TOUGH TISSUE MARKET INSIG HT FORECAST 30 MONTHS. Mobilization On a Growing and Increasingly. INDEX & REPORT for the GLOBAL PULP & BIOREFINERY INDUSTRY

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1 No.2 Summer 2013 INSIG HT INDEX & REPORT for the GLOBAL PULP & BIOREFINERY INDUSTRY Market Trends FORECAST 30 MONTHS PAGE 61 Mobilization On a Growing and Increasingly TOUGH TISSUE MARKET GLOBAL SCA SHARPENING THEIR CLAWS EUROPE BORREGAARD AN ADVANCED CHEMICAL BIOREFINERY NORTH AMERICA LOOMING TRADE WAR WITH CHINA LATIN AMERICA ELDORADO IN FOCUS ASIA ILIM STARTS MOVING CHINA INFECTED WITH OVERCAPACITY R&D&I HOT NEWS FROM THE WORLD S LEADING RESEARCH CENTRA PROFILE PER LINDBERG, CEO BILLERUDKORSNÄS 1

2 CONTENT World Premiere of the BHK FORECAST CONTENT PER LINDBERG PAGE 38 Bright Market Insight is now even launching new predictions of the future BHK prices. BMI's initial forecast of July shows a slowdown and a calm and temporarily balanced market with cautious increases of especially NBSK for the rest of Next year the price will approach a new level above USD In the end of 2014 we will see a new turning point. CHINA HAS TO CURE PAGE 42 GLOBAL An increasingly tough world tissue market Esko Uutela, RISI: Watch out for China SCA takes the lead: Interview with CEO Jan Johansson EUROPE Borregaard - an advanced chemical biorefinery Interview with Per Sørlie, CEO Borregaard DuraPulp new composite material from Södra Södra and H&M want to dress the world UPM builds the world s first biorefinery for biodiesel Stora Enso invests in Ostroleka in Poland CHAPTER 1 CHAPTER NORTH AMERICA Looming trade war between USA and China Much at stake for Fortress International Paper is putting its faith in Brazil LATIN AMERICA Eldorado eschews own raw material Lwarcel launches major new forest initiative Cenibra aims to double pulp capacity Tense waiting in Parána for Klabin CMPC s new addition in Brazil is underway PROFILE Interview with Per Lindberg, CEO BillerudKorsnäs CHAPTER 3 CHAPTER 4 CHAPTER INDEX PAGE 61 R&D&I Hot news from the world s research centra CHRONICLE Focus on the drama on the printing paper market INDEX A balanced 2013 and a strong market 2014 EDITOR IN CHEIF CARL JOHARD CHAPTER 7 CHAPTER 8 CHAPTER Bright Market Insight is an exclusive, qualitative quarterly market report with coverage, interviews, news and analyses from the international markets in Europe, North America, Latin America, China and the rest of Asia and Oceania. It is published four times a year with an exclusive and up-to-date report on news and trends in the international biorefinery and pulp market as well as a unique long-term forecast (Bright Market Index) of pulp prices (NBSK) 30 months into the future. UNIQUE FORECAST MODEL The Index is a unique proprietary developed forecast model for (NBSK) pulp based on artificial neural networks (ANN). The model distinguishes itself by including a large amount of fundamental data and taking into account the frequencies of market fluctuations. This makes it unique in the commodity market. Bright Market Index forecasts indicate the correct price directions more than 80% of the time for all time horizons longer than 6 months. The model is also able to identify whether the price will increase or decrease in nearly percent of cases where longrange forecasts are made. In a 24-month range, the forecast is very close to the actual price trend. The model predicted two years ahead the deep dip in 2009 and 2011 as well as the increase during the autumn of PROFESSIONAL AND EXPERIENCED STAFF The Bright Market Insight is produced in close collaboration with academia and the forest products industry. The editorial staff are very professional and experienced business journalists from around the world. BASF and Zelfo put their clever heads together High ambitions at Mondi Dynäs The Mondi way SCA keeps maintenance in-house Unique new tool for benchmarking Metsä Fibre plans major biogas plant in Juotseno Chinese joint venture in Croatia CHINA & ASIA Ilim Group: The world s largest pulp starts moving China infected with overcapacity Constant lack of domestic fibre in China Sichuan Yibin postpones new mill start-up CHAPTER Bohui Paper looking at New Zeeland 49 EDITORIAL STAFF DESIGN PUBLISHER SALES WEBSITE ADDRESS PHONE PER ARONSSON, HENRIK BRANDÃO JÖNSSON, LEONARD JOHARD, JAN HÖKERBERG, MIKAEL JÅFS, NILS LINDSTRAND, LENNART PEHRSON JOAKIM KARLSSON (ART DIRECTOR) & TERÉSE LIND, SWEET WILLIAMS AND POP CALEJO FUTURE INTELLIGENCE AB HÅKAN FREUDENTHAL, SALES DIRECTOR STRANDGATAN 4, SUNDSVALL, SWEDEN INFO@CALEJO.SE DON T MISS THE WEBSITE In addition, Bright Market Insight's website, which requires individual login credentials, is updated with industry-specific news, interviews, market analyses and long-term forecasts 12 months a year. The package also enables subscribers to download key diagrams for their companies' internal powerpoint presentations via brightmarketinsight.com. We hope you enjoy an insightful read CARL JOHARD EDITOR-IN-CHIE F 2 3

