The Rumored End of the MMA?

Yes, I'm ever the skeptic:

1) It stands to reason that if demand for forest products is in the toilet (I guess in the case of TP, it always is ), then wouldn't the supply of wood biomass? Lower supply equals higher prices. And Millinocket wouldn't be the only location burning biomass (Bucksport, others?)... more consumption equals higher demand equals higher prices. I wonder how grounded in reality the study's biomass cost/BTU is? PS: The STUDY cost $1.5 million... ah, to be a consulting engineer.

2) Residual fuel oil is now about 50%+ cheaper than it was when the mill shut down/the study was started. It's a good bet that the economics of this project are based on a $2+ gal fuel oil comparison. If the project can't prove itself compared to sub $1/gal resid, this will turn out to be an albatross for the mill and a(nother) fleecing of the taxpayer... and unless you agree with the "subsidies for Everyone!" mentality, it already is.

3) Burning biomass doesn't increase demand for paper. (That is, unless you burn the paper as the fuel.) Thinking that this will solve the mill's fundamental problem- that people ain't buying paper- is naive. Maybe they'll have luck channeling the electricity to the grid and turn the mill into a power plant???

4) According to the article, the mill burned 400k bbls of resid in 2007. That works out to 700+ carloads/yr for MMA. I may be wrong, but I can't see much biomass moving inbound by rail. Is this hogged fuel? Chipped slash? Rail profitability on fuel oil is traditionally pretty skinny... margins hauling biomass certainly wouldn't be better.

If I owned MMA, I might be crossing my fingers for further resid price drops.

Margins on fuel oil may be thin, but isn't that about all that is handled on the Searsport branch? I can't see how MM&A will win, no matter which way you cut this pie.

Cowford,
My impression of the situation with regard to biomass is that the intent is to use already available sources of wood by-products. Chipped slash, sawdust pellets etc.

Although I think there is a reasonable case to be made that because the forest products industry is doing poorly and shutting down production, therefore there are fewer sources of wood biomass available I think there is a stronger case to be made that chipping overall simply isn't profitable for a series of complex reasons related to the downturn in the U.S. construction industry as well as the U.S. paper market.

Part of the problem in the paper industry right now is not demand related but market driven. Chinese paper has been flooding the U.S. market in large quantities for the first time at levels of quality previously never seen. The demand for paper in the United States is still roughly the same but the availability of cheaper Chinese paper makes it difficult to justify purchasing a more expensive American product.

I am reluctant to believe that forest products manufacturing in Maine is down so far that in fact there are not any reliable sources of biomass available. If anything the opposite is true, there is a surplus of available biomass sources that would be able to run full-time production on multiple shifts if the Millinocket mill were creating demand for biomass. I think it is in fact possible for the Millinocket mill to create sufficient demand for wood by-products that entire companies would be dedicated to biomass production and distribution as opposed to more traditional dimensional lumber, plywood and other fiber products.

I think it is in fact possible for the Millinocket mill to create sufficient demand for wood by-products that entire companies would be dedicated to biomass production and distribution as opposed to more traditional dimensional lumber, plywood and other fiber products.

I'm not too "up" on the pulp and paper market, but I don't think China is a major player in the US. In fact, I believer they are a net importer. And I have read that paper demand, after a period of stagnant demand, is noticably slipping.

Are you saying that you think companies will actually harvest wood to chip and burn it? Some back of the envelope calculations: Resid fuel oil is running just over a $1/gal. Let's say delivered price to Mill is $1.25/gal, or $0.16/lb BTU content is ~16,000/lb. Chipped but not dried/pelletized biomass appears to have a BTU content of 3-6,000/lb. To be on par, cost-wise with oil, biomass would have to be spotted at the mill for ~20-40% of the resid price. That's $90/ton, delivered. I don't understand wood harvesting economics... can one make a profit at that price?

Cowford,

The question you are asking is exactly the crux of the problem for the wood by-products industry right now. The market for by-products has prices that are too low to support production. However, I think this is partly a funciton of demand, partly a function of the oil-shock last year, and also partly a function of Chinese paper coming into the market.

Even though China may still be a net importer of paper they are exporting paper into the U.S. market where previously they didn't send any. In particular my understanding of the problem is that they are now exporting paper products in grades and specialty niche products that previously were the sole domain of U.S. and in particular Maine based mills. This in turn drives down demand for U.S. produced wood chip etc.

Although mass consumption of paper is slipping, the specialty markets that the Maine mills supply appear to be steadier than the rest of the market as a whole. Tissue paper, which if I'm not mistaken, Millinocket used to produce is something that is a weak spot in the paper industry right now, coated papers are not.

In making the previous statement regarding biomass production and distribution I did consider the scenario of companies that would actually harvest whole tree and chip them, perhaps inferior grade softwoods. However I think it is more likely that you might see companies that identify unexploited sources of by-product production and develop a distribution mechanism, either rail or truck to send bulk shipments of biomass to the consumer, which in this case is the mill.

