The Uses of Adversity

Of all the paper profits that were made on Wall Street until Blue Monday, few in recent years have come from the once prosperous paper industry itself. Cursed by too much plant capacity since the null U.S. paper companies have undercut one another's prices in an effort to keep their big machines rolling full speed. The result: between 1956 (when the nation's paper mills operated at 92% of capacity) and 1961 (when they were down to 85% of capacity), the industry's profits fell from $680 million to $580 million.

Last week, with production running 9% ahead of last year, all signs were that paper's long downhill slide had finally ended. West Virginia Pulp & Paper Co. reported that its net for the three months ending April 30 was up 40% to $2,200,000. Union Bag-Camp Paper Corp. increased its first-quarter earnings 21% to $4,900,000, and most other major paper companies also showed solid gains. Said President William R. Kellett of Kimberly-Clark Corp. (Kleenex, Delsey): "The industry isn't out of the woods yet, but we're beginning to see light ahead." Earned Fruits. Paper's brighter outlook stems largely from growing demand.

This year the industry expects to produce 37.5 million tons of paper and paperboard, and to operate at about 87% of capacity. But papermakers have also earned their improved prospects by the rethinking and revising that they did during the lean years.

Those years produced a great many mergers and acquisitions which papermen like to describe as "vertical integration." Where the industry was once cluttered with small companies making bags and boxes from paper that they bought from big mills, it is now dominated by a handful of large companies whose operations begin in the forests and end with the final box. The greater capital of the big companies has allowed them to put more money into the development of new uses for paper.

Reluctant Research. New-product research was long neglected by the papermakers, largely because of what Chairman Thomas McCabe of Scott Paper Co. terms "complacency generated by the belief that paper was irreplaceable." Even now, though the bigger paper companies have quadrupled their spending on research in the last decade, the industry's R. & D. outlay is only 0.5% of sales, v. 3% for U.S. business as a whole.

This modest beginning in research, however, has already produced remarkable returns. Papermakers have invented everything from noiseless popcorn bags to paper tents, are currently working with textile manufacturers to develop paper suitable for disposable surgical gowns, bed sheets and men's shirts. Paper coated with plas tic or aluminum is much used in food packaging. Other new products:

>Container Corp. of America is producing paper cans designed to take away part of the lucrative frozen fruit juice market from tin cans.

> In cooperation with Cluett Peabody (Arrow shirts), West Virginia Pulp & Paper has developed a superstrong San forized bag material called Clupak that is scoring big gains in packaging of chem icals and cement.

> Union Bag is marketing honeycombs of paper impregnated with resin that form a rigid core for a new type of prefabri cated house wall.

The Free Traders. Still another potential profit area lies in silvichemicals, i.e., chemicals derived from wood. One big hope: turning lignin --the noncellulose element that constitutes 25% of a tree --into derivatives ranging from ersatz foam rubber to a substitute for carbon black in tires. Says West Virginia's research-minded Chairman David Luke: "The paper industry today generates some $12 billion in sales a year. If we took advantage of wood chemicals, we could double that-- and the materials would be free." Because it forced them to seek new markets, the slump from which they are now emerging has also turned U.S. papermakers into ardent free traders. Boasts William R. Adams, president of St. Regis Paper Co.: "We're one of the few major American industries that can compete with any area of the world -- sometimes even at a tariff disadvantage." Last year the industry exported a record 1,200,000 tons of paper and paperboard. This is not quite 4% of production, but for papermakers it can mean the difference between skimpy profits and good ones.

This file is automatically generated by a robot program, so reader's discretion is required.