3 TISSUE TISSUE Global Participants Mobilizing On A GROWING AND INCREASINGLY TOUGH WORLD MARKET The global demand for tissue is expected to increase for the period we are currently in. We forecast continuing annual tissue growth of about 4%, says RISI's tissue expert Esko Uutela, who also tells us that the fight for customers and the market shares will get significantly tougher in China, Latin America and Eastern Europe. Author: Carl Johard, Sundsvall NET CAPACITY CHANGE AND AVERAGE CAPACITY UTILIZATION IN THE GLOBAL TISSUE INDUSTRY Thousand Tonnes Capacity Utilization, % Various announcements in China, Latin America and North America appear to contribute to a new investment peak in 2013 with an increased net capacity of 2.4 million tonnes. New investments are also planned for Global consumption of tissue paper grew by an annual average of 3.8% in the period, and the market increased in the same period by 15 million tonnes. Global annual growth has normally been over 3% even in difficult years. The global demand for tissue is expected to increase for the period we are currently in, according to RISI. We forecast continuing annual tissue growth of about 4%, says RISI s tissue expert Esko Uutela. CHINA TO BE MARKET LEADER China, which has exhibited explosive growth in the consumption of tissue paper in recent years, is one of the most important driving forces behind the global increase in demand. Apart from China, RISI forecasts that growth will also be strong in relative terms in the Near East, the Middle East, Eastern Europe and Latin America, but weak in Japan and North America. The increase in volume will be more than 16 million tonnes in the forecast period, which is equal to 1.5 million tonnes per year. China will be responsible for just over 40% of the growth, followed by Latin America (15%) and Western Europe (11 12%). China is expected to thus become the largest market for tissue paper in the forecast period. It will surpass Western Europe in 2015, the US in 2017 and North America as SOURCE: RISI a whole in 2019 with regard to market size. This will occur as a result of China's economy continuing to grow at the same time as its average purchasing power increases, urbanization continues and the country,s middle class expands, says Esko Uutela. DRIVING FORCES BEHIND FUTURE DEMAND The most important variables that will drive future demand for tissue are primarily economic growth and population growth. At the same time, tissue is a product that faces very few threats of substitution. In times of prosperity, the consumption of tissue paper tends to grow faster than GDP. In times of recession, consumption however does not fall as much as GDP, while difficult economic times often slow down or stop upgrades of production and products. Historically, global consumption of tissue paper has grown by an average of 1.13 times faster than GDP. Global GDP growth, and thus also tissue consumption, will be surprisingly strong in the period thanks to the positive trend in the emerging countries, especially in China, Brazil, Russia and India, says Esko Uutela. Population growth is directly related to the growth of world hygiene consumption. One percentage of population growth is equal to one percentage of growth in consumption. That is not entirely true, because low income levels at the same time tend to lower consumption per capita. There are millions of people, especially in Asia and Africa, who do not consume tissue products at all. Diagram text: Apart from China, RISI forecasts that growth will also be strong in relative terms in the Near East, the Middle East, Eastern Europe and Latin America, but weak in Japan and North America. World population growth is exhibiting a downward trend, which is expected to continue up until The annual growth of 1.2% in will go down to 1.1% in , and down again to 1.0% in , says Esko Uutela. NORTH AMERICA LEADING THE WAY North America is currently the