In essence I guess I'm saying that I think there are a lot of places that might be letting their biomass go to waste as opposed to selling it as a form of scrap. Or even perhaps letting companies come take it away at no charge. Lumber mill sawdust in particular comes to mind, although to a certain extent I'm pretty sure that source of biomass is being exploited for pelletized fuel for the home heating market right now.

As to whether or not you can make a profit at $90 a ton I think that's tough to say not knowing how much of an expense there is to process the material. Some sources like lumber mills and chipping operations have product that is pretty close to boiler ready. Others such as timber companies allowing brushcuts don't.

Part of the whole equation might depend on whether or not the company already owns the resource. Although I don't believe the current owners of the Millinocket mill have timber tract holdings the way Great Northern used to perhaps they have access to a low cost source of biomass through some kind of contract arrangement.

Regardless I think MMA has a chance to be a major player in this equation if the source of biomass is able to be shipped in builk. Otherwise the unfortunate truth is that the mill in many ways will remain coupled to the price of oil as a function of the transportation costs of the trucking industry. This might make them more likely to seek biomass supplies that are rail friendly.

From my pretty limited understanding of the paper industry, it seems as though investment in new technology (cycles) are important to the competitiveness of the business. I also understand that Maine's paper industry last made large technological and capital investments in the 1980's leading to a successful period during the 1990's. While I know this is an oversimplification of the situation with the paper industry, perhaps Maine should consider taking the money they'd spend for developing Searsport into a containerport and instead invest it in their paper industry (or at least subsidize their paper-making business to make its products more-competitive in the marketplace)?

Categorizing the paper mills in Maine as a single industry is misleading because local conditions as each mill vary so much. Millinocket is an interesting example of the problem because of their dependence on fossil fuels. Other mills burn large quantities of oil as well however, according to my understanding, Millinocket also has electrical bills that other mills don't.

The plant at Millinocket used to have a hyrdoelectric generating facility that provided electricity for the mill's operation. So not only do the owners have to pay for electricity but also oil. This in combination together makes for a highly unsustainable situation when both the cost of oil and to a lesser degree electricity increase in tandem. I'm a little shaky on whether or not this information is entirely correct but I'm confident enough to post it here.

Jay in particular offers an excellent counterpoint to this example. The Verso Paper mill still burns large amounts of "Bunker C" or "#6 Fuel Oil" however it generates its own electricity and therefore is better able to deal with changing energy costs because they produce so much of their own energy anyways.

I can only begin to describe how devasting the changes in Millinocket have been over the past 5-7 years. This is a mill that in 2000 had at least 4000 employees and now is down to about 600. I've met people who work there or used to work there and most of them describe an operation that is a shell of its former self. For a town of only 5000 people that rapid decline in the mill's production has been devastating to say the least. As we can see in the rail world obviously this hasn't had a positive effect on BAR/MMA.

Gokeefe, to your point of harvesting already available sources... I recall quite such an operation in place 15 years ago at the stud mill on the MEC at Costigan. They had a HUGE pile of wood waste adjacent to the mill. A company had come in to "harvest" the pile, using a massive array of conveyor belts, shakers and screens, etc to separate the pile into commercial products. A front-end loader dumped the waste in one end, and out the other end came everything from scrap metal, to aggregate that was sold to ME DOT, to soil and bark mulch, to hogged fuel that was transported to Bucksport for burning at the mill (by truck, not rail. Go figure.) I imagine they exhausted that pile years ago.

Anyone have any inside information as to the current state of operations?

RailNutNE wrote:Anyone have any inside information as to the current state of operations?

Indeed. What happened to our MMA discussion?

Cowford wrote:

I think it is in fact possible for the Millinocket mill to create sufficient demand for wood by-products that entire companies would be dedicated to biomass production and distribution as opposed to more traditional dimensional lumber, plywood and other fiber products.

I'm not too "up" on the pulp and paper market, but I don't think China is a major player in the US. In fact, I believer they are a net importer. And I have read that paper demand, after a period of stagnant demand, is noticably slipping.

Are you saying that you think companies will actually harvest wood to chip and burn it? Some back of the envelope calculations: Resid fuel oil is running just over a $1/gal. Let's say delivered price to Mill is $1.25/gal, or $0.16/lb BTU content is ~16,000/lb. Chipped but not dried/pelletized biomass appears to have a BTU content of 3-6,000/lb. To be on par, cost-wise with oil, biomass would have to be spotted at the mill for ~20-40% of the resid price. That's $90/ton, delivered. I don't understand wood harvesting economics... can one make a profit at that price?

Apologies to Otto for more wood chips but I think this is a pretty important potential new source of traffic for New England. Maybe we could have a biomass/wood chip thread...Here in the Monadnock region of NH the local loggers are chipping all their slash and sending it either to Bow or Portsmouth power plants to be burned. I will check but I think they get about $30-$35 per ton delivered which, if cowford's figuring is right, looks pretty competitive. The wood market is so flat that this is the most profitable operation left for the local logging companies. They are chipping up everything and not bothering with saw logs. Public Service of NH gets some kind of emissions credit for burning them and claim they are cleaner burning than coal. When oil goes back up it will be even more competitive. At the moment all that moves in trucks from the landing to the power plant but from Dublin NH to Portsmouth is about a five hour round trip which take a lot of the profit out. Seems like it would take establishing some kind of commodity market in woodchips/biomass to make shipping by rail practical instead of the loggers selling direct as they do now.

