The UK’s paper industry is facing difficult times. Once a vibrant, booming industry, providing over 70% of the country’s paper and board requirements, the industry has not expanded at the same rate as its major European competitors, and its international position has declined.
The world’s third largest paper producer in 1960, the UK has dropped to twelfth, and now imports 59% of its paper and board. The number of mills has also fallen, with only 96 today, compared to 155 in 1975. in the last 12 months alone, eight mills have closed. The industry is now in real danger of becoming too small to sustain the skills and infrastructure base it needs for future success.
Manufacturers and trade bodies have recently united to look at how these difficulties can be tackled. Last week, the Confederation of Paper Industries published a study*, co-funded by the Department of Trade and Industry, to consider the problems and to begin to develop an action plan.
The competitiveness of the UK’s paper industry has recently been harmed, along with most other manufacturing sectors, by economic factors such as the high price of fuel, says Donald Charlesworth, company secretary of Aylesford Newsprint, who was involved in compiling the CPI’s report. ‘A number of factors have blunted the industry’s ability to invest recently — the UK has had exceptionally high interest rates in past years, and an erratic exchange rate. When you get fluctuations like that, it destroys your ability to plan long-term.’
One of the main challenges of the industry’s competitiveness drive will be to improve margins. The paper industries have a combined annual turnover of £29bn, representing 3.5% of the country’s GDP. During the last 20 years, however, the paper manufacturing industry has achieved an average return on capital of just under 10%, while return on turnover was only 6.5%. ‘Margins are not great, return on turnover is not great, and that’s going to make it a challenge for the industry to push profits up,’ says a spokeswoman for the Paper Federation.
In the light of the strong pound this is so difficult that many papermakers are not making any money at all. The situation is made even worse by the doubling of gas prices in the last year (Cover story, 12 January). But they must maintain their share of the market until the situation turns around. So how can margins be improved?
Greater integration of manufacturers within the supply chain will help, although this may take time, says Dr Graham Moore, strategic consultancy manager for paper and board at Pira International. ‘If the supply chain can be developed to provide a total packaging solution, as opposed to the current situation where the paper industry is outside the supply chain to a certain extent, margins will increase,’ he says. Paper manufacturers often have no direct connection to the final customer, meaning they can fail to benefit from product development opportunities. This is changing, but developments within the industry are often slow to occur, and can involve a significant cultural shift, he adds.
Another factor likely to have a significant impact in the future is e-business. It is not yet used on a large scale, and represents only a modest 1% of trading. But it is expected to grow, and when it does it will herald major productivity and efficiency gains and facilitate this greater integration of the supply chain, says Moore.
And against the often-gloomy backdrop of low margins and decreasing self-sufficiency, significant gains have already been made. Output has risen by 43% since 1989, while productivity has increased by 140%, according to the Paper Federation.
Many of these efficiency gains have been brought about by technological improvements, claims Donald Charlesworth. Equipment manufacturers have invested heavily in research and development, doubling the width of machines, while speed and output have tripled. ‘We can now make paper at over 60 miles an hour, or 1,680 metres of paper a minute, compared with 4,000–5,000 metres a minute in 1957,’ he says. ‘And the paper coming through the machine is now 9m wide.’
This is an old, established industry, and any changes in manufacturing or business practice tend to be evolutionary. But it is also a highly efficient industry, and developments in control and automation technology are helping to increase this efficiency further.
Now the industry has been mobilised to tackle the key issues of low margins and its competitive position with European markets, changes should follow — but do not expect them to happen overnight.
The Competitiveness Study for Paper Related Industries in the UK, available from CPI. Telephone: +44 (0) 20 7255 6800
Pulp fact: high-tech solutions
While investment in the industry has been severely affected by the strength of the pound and its damaging impact on export margins, some manufacturers have continued to invest in mill modernisation projects.
Workington-based Iggesund Paperboard, which produces paper for the packaging of luxury goods such as perfume, greetings cards and cigarettes, has invested £51.2m over two years in a project to improve and modernise its mill.
The site, which produces some of its own pulp, is one of the largest fully-integrated mills in the world, and the only one in the UK. But its pulping capacity was limited and outdated, and the company had identified significant cost savings that could be achieved by modernising the mill. The paper it produced was too yellow and had not been improved in the past four years.
Iggesund UK, which generates 50% of its turnover through export, wanted to consolidate its position within the European market by increasing production, upgrading capacity, and improving the quality and consistency of its products, says Oysten Aksnes, managing director of Iggesund Paperboard. ‘We don’t want to be global, we want to be a major player in Europe,’ he says.
Unlike previous investment, much of which had gone into traditional machinery, the £51.2m project involved pouring a significant amount into automation equipment.
According to Alan Brown, projects department manager at Iggesund, the mill’s No 2 board machine was extensively changed, adding a new sectional drive and pulping machine. As part of its contract to supply electrical systems and equipment, Siemens installed a 17mw motor, the largest the company has ever installed in the UK. A new refiner, bleaching tower, and control room were also built.
As a result of the project, the company was able to shut down its outdated first pulp mill, as the new mill can now support both boards.
Stuart Fleming, business development manager at Siemens Automation and Drives, says the investment programme has resulted in increased production at the mill, fewer paper breaks, quicker identification of problems and a faster reaction time when problems do occur. The use of more efficient AC drives rather than the old DC drives has also reduced the mill’s energy consumption.