Drastic steps at Domtar: 1800 jobs lost

Domtar Inc., one of Canada’s leading pulp and paper companies said it would shut one mill and two paper machines and put another mill on the market. Two sawmills were also to close.

The announcement, in December, followed the earlier shut-down of its 290 000-tonne Norkraft pulp mill at Lebel-sur-Quevillon in Quebec. The new program includes:

  • Permanent closure of the Cornwall, Ontario mill;

  • Permanent closure of PM No.10 and PM No.11 at the Ottawa, Ontario mill;

  • Sale of the Vancouver, BC mill;

  • Closure of the sawmills at Grand Remous and Malartic, Quebec, with the intention of creating a value-added project using the existing infrastructures.

Other cost reduction moves include the elimination of about 100 additional corporate and divisional positions and about 200 additional operational positions. The North American administrative offices in Montreal and Cincinnati will be consolidated.

Major blame is placed on the strengthening of the Canadian dollar which for Domtar – as well as most other Canadian companies — has pushed some of its Canadian mills into money-losing operations.

Domtar’s Richard Garneau, executive vice-president, operations said “We must focus on our most efficient mills in order to return to profitability in the foreseeable future.” Garneau was only recently appointed to the job with a mandate of aggressively reviewing activities to target cost-cutting measures company-wide before year-end.

About 1,800 jobs will be lost across the company, including those lost when the Cornwall mill shut its pulp mill in December 2004. The 425 Lebel-sur-Quevillon jobs are not included in that total.

Domtar also cut its dividend and took other steps to try to improve its cash flow by about $160 million and improve its margins, according to Garneau. Pretax restructuring costs will be about $505 million, including fixed asset write-offs of about $313 million.

Said Raymond Royer, president and CEO, “Some of our facilities face significant challenges posed by high cost structures and the ever-strengthening Canadian dollar. Our market pulp operations will remain under particular scrutiny. All employees impacted by today’s announcement will receive financial assistance and be offered access to outplacement services,” added Royer.

The Cornwall mill will be permanently shut down, effective March 31, 2006. About 910 jobs will disappear including the 390 already affected by the shut-down of the pulp mill, PM No. 6 and one sheeter announced in December 2004. Total annual capacity of 265,000 tons of uncoated and coated printing grades on three paper machines as well as 160,000 tons of pulp will be permanently taken off the market.

At the non-integrated Ottawa-Hull  complex, PM No.10 and PM No.11 will also be permanently shut next March 31, removing 65,000 tons of paper  capacity from the market. About 185 positions will be lost.

Domtar is seeking a buyer for its 120,000-ton/year Vancouver, BC, coated paper mill which has about 285 workers. Mill operations will continue during the sale process.

Grand Remous and Malartic sawmills will close effective February 28, 2006 due to the softwood fiber reduction and high fiber costs in Quebec. About 200 employees work at these facilities. With government approval, the wood fiber allocations will be transferred to Domtar’s other Quebec  sawmills which will go to three shifts. About 80 employees from the sawmills will have the chance to transfer to new positions created by the extra shifts.

Domtar is also working with a partner and the government on a valueadded project that would create over 300 new positions using the two sawmills’ infrastructures, therefore mitigating most of the job losses.

Domtar also amended its credit facility maturing in 2010 in order to improve financial flexibility. This facility requires compliance with certain financial covenants. The amendment also includes a reduction in the size of the facility from $US700million to $US600 million, and provides for guarantees by Domtar’s subsidiaries.

Domtar also aims to cut supply chain costs through more efficient converting, distribution and transportation. Some paper grades will be moved to more profitable papermaking facilities and machines within its network. www.domtar.com. PI

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