If a biomass boiler is built at the Millinocket mill most likely the wood waste will come in by truck. This is not all bad, since this type of material would generate very low revenue. It will come in from several sources so truck would be the preferred means of conveyance.

However, rail would benefit from other moves. Outbound paper and pulp, inbound chemicals and clay, perhaps even inbound wood chips (fiber for papermaking). Perhaps even some inbound oil. When the mill was open it accounted for at least several thousand carloads each year.

I heard that of the eleven or so paper machines served by the MM&A only two were operating recently. They said it costs 100k a day to operate the railroad and income in the one day was only 23k.

Everyone is hoping for the economy to recover soon. Hope they can hang on until then.

You are correct that hogged fuel would never be a highly profitable commodity to haul, but as long as the revenue generated covers the incremental variable cost of handling, MMA would be nuts not to pursue it. But it won't ever be the saving grace of the railroad. The biggest challenge vs truck is not that the potential fuel sources are many (though that doesn't help), but that the chips are typically generated locally, i.e., within 100 miles. That short a distance is not exactly within a railroad's sweet spot. Add to it that the commodity is relatively light loading (I believe its density is ~half that of coal) and low in value... it doesn't add up to a home run, from the perspective of financial returns.

Can anyone provide a summary of the industries/volumes MMA enjoys in PQ?

Quebec Customers, not sure how compete or accurate this is - I think this is all of the important ones:

Greybeck in Bedford, PQ - crushed limestone - might reload at Farmham unless Stanbridge Sub has been restored
EKA Chemical - Magog, PQ - sodium chlorate plant
Kruger - Sherbrooke, PQ - scrap paper
Steel Fabricator - Sherbrooke, PQ - structural steel
Tafisa - Megantic, PQ - OSB plant
small feed mills - Cookshire and Farnham, PQ

Newport Sub:
Blue Seal Feeds - Richford, VT
Poulin Grain - Newport, VT
Feed Commodities - Newport, VT
plus a few small grain/fertilizer places along this line

Interesting topic and indeed a sad state of affairs especially when you look at the political picture.

Last week the Maine Legislature passed a bill that would increase fuel tax by 11 cents on the gallon. We cannot blame one party or the other for this because it garnered support from both sides of the isle. So how does this affect the B&A/MMA?

It all comes down to hypocrisy. Not long ago and on numerous ocassions our governor declared that Maine had to go 'Green' more efficient cars, more stringent controls on the little industry we have left. Great. While I do not buy into the global warming doom & gloom I do believe we shouldn't poop-up the nest. I also see a big, big hypocrisy and a great opportunity. Here we are jacking-up the fuel tax to maintain our state highways while we are in the middle (or the beginning) of a severe economic downturn. With Maine, having moved from a manufacturing/agricultural based economy to a service economy we are indeed highly vulnerable to downturns in the little manufacturing/agricultural industry left - in state and out as witnessed by the struggles of the B&A/MMA.

So here we are jacking-up fuel tax to maintain our roads which are continuously torn asunder by heavy trucks hauling goods from one end of the state to the other. Meanwhile our rail system is moldering away. Not to mention the shear inefficientcy when you consider that a big rig averages 5-8 mpg at best not to mention the volumn of emmissions produced which is far out of proportions to thier numbers. It doesn't take a genius to realize that you would get a lot of bang for the buck by encouraging rail traffic over long distance trucking: Tax payer friendly, (less road repair costs plus the tax payers don't pay to maintain the railbeds) environment friendly, less dependence on foreign oil. (There’s your sales pitch!)

Sears Island has also been mentioned in this thread. I spoke last year with a Republican Congressional hopeful about this subject: i.e. intercostals waterway for barge traffic which would dovetail nicely into an integrated intermodal freight system. His response was that within the maritime industry the Maine coast is known as "The green Wall" - Not encouraging.

If the solution is so simple why hasn't it been done? For the same reason GM is now Government Motors and Obama's push for government provided healthcare. Placating Unions and expanding thier rolls means votes. Votes mean power and wealth. Its not wether or not Unions are good or bad. - thats another debate.

Seriously, can you truly picture our legislature and current Governor taking on the Teamsters Union?

I see line side industries mentioned. Yes a railroad needs them to survive. But in a state that has all but "Greened" out industry and certainly has a bad atitiude towards big business, maintaining existing industies and encouraging more to come to our state is a forlorn hope. They must have a reason (gained advantage) to stay or relocate here. Currently there is not.

Imagine our state with an advanced rail/intercoastal freight system. Imagine the advantages. Imagine it not happening. Unless we speakup and point out these hypocrisies it never will happen. Until we have a cheap reliable transportation system and a tax code that doesn't punish success and reward failure we will never see the Maine economy expand in any meaningful way and our only chance for Hope & Change is the "Hope" we will have if we are lucky to find a job and the "Change" if we are not so lucky.