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Rivals circle as Abitibi seeks protection Add to ...

AbitibiBowater Inc.'s decision to file for protection from creditors will cause upheaval in the paper industry, with some mills expected to be closed during the restructuring and rival newsprint suppliers already jostling for the company's business.

A variety of newsprint suppliers from Tembec Inc. and Kruger Inc. to Howe Sound Pulp and Paper LP could stand to benefit from the uncertainty, particularly if long-term paper supply contracts come up for grabs.

Sources inside the newspaper industry said alternative suppliers were contacting the firm's customers looking to shift business.

Canada's largest paper buyer, Transcontinental Inc., is scheduled to meet with AbitibiBowater executives Friday to discuss how the relationship between the two companies will proceed. Jean Denault, Transcontinental's vice-president of procurement and technology, said the company is likely to stick with Abitibi through the restructuring.

"I'm disappointed, personally, that they have to go through this," Mr. Denault said. "[But]as far as we are concerned, AbitibiBowater is still an important supplier, and has been a good partner since the foundation of Transcontinental … We are just hoping the best for them."

The move by Montreal-based Abitibi to seek protection in U.S. bankruptcy court, followed by an expected filing for similar protections in Canada Friday, comes as paper suppliers are burdened by an oversupply in the market, which has forced prices down in recent months.

"Demand has diminished sharply and the only thing that will turn things around is to have supply withdrawn," said Ron Stern, owner of Alberta Newsprint Co. Ltd., a regional supplier to western papers.

Observers noted yesterday that a restructuring of AbitibiBowater could lead to mill closings in some areas, potentially in Quebec, where many of the company's operations are concentrated. It is too soon to say how much capacity would be closed, but that may help other suppliers if surplus is removed.

Fluctuating exchange rates have also hurt paper suppliers that sell south of the border, including AbitibiBowater, which is North America's largest purveyor of newsprint.

"What Abitibi has been faced with, even in very recent weeks - as has the whole industry - you have declining demand, pricing has come down quite sharply in the last couple of months and the exchange rate. Those are things that are just going to put more pressure on the restructuring," Mr. Stern said.

Howe Sound, based in Port Mellon near Vancouver, this month started to supply paper for The Globe and Mail's printing in British Columbia. CEO Mac Palmiere said his company is always on the hunt for new business. "Even if we're not with a publisher, we're always in touch," said Mr. Palmiere, whose firm is co-owned by Canfor Corp. of Vancouver and Tokyo's Oji Paper Co. Ltd.

The Howe Sound mill is in the middle of a nine-day shutdown because of the weak newsprint market. Demand in North America has fallen by about 30 per cent compared with a year earlier.

Gannett Co., the largest newspaper publisher in the United States and a major Abitibi customer, said the company is watching closely to see if any operations are shut down. There is enough oversupply of newsprint in the global market right now that Gannet, publisher of USA Today, doesn't expect a shortage if some operations cease.

"We are just going to see what happens and what ends up happening with their mills," said Gannett chief executive officer Gracia Martore. "At this point I think we all know there is a surplus of supply of newsprint on the market globally and we think that will continue to keep pushing pricing downward."

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