Business: Paper Progress

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Two brief stockholders meetings were held in San Francisco last month to solemnize, after a nine-year engagement, the wedding of two big West Coast corporations. One was Crown Willamette Paper Co., the other Crown Zellerbach Corp. Crown Zellerbach has had stock control of Crown Willamette since 1928 but for nine years both retained their corporate identities. The shares of both were listed on the New York Stock Exchange. The $100,000,000 union left Crown Zellerbach (the married name) the No. 2 U. S. paper company.

Meantime the No. 1 U. S. papermaker, colossal International Paper & Power, has also been putting its corporate house in order, and for the same reason: a paper boom. After dragging bottom at $41 per ton, newsprint prices were increased slightly for 1937 contracts but the first real boost did not come until a fortnight ago when International announced a new price of $50 for 1938. A score of U. S. and Canadian newsprint makers promptly followed suit, while London's Lord Rothermere, a papermaking publisher, dispatched this cryptic cable to the Toronto Financial Post:

"For the second six months of 1938 I anticipate a price of something like $57 a short ton, which is preparatory to $65 for 1939. A price of $65 is not unusual or excessive. In 1925 the price in Canada was $75, although then there was nothing like the demand for pulp for other than news print purposes that there is today. Demand has definitely overtaken supply, and if there is no major international disturb ance, there is nothing can avert an acute shortage in five years' time."

Already the newsprint industry was close to its effective capacity at the old price. North American newsprint capacity is theoretically about 5,500,000 tons per year, only 1,200,000 tons of which are in the U. S., but effective capacity depends upon price, high-cost mills closing down when newsprint drops much below $50 per ton. At $40 per ton no mill can make money.

What money has been made in paper in the past few years has been largely made in other types than newsprint, notably kraft and paperboard. Paperboard (boxes) accounts for nearly one-half the total U. S. paper production. So great is the current demand for paperboard containers that prices have jumped about 50% in the past four months, another boost last week carrying quotations to the highest level in ten years.

Appearing before the Securities & Exchange Commission last week for hearings on a recapitalization plan, International Paper & Power's treasurer revealed that 1936 earnings were about $5,000,000. He estimated that the 1937 figure "would run in excess of $9,000,000." For I. P. & P. these unaccustomed profits made recapitalization almost a necessity. At the year end the company had an accumulated deficit of some $20,000,000, precluding payment of dividends until the deficit is in some way made up. Yet if the company pays no dividends it will suffer the full penalty of the undistributed profits tax.