KINGSPORT — Domtar Corp. announced on Friday that it will permanently close the uncoated freesheet manufacturing plant in Kingsport and the converting center in Ridgefields.
The company plans to enter the linerboard market by converting the Kingsport paper machine.
Once in full operation, the mill will produce and market approximately 600,000 tons annually of high quality recycled linerboard and medium, providing the company with a strategic footprint in a growing adjacent market. The conversion is expected to be completed by the first quarter of 2023.
Linerboard is a paperboard that is used as the facing material in the production of corrugated and solid fiber shipping containers.
Domtar estimates the conversion cost to be between $300 million and $350 million. Once fully operational, the mill is ex- pected to be a low-cost, first quartile recycled linerboard mill in North America.
The converted mill is expected to directly employ approximately 160 workers.
“Repurposing the Kingsport mill provides Domtar with the best strategic entry point into a growing market with a very competitive, low-cost asset and represents a first step to building a large and cost-competitive business,” said John Williams, Domtar president and CEO. “Kingsport is well positioned to be the go-to supplier to independent converters for quality, service and innovation, as the mill is less than a day’s drive from over 60 customers representing an addressable 3.9 million tons of annual containerboard demand.”
Said Kingsport Mayor Pat Shull: “I am pleased that the city of Kingsport was able to reach an agreement with Domtar that will help enable them to smoothly transition to a new product line in a very competitive and turbulent business environment. Providing city assistance means that a longstanding community partner will stay in Kingsport and preserve a significant number of jobs. We greatly appreciate the assistance from the state of Tennessee as well as the local assistance of NETWORKS Sullivan Partnership. Finally, we look forward to sustaining this collaborative and productive relationship well into the future.”
Those moves and other closures in Michigan and Arkansas will result in a workforce reduction of approximately 780 employees. The Kingsport plant has been idled since April 2020. The Ridgefields facility is expected to shut down by the end of the first quarter of 2021.
The Kingsport mill had an estimated regional economic impact of $714 million, according to the Tennessee Department of Economic and Community Development.
“We have been proactive in reducing risk and safeguarding our ability to weather the current crisis. We are taking the appropriate steps to optimize our operations and to remain an agile, reliable partner to our customers,” said Williams. “Despite the significant challenges we faced in pulp and paper markets, we have been able to manage costs while initiating cash and cost conservation initiatives across the network.”
Domtar said its decrease in operating income in the second quarter of 2020 was the result of lower volume and unfavorable productivity.
When compared to the first quarter of 2020, manufactured paper shipments were down 32%.
Concerning its overall outlook, Domtar noted: “We expect the overall environment to continue to be challenging. In paper, we expect demand to remain weak, with some incremental recovery expected in quarter three and towards year-end. We expect near-term pulp markets to be impacted by seasonal softness, elevated global inventories, and weak demand trends from paper markets. Personal Care will continue to benefit from productivity gains and the impact from new customer wins. Overall raw material costs are expected to remain stable.”
The company is implementing a cost reduction program, targeting $200 million in annual run-rate cost savings to be realized by the end of 2021. The goal of the program is to build a stronger business operation, enhance the company’s cost efficiency, and improve operating margins and maximize productivity and cash flow. The cost saving initiatives include capacity reduction and asset closures, mill-level cost savings and rightsizing support functions. The leaner organizational structure is also expected to improve communication flow and cross-functional collaboration, leveraging more efficient business processes.
Domtar is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products.
With approximately 9,200 employees serving more than 50 countries around the world, Domtar is driven by a commitment to turn sustainable wood fiber into useful products that people rely on every day.
Domtar’s annual sales are approximately $5.2 billion, and its common stock is traded on the New York and Toronto Stock Exchanges. Domtar’s principal executive office is in Fort Mill, South Carolina.