U.S. paper industry pins hopes on China sanctions

DAYTON, Ohio - Tricia Pendergraft and her husband started socking away money to cover house payments several years ago when her employer warned that her paper mill job might disappear if business didn't improve.

They had just had their first child. They had built a house. Thoughts of finishing the basement and buying a four-wheeler evaporated.

"It kind of felt like the bottom fell out," said Pendergraft, 34. "That was a big wake-up call."

The Commerce Department now has announced it will impose sanctions against some Chinese paper imports, reversing 23 years of U.S. trade policy. The department sided with Pendergraft's employer, Dayton-based NewPage Holding Corp., which said the imports amounted to unfair competition because Chinese companies received subsidies from their government. The department will decide this month whether to make its decision final.

The tariffs would affect glossy paper, the kind used for catalogs, art books and high-end magazines. NewPage, one of the biggest U.S. producers, supplies paper to such magazine publishers as Time Warner Inc. and the Hearst Corp.

"I felt a little weight taken off," said Pendergraft, who operates a machine that puts the shine on the paper at a plant in Escanaba, Mich. "I feel like we have a chance."

Daniel Porter, a Washington lawyer representing the Chinese government, said the Chinese did not believe that their paper exports amounted to unfair trade or that the Commerce Department had demonstrated that the exports had been illegally subsidized.

NewPage hopes tariffs on the Chinese imports will give some breathing room to a shrinking U.S. paper industry, which has been buffeted by imports and by consumers' increasing use of the Internet.

In the last six years, 94 paper and paperboard mills have closed, leaving 410 at the end of 2006, according to the American Forest and Paper Association and RISI Inc., a Bedford, Mass., economic-consulting company to the forest-products industry.

Imports account for 28 percent of shiny paper - called coated freesheet - bought by U.S. businesses. That is up from less than 5 percent 10 years ago. China's export to the United States has increased from 29,000 metric tons in 2004 to 264,000 metric tons in 2006.

China exports textiles, electronics, steel, clothing, paper and machinery to the United States, running up a record $233 billion trade-balance surplus. The Commerce decision - watched with interest by other American companies, from steel- to furniture-makers - opens a new avenue for U.S. manufacturers to seek government protection.

Glossy paper accounts for about 6 percent of U.S. paper and paperboard production. Sixteen U.S. paper mills produce it, rolling out 5.6 million tons for $5.3 billion in annual sales.

"We've had to shut down machines and lay off people because people are dumping product way below their costs," said Mark Suwyn, chairman and chief executive officer of NewPage. He said the Chinese were selling paper at up to 25 percent less than the price NewPage could offer.

Suwyn expects the tariffs would make NewPage more price-competitive, enabling him to step up production and hire more workers. The company has shut down a paper machine at its Luke, Md., plant, eliminating 130 of 1,100 jobs, and idled a machine at its mill in Rumford, Maine.

Experts say the sanctions would allow U.S. papermakers to raise prices, gain market share, and force the Chinese to shift some of their U.S. exports to other markets.

John Maine, vice president of graphic paper for RISI, said U.S. producers would rush in to fill orders once held by the Chinese and estimated that prices of U.S. coated paper would increase about 5 percent, or from about $900 a ton to $950.

He said U.S. imports from China had been declining in recent months as U.S. buyers look elsewhere to avoid paying a significant duty. He predicted that the decline would continue through 2008, with the Chinese shifting some of their sales to other markets.