1942: Paper And Pulp Industry

General Situation.

In 1942 the pulp and paper industry in common with all other manufacturing industries was faced with the conditions which inevitably must develop under a wartime economy. Conversion of civilian industry to manufacture of war materials became the watchword of the day. Where conversion was not possible, the War Production Board formulated plans for curtailment and/or concentration to whatever extent necessary of the production of non-convertible industries. Unable, in general, because of the nature of its equipment, to convert to other products, the pulp and paper industry nevertheless found itself in a strong position to maintain its operations at reasonably satisfactory levels. Paper and paperboard as 'service' commodities are essential to the conduct of all business and to the operations of the armed forces and the government.

Statistical determinations of the minimum quantity of paper and paperboard necessary to the war effort have been impossible because of the nature of the product. In view of the danger of restricting production below the required but unknown minimum, few real obstacles were actually placed in the path of the pulp and paper industry by the War Production Board during 1942.

While it is now evident that the industry is currently capable of meeting all short-run pulp, paper, and paperboard requirements, the steadily growing labor and transportation shortage, and the problem of obtaining repair and maintenance supplies and equipment are forcing rapid action on the part of the War Production Board to plan for reduced but balanced production in order to assure adequate supplies for the war effort. Such planning has been under way for some time and the pattern for the future operations of the industry is already apparent in the action taken by the War Production Board. The more important government regulations which affect pulp and paper are described below.

Operations During 1942.

Orders received and production during 1942 were in marked contrast with those of 1941. Whereas orders and production climbed steadily through 1941, the trend reversed itself in 1942, and a steady decline was apparent throughout the year. Instead of being hard-pressed to fill new orders for paper and paperboard, mills were forced to reduce operations as new demand failed to materialize.

In view of this record, it is hardly necessary to discuss the elements which created the paper shortage 'scares.' These 'scares' were largely the result of widely publicized but unofficial estimates by the War Production Board that 26,000,000 tons of paper and paperboard would be required in 1942 against a maximum available supply for consumption of 21,000,000 tons.

Actually, demand fell far short of the potential maximum supply. Preliminary estimates indicated that paper and paperboard production for 1942 would total approximately 16,000,000 tons compared with the all-time high level of 17,300,000 tons achieved in 1941. Including net imports, apparent consumption in 1942 totaled approximately 18,400,000 tons compared with 19,800,000 tons in 1941.

Wood pulp production in 1942, on the other hand, was somewhat higher than the previous record of production achieved in 1941. Twelve month data are not yet available but production of wood pulp for eleven months totalled 9,416,429 tons and 9,110,352 tons for 1942 and 1941 respectively. Net imports of wood pulp were also somewhat greater in 1942 than 1941. (Government regulations do not permit publication of figures.) The supply available for consumption declined materially, however, as a result of the almost complete depletion of the inventories which were carried through 1941 and part of 1942. The narrow margin between supply and requirements caused the War Production Board to allocate the supply and to limit individual inventories of wood pulp.

Other raw materials, including waste paper for paperboard mills were plentiful. At the request of the war agencies, large inventories of coal and chemicals were accumulated early in 1942 when adequate transportation was available.

Wartime Regulation.

The pulp and paper industry was one of the first placed under the immediate jurisdiction of specially created branches of the War Production Board and the Office of Price Administration.

The first important action was the issuance of General Order M-52 directing the allocation of wood pulp production for the first four months of the year. This became necessary when a substantial portion of the pulp production of certain contract producers was diverted from their paper mill customers to the manufacture of nitro-cellulose explosives for the military forces and to lend-lease for England, Australia, and New Zealand. M-52 was followed by General Order M-93 issued on Mar. 14 and effective May 1 which directed the permanent monthly allocation of all wood pulp produced for market.

Standardization and simplification of book and writing papers was initiated on July 4 by Limitation Order L-120 which limited the size, weight, and color of the sheets. This action was followed in other grades later in the year.

Paper production control was not actually undertaken until Oct. 30, 1942, when the so-called paper 'freeze' order was inaugurated. Beginning Nov. 1, paper production was limited each month to an amount not in excess of the monthly average production of each individual mill for the six-month period April to September 1942. The order also restricted consumers' inventories to a ninety-day maximum supply and forbade mills which had not operated since Aug. 1, 1942 from resuming operations on any basis. This order actually meant that average industry operations after Nov. 1 could not exceed approximately 87 per cent for paper and 78 per cent for paperboard.

