condition of excess capacity has created an excellent medium in which this condition has flourished, and the effect of this situation is clearly evident in the steadily declining price trend of the industry.

Labor Conditions.

The Bureau of the Census reported in 1937 the employment of 137,000 workers in the productive operations in the paper and pulp mills of the United States. The total payroll during the same year was in excess of $170,000,000. Both employment and payrolls were greater in that year than they were in any previous year, which is an outstanding record among the older industries in the United States.

Operations in the industry are marked by a relatively high degree of stability. There are two seasonal variations during which machine and man-hours usually decline from eight to twelve per cent. The fluctuations from year to year are sufficient to have pronounced effects upon marketing conditions, but from the point of view of operations they are relatively slight. For instance, the decline in operations which were reflected in employment and working hours, amounted to but 26 per cent between 1929 and 1932, the depth of the depression. This stability approaches that of the food and clothing industries and it gives to the workers in the paper and pulp industry highly sustained earning capacity.

In addition to the workers that are employed in the manufacturing processes, the industry's requirements for raw and manufacturing materials give employment opportunity for several hundred thousand other workers. Most of them are engaged in cutting and handling pulpwood. Accurate statistics of this employment are not available, but it is estimated that well over 200,000 workers are employed either upon a partial or full time basis. All of this work takes place in rural or forested communities where it supplements agriculture and other rural occupations.

Operating Conditions in Other Countries.

As indicated by the statistics quoted above, the manufacture of paper and pulp is important in many countries other than the United States. Operating conditions are quite similar throughout the world. Size of mills, organization of production, use of materials and speeds and widths of paper machines compare favorably. The cost of materials is approximately the same, which is indicated by the fact that through its imports the United States manufacturer draws from the same sources of supply. In the light of these similarities, the costs of paper manufacture vary almost directly with labor costs. With its higher wage rates which in this case are not offset by substantially greater production per man, the United States possesses no advantage in foreign trade except under peculiar conditions. In fact were it not for adequate tariffs, the domestic industry would not be able to compete in much of its own markets.

The extent of international competition is indicated by the trends of imports in duty—free products of the industry, wood pulp and newsprint paper. Within the last three decades the imports of these commodities have increased to a point where the United States is dependent upon outside sources for approximately 80 per cent of the wood pulp that is purchased by consuming mills and for over two-thirds of its newsprint paper. These imports which aggregate about 5,000,000 tons yearly, have grown up since the removal of the tariffs upon these commodities shortly after 1910. The chief supplier of newsprint is Canada which ships to the United States as much as 80 per cent of its annual production. Sweden is the chief supplier of wood pulp, closely followed by Finland and Canada.

Prospects for Continued Growth.

The prospects of continued growth in the production of paper and pulp over the years appear to be excellent. Per capita consumption is tending to increase and this increase combined with the growth in population indicates the possibilities of sustained increment in production. That this growth will be largely confined to the use of papers for mechanical purposes and to wood pulp for use in the manufacture of articles other than paper is fairly well established by present trends. If by adaptation of processes whereby less expensive raw materials may be used, the domestic industry can successfully compete in newsprint and certain kinds of wood pulp, an added opportunity for expansion may develop. This process of adjustment is likely to prove difficult, however, until the consumption of paper in other countries increases enough to absorb the productive capacity which would be released by the growth in the domestic industry.