uncontested leader when it comes to consumption of tissue paper per capita, followed by Western Europe and Japan. Consumption per capita in Asia, the Far East and Africa is still relatively low. Tissue is on the way to be an internatio- nal commodity and China has grown into becoming the largest net exporter in the world. "Toilet paper, which is the absolute largest segment, is responsible for 57% or 16.8 million tonnes of total world consumption of tissue. Paper towels are the second biggest product category with consumption at 6.4 million tonnes. Facial tissues and handkerchiefs also represent a relatively large product segment, primarily due to intensive use in several Asian markets, says Esko Uutela. The biggest growth in toilet paper, (44%), is occurring in China. The Latin American toilet paper market is expected to grow more than the Western European market (1.6 and 1.0 million tonnes respectively). North America, Western Europe and Latin America will be the most important areas of expansion for paper towels, while China is still in an early development phase in this segment. In Japan, terry towelling is the only major growing segment on an otherwise mature market. DIFFERENT MARKET TRENDS Growth for facial tissues and handkerchiefs WORLD TISSUE CONSUMPTION BY REGION Asia Far East 5.6% E. Europe Japan 5.9% 5.3% N&M East 3.4% L. America 11.2% Africa 1.9% Oceania 1.2% is very concentrated in China, which accounts for 70% of the growth in volume, and other Asian countries, the Middle East and North Africa. In Muslim countries, facial tissues continue to be the most important tissue product, says Esko Uutela. In baby nappies, a two-digit increase is expected in the emerging economies in Asia, while a strong increase is also expected in Latin America and the Middle East as well as a flatter trend in North America, Western Europe and Japan. The global market for adult incontinence is growing rapidly in North America and Europe while demand is still relatively low in the BRIC countries. It is estimated that there are 30 million people with some form of incontinence problem in the US alone, says Esko Uutela. Sanitary protection is the most developed absorbent product. One trend here is that the market is expanded to increasingly younger groups, because menstruation tends to occur at an increasingly earlier age, says Esko Uutela. China 18.8% N. America 26.5% W. Europe 20.3% North America and Western Europe are still the two leading regions. But China is already the third most important tissue consuming region worldwide. SOURCE: RISI GLOBAL 4 5

4 TISSUE TISSUE EXCESS CAPACITY According to RISI, the total tissue paper capacity installed in the world at the end of 2011 totalled approximately 34.2 million tonnes per year. The number of tissue mills was 951 at that time with more than 3,300 tissue machines. Because some of them were swing machines with production that included other qualities and certain factories were closed, the annual capacity for tissue paper was estimated at 33.9 million tonnes. Various announcements in China, Latin America and North America appear to contribute to a new investment peak in 2013 with an increased net capacity of 2.4 million tonnes. This is an absolute record, even though we think that capacity reductions and project delays will probably lower that number by a couple hundred 4% thousand tonnes, says Esko Uutela. New investments are also planned for According to the China National Household Paper Industry Association (CNHPIA), the Chinese market for tissue paper alone will add on around 500,000 ANNUAL 600,000 tonnes per year of new capacity INCREASE OF each year. THE GLOBAL DEMAND The new massive investments are expected to lower global capacity utilization FOR TISSUE significantly in the coming years. The prospects for 2013 are not good. It highly likely that average capacity utilization will fall to nearly 85% and stay at that level at least through The global tissue industry will be in a phase very exposed to competition over the coming four to five years, says Esko Uutela. FRAGMENTED INDUSTRY Aside from new capacity, the world tissue industry is already very fragmented. The total number of tissue mills is high and there are several hundred businesses in the industry. The three largest companies, Kimberly Clark, Georgia Pacific and SCA, together have less than a third (29%) and the ten largest companies less than half (47%) of the world's identified tissue paper