Uncertainty in Missoula Manufacturing
Rumors Swirl Around Frenchtown Mill
"This is a catastrophic downturn. It's really something. I don't know how else to characterize it. I have no idea what this means for Missoula. We're flying blind in uncharted territory."By Robert Struckman, 11-20-08
Falling demand for cardboard boxes has prompted fresh rumors to swirl around Frenchtown’s Smurfit-Stone paperboard facility about a pending closure. Company officials say the plant will stay open.
“I hope it doesn’t happen,” said Roy Houseman, union representative for the workers there. “But if it does, it wouldn’t surprise me.”
If the plant did close, it would mean the loss of about 390 jobs. The plant, which supplies cardboard box-making plants with corrugated paperboard, recently laid off 52 employees. The international manufacturing giant says it will hire those workers back at the end of the year.
“That’s very possible, too,” Houseman said, who was among those recently laid off.
One source said the rumors, which appear as predictably as the Hellgate winds, are fueled by the closure of some of Smurfit-Stone’s plants in Michigan, Florida and Louisiana. Some of the cutbacks have been temporary, as brief as two weeks, as the company attempts to limit the supply of paper and cardboard.
“The company is making a concerted effort to keep paper off the market to keep prices up. I hope that’ll be a good thing,” Houseman said. Smurfit-Stone has about 170 plants located mostly in the United States, Canada and Mexico.
The company has tried to prop up prices to counter weak demand, which was down 8.6 percent in October, compared to the same month a year ago, said D.A. Davidson analyst Steve Chercover.
“The reason for that is the shipment of goods has basically ground to a halt. It’s not just the economy, which is obviously bad. It’s exacerbated by a lack of credit. ‘I can’t ship you your widgets until you go to your bank and get your line of credit so I know I can get paid,’” Chercover said.
One reason for Chercover’s uncertainty is the speed at which the economy, and Smurfit-Stone’s business model has degraded. Only months ago, Chercover thought the company’s stock would go up from about $5 per share to $8. Early on Thursday afternoon one share was worth only 33 cents.
“This is a catastrophic downturn. It’s really something. I don’t know how else to characterize it. I have no idea what this means for Missoula,” he said. “We’re flying blind in uncharted territory.”
That said, Chercover believes in the fundamental value of cardboard.
“I don’t think it’s a dodo-bird commodity. I don’t think people are going to be getting their Washington apples online, although they may be buying them online. They’ll still get shipped in a box,” he said.
But that may not ease Smurfit-Stone’s pain because of a corporate strategy over the past decade to buy competitors but not to pay down its colossal debt.
“Smurfit-Stone is taking the worst hit, but those other guys aren’t heroes, either,” he said, referring to other paper and box manufacturers. “But how did you not pay down, really, any debt?”
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Clearly, given the seriousness of the economic crisis, consumer spending is way down and less products are being bought and shipping, meaning that less cardboard boxes are needed. A sensible response to this situation would be to produce less cardboard boxes, which is what Smurfit-Stone and other producers have done.
Given these realities, it's especially unfortunate that the Missoulian would unquestionably print statements from Smurfit-Stone's union rep that the company's main problem was a lack of National Forest logging. (see: http://www.missoulian.com/articles/2008/11/06/news/local/news02.txt).