While Wall Street obsesses over index pricing and EBITDA margins, a quiet revolution is brewing within Cascades Inc. The company, a stalwart of the packaging and tissue industry, is undergoing a transformation that extends far beyond its recently announced plant closures and the Bear Island ramp-up. The shift is subtle, almost invisible amidst the noise of market volatility, but it holds the potential to fundamentally reshape Cascades' long-term profitability and environmental impact.

This silent revolution is centered around Cascades' increasing commitment to maximizing the utilization of mixed paper in its production processes, particularly at the newly converted Bear Island facility. While this objective was outlined in the initial project announcement, the company's recent actions and statements suggest a deepening commitment, fueled by a convergence of economic and environmental factors.

Economic Pressures and the Strategic Importance of Mixed Paper

On the economic front, the volatile OCC (Old Corrugated Cardboard) market, characterized by surging prices and tight supply, has become a significant headwind for Cascades' Containerboard segment. The company acknowledged this pressure during its Q4 2023 earnings call, citing OCC costs as a major contributor to the segment's below-expectation performance. This vulnerability is directly linked to Cascades' low integration rate, which exposes it to the fluctuations of the parent roll market.

Here's where the strategic significance of mixed paper comes into play. By increasing the proportion of mixed paper in its production recipe, Cascades can reduce its reliance on OCC, mitigating the impact of its volatile pricing and securing a more stable and potentially less expensive fiber source. This strategy is particularly viable at Bear Island, which boasts a state-of-the-art system capable of utilizing significantly higher percentages of mixed paper than conventional facilities.

"During the Q4 earnings call, Charles Malo, President and COO of the Containerboard Packaging Group, revealed that Bear Island had successfully incorporated up to 30% mixed paper in its production, surpassing its initial ramp-up target. This achievement, while seemingly modest, signals a critical step towards unlocking the facility's full potential for mixed paper utilization."

Importantly, Malo emphasized that this 30% threshold is not a ceiling, stating that "we can do a bit higher than that on the medium. We can go higher than that in the liner." While Cascades has yet to quantify its ultimate mixed paper target for Bear Island, Malo's assertion that "we have the flexibility with the investment that we made to do a bit higher than 60%" suggests a potentially transformative shift in the company's fiber sourcing strategy.

Environmental Sustainability and the Dual Benefit of Mixed Paper

This commitment to mixed paper is not driven solely by economic considerations. Cascades has long been recognized as a leader in environmental sustainability, championing recycled fiber utilization and responsible forest management. The company's focus on mixed paper aligns perfectly with this ethos, diverting a larger volume of waste from landfills and further reducing its reliance on virgin fiber sources.

The implications of this shift are profound. By aggressively pursuing mixed paper utilization, Cascades can simultaneously bolster its bottom line and enhance its environmental credentials. This dual benefit positions the company for long-term success in a market increasingly prioritizing sustainability and resource efficiency.

Quantifying the Potential Impact of Mixed Paper Utilization at Bear Island

To gauge the potential impact, let's consider a hypothetical scenario. If Bear Island achieves a 60% mixed paper utilization rate, it could potentially displace a significant volume of OCC, leading to substantial cost savings.

Hypothetical Cost Savings at Bear Island (Assuming 60% Mixed Paper Utilization)

Note: These figures are hypothetical and for illustrative purposes only. Actual cost savings will depend on various factors, including Bear Island's actual production volume, the market prices of OCC and mixed paper, and Cascades' specific production recipe.

The Intangible Benefits of Sustainability Leadership

Furthermore, this shift would solidify Cascades' position as a sustainability leader, attracting environmentally conscious customers and investors. This intangible benefit, while difficult to quantify, could translate to:

Conclusion: A Silent Revolution with a Loud Impact

The silent revolution within Cascades Inc. is a story that deserves attention. While the market may be fixated on short-term fluctuations, the company's strategic focus on mixed paper utilization is a long game, one that holds the potential to deliver sustainable growth and solidify its position as a leader in the packaging and tissue industry.

"Fun Fact: Did you know that Cascades was the first company in North America to produce 100% recycled packaging for eggs? Their commitment to sustainable practices goes way back."