capacity. Consolidation has been at its highest in Oceania and in North America. In Western Europe, consolidation continues to be lower than in North America, even though the 10 largest suppliers now control approximately 81% of the capacity. The industry is still most fragmented in China and Eastern Europe, says Esko Uutela. COMPETITION AND MAIN PARTICIPANTS Kimberly-Clark continues to hold its position as the world,s leading tissue paper supplier, ahead of the following companies in this order: SCA, Georgia Pacific, Procter & Gamble, APP, Sofidel, WEPA, Metsä Tissue, CMPC Tissue, Cascades, Hengan and Vinda Paper. APP,s organic growth has made it into the fifth leading supplier in the world and with its current rate of expansion, it will soon be number four. SCA is also continuing to expand through acquisitions and by building new capacity. After taking over Georgia Pacific's operations in Europe, SCA has become the world's second-largest tissue company. In China, Hengan Group, Vinda Paper and C & S Paper Group (formerly Zhongshun Group) have experienced strong expansion and moved into the group of the 20 largest tissue paper suppliers in the world. CMPC has grown very quickly in Latin America and improved its position to no. 9 after several new investments. THE STRUGGLE GETS TOUGHER IN CHINA In hot China, the battle among tissue paper suppliers is getting tougher. The two largest producers, Hengan and APP, are competing for dominance with Vinda, which has SCA as a growing minority owner, coming in at a strong three. Among other things, APP China is planning to increase its total tissue paper capacity from its current level of 892,000 to 2.76 million tonnes per year by APP has signalled an expansion of 42 new lines for tissue paper production in China by At the same time, Hengan International, which is currently the largest tissue producer in China, is going to increase its total capacity from 900,000 tonnes per year to 1390,000, and Vinda International is increasing its capacity to 1 million tonnes per year, says Esko Uutela. In addition to these three, which are the largest participants, Sun Paper, Lee & Man Paper Manufacturing and other companies also have new capacity in the works. INCREASED DEMAND FOR FRESH FIBRE In addition to capacity and the fight for markets, the global industry has three big challenges for the future raw material supply, new technology and sustainability. The two most important raw materials for tissue paper are recovered paper and short-fibre pulp. Recovered paper prices have gone up over time and are currently at historically high levels. The supply of recovered paper is falling gradually as the demand for and production of paper falls in the mature part of the world. Over time, that will lead to higher prices for recovered paper and increased demand for fresh fibre pulp, says Esko Uutela. Quality upgrades are a very important driving force behind the demand for tissue at a later stage in the consumption trend. New investments aiming to offer ultra quality are especially needed on the consumer side in tissue paper. In other words, it is necessary to use TAD or new and advanced production techniques. Requirements concerning higher quality will over time make it difficult for old facilities to compete, which will lead to capacity closures, Esko Uutela concludes. THE MOST MODERN INDUSTRY IN THE WORLD IS BEING BUILT IN CHINA Author: Carl Johard, Sundsvall Consolidation is a must in China. There are lots of mid-sized and small companies and many old mills with severe environmental problems. The whole industry in China is in a strong modernization phase. Many world-class machines are being built at this time and we may perhaps see the most modern industry in the world here in five years, says Esko Uutela, tissue expert at RISI, in this interview. IS THE STRONGEST GROWTH EXPECTED IN CHINA, LATIN AMERICA AND EASTERN EUROPE AND ARE THE FUTURE MARKETS FOR TISSUE THERE? We can see that global tissue consumption is shifting toward the emerging markets. There s still a big question mark about when consumption will really pick up speed in countries like Bangladesh, Pakistan, Indonesia, Thailand and the Philippines. And we are not at all certain that the trend in India will be identical to the trend in China. Their cultures are different. It s difficult to teach people new habits if they aren t used to using tissue products. The same goes for Bangladesh and Pakistan. The growth of the tissue market