General Preference Order M-251 issued Oct. 19, 1942, authorized the War Production Board to control the nation's pulpwood supply upon declaration by the Director of Industry Operations of an emergency situation in any area. This order was applied to the Puget Sound area effective Oct. 26, 1942, in order to assure an adequate supply of pulpwood to mills producing wood pulp for munitions. All pulpwood supplies were 'frozen' and were entirely withheld from three mills in the area, thus closing down their operations; apparently for the duration of the war. A considerable diversion of pulpwood logs was effected to the nitrating pulp mills and the operations of those mills producing wood pulp for the paper industry were simultaneously sharply curtailed.

A critical area has also been declared in the Columbia-Willamette River area but no diversion of supplies was undertaken in 1942.

All paper prices were brought under regulation by OPA at an early date. With the exception of kraft, tissue, and certain specialty papers, for which specific price ceilings were named, price regulation was entirely on a date basis under the General Maximum Price Regulation.

It seems exceedingly likely at this time that the War Production Board will order a definite per cent limitation of paper and paperboard production, and prohibit the production of certain non-essential end paper products early in 1943. Considerable differences of opinion exist with regard to the extent to which this program should be carried in view of the aforementioned difficulty of determining the minimum requirements of paper for the war effort. Shortages of pulpwood, labor, and transportation equipment will, however, undoubtedly curtail production automatically regardless of government action.

1941: Paper And Pulp Industry

The domestic pulp and paper industry was probably the first of the civilian industries to experience direct effects of the war in Europe. Dependent upon Northern Europe for a substantial portion of its wood pulp, the pulp consuming portion of the paper industry found that its imports decreased steadily through 1940, became a mere trickle early in 1941, and ceased completely by the third quarter of 1941. Coupled with the cessation of imports of European wood pulp was an unprecedented demand for paper and paperboard created by the United States defense activities and the lend-lease program. Other domestic problems arose as defense and lend-lease requirements cut into the paper and pulp industry's consumption of such chemicals as chlorine, titanium dioxide, formaldehyde, various pigments, and more important, into critical metals such as copper and steel. The impact of the curtailment of items of materials and equipment was, of course, felt by all civilian industries as well as the pulp and paper industry although it must be said that, in general, the latter fared comparatively well due to recognition by the Government of its essential position in both war-time and civilian economy. However, as new problems of supply and distribution were created almost overnight for the pulp and paper industry in 1941, various economic adjustments occurred which will have a profound effect upon its future structure and operations.

Pulpwood.

The availability and cost of pulpwood is probably the key factor in the international location of the pulp and paper industry. With no tariff barriers in existence on pulpwood, wood pulp or newsprint paper, a large part of the domestic requirements of pulpwood under ordinary conditions of world trade is supplied in the form of wood pulp and paper imports. From the standpoint of pulpwood requirements, it is immaterial in what form this raw material is obtained, for imports of wood pulp and paper merely replace an equivalent amount of wood which would otherwise be cut in the United States. Thus, the United States consumption of pulpwood has been determined to a great extent by international competition in the finished and semi-finished products. With the cessation of wood pulp, and to a lesser extent paper, imports from Europe, the domestic requirements for these commodities must now be met by production within the United States from pulpwood cut within the United States and Canada.

Although these quantities of pulpwood are tremendous there exists no likelihood of an insufficient supply of timber in the forest. Woods labor, however, became increasingly scarce as the year 1941 progressed and as migration of woods workers to defense industries became prevalent in the New England and Central States. This situation, together with the difficulties of transportation which are being created by the curtailment of rubber tires and trucks, has already driven the price of pulpwood sharply upward.

Wood Pulp.

Imports of wood pulp from Northern Europe were almost wholly in the so-called chemical grades. Since the stoppage of these imports, the domestic production of chemical wood pulp has increased steadily and at the present time is approaching what appears to be a maximum point. Increases in production of this commodity were not so much due to new equipment (which was not generally available in 1941) as to more efficient use of existing facilities. Total productive capacity of wood pulp in the United States in 1941 was somewhat over 11,000,000 tons compared with a figure of 10,200,000 tons in 1940.

Stringencies of chemical wood pulp have been felt in certain individual cases where paper mills were formerly wholly dependent upon European sources of supply and who, early in 1941, found it necessary to shift their purchases to an already overloaded market.

Waste Paper.

