Södra Cell's pulp expansion in a digital age

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Södra Cell's pulp expansion in a digital age

October 03, 2014 - 08:05

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The president of Södra Cell explains why the company will invest heavily in softwood pulp expansion at its Värö mill.

In an increasingly digital world, why would anyone think of investing in paper pulp? There have been proclamations of the paperless office since the 1990s. It took a long to happen, but it did happen to some extent. 

Still, one of the problems in the digital age is that digital information is very easy to copy. People pay a lot of money to see a DJ such as Sweden’s Avicii play other people’s music (he made $15 million last year), but they don’t want to pay for music itself. Performance and service have a higher value because they cannot be copied easily.

For Södra, we still see a bright future without the need for reinvention, in doing what we know and do best; softwood pulp. The way we communicate and distribute information is changing fast, but one of Södra’s main reasons for optimism when it comes to pulp is the prediction that in 15 years’ time we will need 150 million tonnes more paper in the world, despite the invasion of digital media. That means 36 new world class pulp mills, some 200 m3 of pulpwood (equivalent to Europe’s total consumption of pulpwood today) and 120 million tonnes more recycled paper. Where will this fiber come from? 

Second, the global consumption of fibers for textiles has been growing at 2-3%/yr in recent years. With a population growth of two billion, projected demand for textile fiber is 240 million tonnes by 2050. In 1960, three billion people consumed an average of 5 kg/textiles per year or 15 million tonnes. In 2012, seven billion people consumed 12 kg per capita, or 84 million tonnes of fibers. 

Cotton farming is limited as it is a drain on increasingly precious resources, and this will be more so as the global population increases. Synthetic fibers have largely taken the place of cotton but these are fossil-fuel based. If cellulose were to replace synthetics, this would represent all of the world’s current woodpulp consumption. So again, where will the fiber to supply these new markets come from? 

A secure fiber supply is a key advantage for Södra because the company is owned by 52,000 forest owners, who together are the largest private forest owner in southern Sweden. 

The mega trends, including those driving the textile industry, are of great interest. The number of consumers in the world is increasing and more are moving from poor to lower-middle or middle class. That represents significant changes in consumer behavior. Increased buying power from two billion new citizens will result in higher paper demand. The potential in the BRIC countries with their three billion inhabitants is obvious. They may never reach western consumption levels of paper, but they will grow. 

In 2014, 400 million tonnes of paper is equal to 57 kg per capita. In 2044, 57 kg per capita and nine billion people equates to 530 million tonnes of paper. Consumption patterns will change and personal care and packaging will do well, with growth rates of 5-6%/ yr in some areas. At the same time, the quality of recycled fiber is under threat. Fewer people are reading printed newspapers, so less newsprint is ending up in the recycling bin. Cash-strapped paper producers use an increasing number of fillers in their mix to keep their costs down but that is not great for secondary fibers. So virgin pulp is needed in the mix and for tissue and packaging especially, these growth grades require good strength properties from their pulp. High-value speciality papers are also growing and these too require optimum performance from their fibers – which means an influx of premium-quality virgin fiber is needed in the mix. 

Post-2008, global economic growth has been flat, but it will recover. Current global demand growth for softwood pulp is 1.8% per year and this means a new pulp mill should be built every two years. The big question is where the fibers will come from. At the same time, the pressure on wood for uses in textiles and bio-energy is still growing.

From Södra’s local perspective, Sweden has doubled its forest reserves over the last century. At the same time, local wood flows are changing as pr/wr mills close, releasing wood for other purposes. Södra also closed its Norwegian pulp mills which has had an impact on wood flows into the north of Sweden.  

To move forward, Södra needs a secure supply of wood, and it has that because of its unique member- ship structure. It has total control of the wood coming into its mills – every second tree in southern Sweden is a Södra tree – sustainability is second nature to the company. Its mills are already bio-refineries with an array of by-products from bioenergy to district heating and the mills play a vital role in their local communities. 

Södra’s new strategy, finalized last year, is committed to growth, headed up by a $610-million investment at its Värö mill as well as smaller investment in the other two. As a dedicated, non-integrated pulp producer, Södra’s aim is to focus on growing its softwood pulp capacity for its customers. Värö will have best-available technology and produce premium quality pulp with outstanding environmental credentials. It will offer TCF and ECF grades certified to both PEFC and FSC. 

Fixed costs will be highly competitive with only 20 additional people needed to run the mill. In short, it will be a highly-competitive mill reinforcing the Södra brand and strengthening the company’s product portfolio in a growing market, supported by a new sales office in Munich.

Stability reliability and consistency are key requirements for customers and hence for future profitability. An expanded Värö will help deliver exactly that. 

Meeting customers’ increasing demand for pulp will secure an outlet for pulpwood in Sweden. Several previous Södra CEOs searched the globe for pulp mill opportunities from South Africa to Russia, but they came to the same conclusion – the company’s future lies in investing much closer to home, on its members’ doorsteps. 

Since Södra announced the investment at Värö, there have been three new expansion announcements from competitors. This is no surprise in an industry which uses the same consultants and analysts – a golden opportunity in a free market is seldom a lone discovery. But Södra will be focusing on what cannot be copied – a unique structure and forest ownership, with resources in its backyard which it has extremely good control of.

Magnus Björkman, president, Södra Cell International This article is based on a speech he made at the annual PRIMA conference in May.