The future soon could look considerably brighter for Verso Corp.'s Duluth paper mill and the 240 people it employs. But the company is looking for some public assistance — to the tune of a $2 million forgivable loan from the state and $242,000 in local economic development funds.
Come Monday, the Duluth City Council is expected to act on the request, which would leverage at least a $20 million investment by Verso, and likely much more.
While demand for the glossy coated paper that has long been the Duluth mill's bread and butter continues to dwindle, Verso is eyeing a new market and a new staple product — packaging. In the challenging paper industry, this particular segment stands out as a unique area of promising growth as e-commerce continues to take off, fueling demand for materials such as cardboard. Think of all those Amazon boxes zipping across the planet. They have to come from somewhere.
Indeed, the global market for corrugated packaging materials was valued at $262.6 billion in 2019 and is likely to reach nearly $340 billion by 2025, according to a forecast by Research and Markets. That equates to a compound annual growth rate of 4.4% for the next quarter-century.
Chris Fleege, director of Duluth's planning and economic development division, said: "It does feed into supporting Amazon-type vendors, with the specialty packaging."
Verso has already begun to test the waters, producing packaging materials in Duluth, and state support for a larger-scale conversion has been set aside for the prospective project. But Council approval will be needed to access those funds. A resolution headed for a vote Monday would authorize city staff to request the assistance from the Minnesota Investment Fund and provide a smaller local match.
Mayor Emily Larson and her administration helped Verso lobby for state aid.
"It's really important to the continued success and viability of the plant," she said of the conversion.
Many U.S. papermakers have gone out of business in the past decade. In 2010, 28 mills across the nation were producing coated paper versus 15 in 2019, according the American Forest and Paper Association.
Verso was nearly among the casualties, but the company emerged from bankruptcy in July 2016.
"We positioned our whole ask with the state around job retention," Fleege said.
Larson credits the restructured Verso for its vision, saying: "They aren't just staying in one place. They are working to innovate, and I think that's one of the reasons why the state was willing to invest and be such a significant partner."
While $2.24 million may sound like a lavish public subsidy, Larson said it must be considered in the context of the large capital expenditures involved in the paper industry.
"What that does is factor into the math and make the numbers work. It also demonstrates and serves as a very visible sign that they are not an industry working in isolation — that the state is co-invested," she said.
"The fact that we are stepping in with them, as the city, that is the kind of confidence and demonstration of partnership that CEOs and boards look at when they're making decisions about where they want to invest their time, their resources and their staff power," Larson said.
Verso closed a mill in Luke, Md., in July and the company expects soon to complete the sale of two others in Stevens Point, Wis., and Jay, Maine.
Council President Gary Anderson referred to the requested $242,000 in city funds as "a very fair investment, from the perspective of this city councilor."
"With the major hits that the industry has taken, for them to be looking at Duluth and trusting that this is the right place says something," said Anderson, noting that the investment could easily have gone elsewhere. "So, I think it's only fair for us to show our commitment to them, as well."
In return, he noted Verso stands to sink a considerable sum of its own money into the Duluth mill. The resolution heading to the Council lays out the company's plans to invest $34.5 million, but the actual outlay could be even larger.
The conversion at the Duluth plant already is well in progress. Company representatives declined to provide the News Tribune with project details, citing competitive concerns. But in recent guidance Verso provided to investors, the corporation reported its Duluth mill should be able to crank out 90,000 tons of packaging and Kraft paper-grade products per year by the end of this month.
That may be just a start, as in the same report, Verso said: "A full conversion to make 375,000 tons is being considered." At present, the Duluth mill has capacity to churn out 270,000 tons of paper annually.
Anderson said the investment bodes well for the city and the 240 people who work at the mill.
He said that Verso is notable not only for the size of its workforce, but for the type of compensation it offers, with employees earning an average annual salary of $63,000.
"These are living-wage jobs," Anderson said.
Fleege noted that every mill job supports three to four more jobs. With its service and supply needs, including logging, the plant injects an estimated $175 million per year into the local economy.
In addition to delivering a product that's in high demand, Verso also would provide a valuable outlet for cardboard waste after the proposed conversion. China had been a major recycler of U.S. cardboard waste, but stopped importing most of that material in 2018 following a change in government policy.
Consequently, there has been a glut of cardboard in the U.S. recycling stream. As Verso aims to recycle corrugated paper at its revamped plant, it could prove a useful domestic partner, while also benefiting from low prices in a saturated market.