Increased paper and paperboard requirements in 1941 emphasized the necessity for additional recovery of waste paper to supplement fresh supplies of wood pulp. United States consumption of waste paper during the period 1937-39 averaged 4,132,000 tons. This recovery was increased to 4,590,000 tons in 1940 and reached some 5,000,000 tons in 1941.

Paper.

It was quite generally conceded by competent authorities that sufficient paper productive capacity existed in 1939 to meet normal expansion of domestic requirements for at least ten years under a normal economy. Actually, these productive capacity estimates were conservative for they were based on only 17,500,000 tons of effective annual capacity. Present surveys, however, show that effective productive capacity is actually about 18,500,000 tons annually. Under present conditions, which require large quantities of paperboard and wrapping paper for packaging military and lend-lease supplies, this total capacity has proved to be somewhat inadequate due to a maladjustment in various sections of the industry.

Supplies are currently available at an annual rate of more than 21,000,000 tons annually, which is over 4,500,000 tons in excess of the quantity available in 1940.

It is difficult to predict what the future demand for paper will amount to. It appears unlikely that combined civilian and war demands in 1942 will exceed those of 1941. Defense requirements of paper will undoubtedly increase, but it is indicated they will be balanced by an almost certain lessening of civilian demand, brought about by a restriction of civilian industries and a reduction of real purchasing power.

1940: Paper And Pulp Industry

The impact of the European war upon the pulp and paper industry was pronounced in 1940. It governed to a large extent business and industrial conditions. The effect was centered in the curtailment of shipments of wood pulp from Northern European supplying countries and forced expansion in the domestic and Canadian industries to unprecedented levels.

In normal years the United States purchases upwards of one and one-half million tons of chemical wood pulp from Europe. The various imports have been especially important in the American market because they comprise approximately two-thirds of the wood pulp purchased by non-integrated paper mills.

Shortly after the war began, cargo and insurance rates upon European shipments increased. These greater costs were added to the purchase price in the United States. As submarine warfare developed, the risks of shipping increased and the costs rose rapidly, resulting in increases in wood pulp delivery ranging from 50 to 100 per cent. Obviously these conditions were reflected in the selling price of wood pulp produced by domestic and Canadian manufacturers.

The rise in prices stimulated production in the United States and Canada. Even submarginal mills, some of which had not been operated for several years, were put into operation. As a result, about one-half of the normal imports were made up by greater North American production.

In anticipation of shipping difficulties, American purchasers accumulated extraordinarily heavy stocks during the last quarter of 1939 and the first quarter of 1940. Some 350,000 tons of pulp were drawn from these stocks to supplement North American production during the year.

In July of 1940, representatives of the pulp industry met with officials of the National Defense Commission to consider the problem of wood pulp supplies and price levels. It was concluded at this meeting that the existing prices would bring out sufficient production to avoid shortages. This conclusion, which carried the additional understanding that further increases in wood pulp prices were not justified except when production costs actually increased, had the effect of quieting the market and the danger of a highly speculative situation was avoided.

Although the output of paper in 1940 established a new record, the demand was not sufficiently active to result in increases in paper prices to levels justified by the cost of wood pulp to purchasing mills. The converting sections of the industry, therefore, operated at increasingly less satisfactory profit levels during the year as supplies of low-priced wood pulp were exhausted. The integrated mills, on the other hand, had generally satisfactory records.

Because of the diversified use of paper in the United States, and its close association with practically all forms of production and distribution, any substantial upward movement in general business activity is reflected in paper consumption. During this period of increasing civilian and military production, paper consumption is bound to reach unprecedented levels. It is generally considered that insofar as paper production itself is concerned, the productive capacity of the industry is ample. In 1941, as in 1940, the industry's ability to meet fully and satisfactorily at reasonable prices all paper requirements will depend upon the adequacy of wood pulp supplies.

In 1940, there was no substantial increase in new productive equipment. Better operating conditions, however, encouraged improvement in existing mills and the capacity increases that accrued during the year were largely due to improvements.

The curtailment of European shipments of wood pulp and paper, which stimulated greater production in the United States, resulted in the establishment of a new record for pulp wood consumption at around 14 million cords. Estimates of consumption in 1941 ranged up to 17 million cords. The increase is significant for it brings the use of domestically produced wood to a higher proportionate level than it has reached in several decades.

