Shares of leading packaging and paper manufacturer
) were up 16.5% at the close of trading on Sep 11, 2013 as news
International Paper Company
) plans to shutdown the Courtland, Alabama paper mill
manufacturing facility hit the market. Domtar's stock was also
buoyed by the regular quarterly dividend payment of 55 cents per
share on the same date.
The Alabama mill produced papers for diverse applications like
forms, envelopes, labels, copiers, printers and magazines.
Increased digitalization has led the consumers to shift to online
publications, electronic billing and filing. Thus, the demand for
uncoated freesheet in North America fell drastically. The phased
closure is likely to be completed by the end of first quarter
With the permanent shutdown of the facility, International
Paper's North American uncoated and coated freesheet paper
production capacity will reduce by 950,000 tons, including
765,000 tons of uncoated freesheet. This is likely to shrink the
North American capacity by 7%-8%, arguably the single largest in
the industry's history.
International Paper's decision follows the footsteps of other
players in the industry like Atlanta-based Georgia-Pacific LLC
). Both these packaging and paper products manufacturers were
forced to cut their productions due to decelerating demand owing
to the meteorical rise of E-commerce and Internet.
As market consolidation takes place and Darwin's principle of
'survival of the fittest' takes the forefront, Domtar is likely
to benefit the most. Earlier in July, Domtar closed the
acquisition of Associated Hygienic Products, a wholly-owned
subsidiary of disposable diaper industry pioneer Disposable Soft
Goods International, to strengthen its Personal Care segment
through lateral expansion.
Prior to that, in Jun 2013, Domtar completed the acquisition of
) paper and print media business in the U.S. and Canada to better
serve its customers. Such continuous strategic investments and
industry consolidation makes us bullish on Domtar.
Domtar manufactures and distributes a wide array of fiber-based
products including communication papers, specialty and packaging
papers and adult incontinence products. The company is the
largest integrated marketer of uncoated freesheet paper in North
America with established brands such as Cougar, Lynx Opaque
Ultra, Husky Opaque Offset, First Choice and Domtar EarthChoice.
Domtar also owns and operates an extensive network of
strategically located paper and printing supplies distribution
Domtar currently carries a Zacks Rank #3 (Hold).
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