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Cascades makes second change in a week by closing Quebec kraft paper plant

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MONTREAL - Cascades announced the closure of its kraft paper plant Wednesday as it continued to focus its business on its key packaging, tissue and recycling operations.

The closure and loss of 175 jobs at the plant in East Angus, Que., follows the sale of the Cascade's fine paper division earlier this month.

"This goes along with the objective of Cascades to focus our growth and investment in our key business areas," Luc Langevin, president of Cascades Specialty Products Group, said Wednesday.

The recycled paper and packaging company said the plant closure to take place by Oct. 3 was due to unfavourable market conditions and the inability to finalize a sale of the plant to employees.

The plant which generates about $80 million in annual sales was losing an undisclosed amount of money.

Cascades (TSX:CAS) said the kraft operations couldn't remain competitive amid weak market conditions and the decision by competitors to convert their newsprint paper machines to produce kraft paper, an oatmeal-coloured paper used to make envelopes, promotional materials and fast-food wrapping.

Envelope demand alone has declined almost 20 per cent over five years, but the real hit came from machine conversions by some U.S. producers over the last few years which significantly boosted supply and caused prices to plummet.

Employees were told last November that the company would exit the kraft business, but attempts were made to sell the plant and save the jobs.

It worked with the Quebec government, which agreed to provide about $10.5 million in financial support. But the project was abandoned because of an inability to line up new investors.

"Our main objective here was to try to give a second chance to this business and protect jobs in this part of the province," Langevin said in an interview.

The paper plant began operations in 1881 and was bought by Cascades in 1983. It invested about $10 million about three years ago to convert from using kraft pulp to recycled fibre.

Langevin declined to say how much it will cost to close the plant.

He credited the unionized workers for agreeing to make compromises if a deal to save the plant could be found.

"We practically gave a blank cheque," Eric Huppe of the Confederation of National Trade Unions. "We forfeited our severance pay if there was a revival of the plant...Workers were ready to open (the plant) by being versatile and flexible."

The closure doesn't affect Cascades' coated boxboard manufacturing plant, located across the river in the same Eastern Townships community.

Analyst Stephen Atkinson of Dundee Securities said the kraft paper mill was very old and past its useful life.

"Cascades kept it going as long as they could," he wrote in an email, adding there was no point converting to other products.

On the Toronto Stock Exchange, Cascades shares lost four cents at $6.52 in Wednesday afternoon trading.

Follow @RossMarowits on Twitter

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