Since 1910, dependence upon the use of pulp wood from foreign countries shipped to the United States in various forms has increased. During much of this period the United States has depended upon imports in one form or another for about half of the pulp wood required in its paper consumption. Estimates indicate that in 1941 as much as three quarters of our pulp wood requirements will come from domestic sources. To the extent that this can be continued after the termination of the war, the farmer and the wood land owners of the United States will profit in the sale of wood for pulp manufacture, much of which can be used for no other purpose.

The European war prevented the usual shipments of paper from the European producing countries into the world export markets. Much of this business flowed to American producers. The American exports of paper in 1940 were approximately tripled. See also CHEMISTRY.

1939: Paper And Pulp Industry

Domestic Production and Consumption of Paper.

In 1939, both the consumption and production of paper in the United States broke all existing previous records. Preliminary estimates indicate that domestic production reached a total of nearly 13,500,000 tons, and that consumption, computed by adding imports to production and subtracting exports, was approximately equal to the previous all-time record of 16,000,000 tons established in 1937.

Domestic production of paper in 1939 broke the peak record of 1929 for the fourth consecutive year.

It is apparent from analysis of these data that the greatest expansion of production is occurring in a group of grades which is generally classified as mechanical papers, i.e., papers that are used in a mechanical or physical manner as for wrapping other commodities and as for boxes, cartons, and various industrial uses. The papers which are used principally for cultural purposes, such as printing and writing, are not increasing either in production or consumption as rapidly as are the mechanical papers. In these grades, the per capita consumption records that were established in the late 1920's have not been generally exceeded.

The underlying reason for such a rapid expansion in the use of paper during a period when most other commodities did not reach former levels is due principally to the efforts of paper manufacturers to serve a greater variety of uses. This means on the one hand the creation of new uses, a continuous process which is becoming more and more intense. On the other hand, it means substitution for other commodities which are perhaps either more expensive or less suitable than paper.

Paper Prices.

Coincident with the expansion of use, consumer costs of paper have dropped more rapidly than in the case of most other commodities.

What has occurred in the prices of the various grades of paper is indicated by the records of the Bureau of the Census which in the biennial years show both production and f.o.b. mill value of production. It is clear from an examination of these data that the average value of all paper has been affected not only by the greater proportion of low cost paper and paperboard that now enters the total, but also by substantial reduction in the f.o.b. mill value of each specific grade.

Regional Shifts in Production.

The reduction in cost of the finished product has come about through increased efficiencies in manufacture, by speeding up machine operations, and by regional reallocation of large sections of the industry. Within recent years most expansion that has occurred coincident with the increased demand has taken place in new regions, in the South and in the Pacific Northwest. In both regions supplies of wood suitable for the manufacture of certain kinds of paper were amply available. They could not be used for other purposes and their initial costs for use in the manufacture of pulp and paper were relatively low.

These regional shifts in production obviously created difficult competitive conditions for the older mills, which in some cases were not as efficiently organized and which were dependent upon a more competitive pulpwood market. The effect, however, was not so evident in reduced production in the older regions, but in the shifting of machine capacity to higher grades and to kinds of paper which do not compete directly with the mass production grades. This constituted an underlying urge for the development of new paper uses.

Effect of War on Wood Pulp Imports.

The outstanding factor in the industry in 1939 was the influence of the European War upon the procurement of wood pulp for conversion into paper within the United States, and the effect of war conditions upon the paper market.

Three-fourths of the importations come from Northern and Central European producing countries. This pulp, together with that received from Canadian manufacturers and that sold by domestic pulp producers, is used by a large class of paper mills which produce no wood pulp. More than three-fourths of the wood pulp required by this class of mills is imported. Although the quantity of imports has increased over a long period of years, its importance from the point of view of total consumption has not kept pace with the development of self-contained manufacture in the new producing regions.

The present European war began with submarine attacks, mine laying and aerial bombing. Most of the pulp imported into the United States comes from Finland and from eastern ports of Sweden, which upon leaving the Baltic Sea must pass through the closely guarded entrance. The Allied blockade immediately affected shipments of pulp from Germany and other Central European producing countries. The invasion of Finland by Russia, which necessitated complete mobilization of Finland, seriously affected mill operation. Subsequent blockade by Russia prevented exportation. It is probable that as much as one-third of the normal world shipments of wood pulp will be affected by the war.

Also affected immediately by the war was the cost of shipping, as cargo and insurance rates soared. These costs were generally passed on to the pulp purchaser, which meant a substantial increase in the cost of wood pulp delivered in the United States.

Increase in Orders and Stocks.

These conditions which were generally known by paper consumers, augmented by the fear of price increases as a result of the war, encouraged the placing of orders immediately upon declaration of war. The volume of orders for future shipment which was built up exceeded any previous record. It enabled the industry to operate throughout the last third of the year at practical operating capacity.

In spite of the huge increase in orders, price movements were confined largely to those grades of paper in which costs were immediately affected and in which prevailing prices prior to the declaration of war were at exceedingly low and unprofitable levels. The average increase amounted to approximately 8 per cent, which failed to bring the prices to the 1937 range.

There is no way of measuring month-to-month consumption of paper. It is generally recognized that during the last third of the year consumption did not keep abreast of production. The result was an increase in stocks in the hands of wholesalers and consumers. It is difficult at the present time to foresee the effect of these greater stocks upon future operations. Much of the increase in stocks, it is reported, was necessary as an incident to the greater volume of sale. Also, much of the stocking occurred beyond the producer, the fabricator and the merchant in the form of used paper as, for instance, in packaged food products which themselves were being stocked. Whether these stocks prove to be embarrassing, subsequently depends to a large extent upon the nature of future demand.

The demand for paper because of its widely diversified use is closely related to general business activities in the United States. The trend movements are parallel; but, because of the constantly greater use of paper, its trend is following a much more steeply tilted upward course than that of general business.

Labor Conditions and Earnings.

In 1939 labor relationships in the industry were unusually stable, although in some few cases hourly wage rates were somewhat lower than the peak records of 1937. Annual wage earnings, however, were greater because of the high production levels. At the end of the year the industry was employing more workmen than ever before in its history, and, in spite of the fact that production per man-hour and per machine-hour had increased substantially as a result of the greater demand, preliminary estimates of payrolls for the year indicate that a new all-time record will be established.

Expansion, Operation and Income.

The expansion of capacity in 1939 was chiefly confined to improvements in existing mills and the addition of some five new paper machines. Although three new mills were in the course of construction during the year, no other construction projects were actually undertaken.

The increased production activity during the last third of the year offset the generally unprofitable levels of operation that existed during the first two-thirds of the year. During this period production continued at a relatively high rate of operation, but because of the new capacity that had been added to the industry in the previous years, operating rates as a whole were not high enough to be profitable at existing price levels. Competition for existing volume was most intent and price concessions were numerous. Until the European War began costs of manufacture were upon practically the same level as that of 1938. Profits were, therefore, confined principally to those companies that were fortunate enough to obtain a sufficient volume of production, and whose costs of manufacture were exceptionally low.

The increase in volume during the last third of the year gave an opportunity to many other companies to operate more profitably, and preliminary financial reports indicate that for the year as a whole the industry will have met its dividend and interest payments and added a small amount to surplus. The profit per unit of sale, however, and also per unit of invested capital, will be substantially lower than in other years of peak volume production. This is merely a continuation of a long-time trend in the industry. It is due to the fact that new production capacity has been added more rapidly than the expanding consumption of paper has required.

Production and Consumption Abroad.

Recent statistics of paper and wood pulp production in other countries are not available in complete form. Records of more important producing and consuming countries indicate that the world industry is expanding but not as rapidly as is that of the United States. The pattern of expansion is quite similar also, beginning with the cultural grades and later shifting to the mechanical grades as general business and industry expand.

Of course, the European War will have a far-reaching effect upon world paper consumption, probably more serious in other countries than in the United States. Already drastic curtailment programs are under way in the more important European consuming countries, especially in publications which require cultural grades. In other countries the influence is likely to react through the price increases incident to foreign trade under war conditions, for many countries are dependent upon imports for wood pulp if not for a large share of their paper requirements.

A war of long duration might have considerable influence upon the pattern of the American industry. This would naturally depend upon the availability of wood pulp, especially the large part of which is normally drawn from European producing countries. Much of this tonnage could be replaced by domestic production of substitute pulps or of pulps composed of new kinds of fiber. Expansion of domestic manufacture during the war might be fully justified. Question arises, however, as to the chances of survival following the war when export shipments from European producers again enter the world markets and probably under more advantageous conditions of cost and international finance than American producers could hope to attain. This becomes particularly serious in pulp manufacture for the investments involved are extremely large and amortization must be drawn out over a long period of years. See also CHEMISTRY.

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.