is otherwise closely related to population growth. In China, which is the strongest driving force, growth in past years has been higher than reported in official numbers. The statistics in China are very politically slanted as they aim to meet targets in the five-year plan. The markets are mature in Southern Europe and Western Europe. There isn t any population growth there, and the population is even going down in Germany. They published sensitive reports last year showing that the population was 80 million and not 81.5 million as they previously had forecast. North America on the other hand is experiencing population growth of 0.9 percent. In addition, Latin America is also expe- riencing positive growth, especially Brazil, which is in a strong development phase. THE HYGIENE MARKET IS STILL VERY FRAGMENTED, ESPECIALLY IN CHINA AND EASTERN EUROPE. DO YOU THINK THAT THE INDUSTRY WILL CONTINUE TO CONSOLIDATE? Consolidation is a must in China. There are lots of mid-sized and small companies there. There are four big companies in China, which are expanding, while there are many small companies that are having problems selling their products. Many old mills are also having such severe environmental problems that they are incapable of meeting the new emission and energy consumption requirements in the new five-year plan. The whole industry in China is in a strong modernization phase. Many world-class machines are being built at this time and we may perhaps see the most modern industry in the world here within five years. China is already exporting more than half a million tonnes of tissues and hygiene products. This growth is increasing by 10 percent per year. WHAT CONCERNS DO YOU HAVE ABOUT THE INCREASE IN CAPACITY EXPECTED IN ? HOW WILL THE MARKET HANDLE IT? The ongoing plans indicate a doubling of capacity in China, which I don't think is possible. The schedule for many of these projects will probably be delayed. The market will not be able to take care of all of that capacity and the closure of many small and old mills is to be expected. Therefore, we think that we,ll see rapid restructuring of the market in China. COMING FROM LOCAL PRODUCTION AND LOCAL MARKETS WITH A LOCAL FOCUS, TISSUE IS ON ITS WAY TO GROW INCREA- SINGLY INTO BEING AN INTERNATIONAL COMMODITY. HOW DOES THAT AFFECT We can see that global tissue cunsumption is shifting toward the emerging markets, says Esko Uutela, tissue expert at RISI. COMPANIES STRATEGY AND ACTIONS ON THE MARKET? Tissue has certain limitations for transport, but China will still be a strong regional exporting country anyway. A certain amount of exports will reach Europe, the Asia Pacific and the Middle East. SEVERAL SUPPLIERS ARE IN THE PROCESS OF MAKING NEW INVESTMENTS IN NEW ADVANCED PRODUCTION TECHNIQUES. HOW DOES THAT AFFECT THE MARKET? HOW FAST WILL THEY GET A FOOTHOLD AND HOW FAST WILL OLD CAPACITY BE PUSHED OUT? I m surprised that we still are not seeing very big effects from that. I think that new technology has a certain future, at least for certain applications in the industry. But it is still uncertain whether they can compete with TAD, which is tried and true and is the best available technology for producing high-tech products. In addition, the new cracking systems for gas in North America have cut gas prices in half, which has led to the energy costs for TAD being much lower than what they were five years ago. That has definitely helped the older, more energy-intensive TAD machines and has led to new projects emerging. GLOBAL 6 7

5 SCA SCA WE HAVE ACTIVELY CONTRIBUTED TO THE CONSOLIDATION OF THE HYGIENE MARKET We are working hard in this area. The world financial climate is such today that speculative investments for more capacity without having a relatively reliable provision for the volumes are getting rarer, says Jan Johansson, SCA's CEO and President, in this interview. How has SCA's new strategy and repositioning as a consumer goods company been received by the market? If you look at the trend on the stock exchange, it has been received very positively. We spoke with analysts, and they indicated that they favour a clearer and more streamlined profile for the company. CHINA, LATIN AMERICA AND EASTERN EUROPE ARE THE MARKETS FOR TISSUE WHERE THE MOST FUTURE GROWTH IS EX- PECTED. HOW IS SCA POSITIONING ITSELF AND WHAT GOALS DOES IT HAVE ON THESE MARKETS IN EACH OF ITS DIFFERENT SEGMENTS? SCA has an overall target of 3 4% organic growth in tissue. We don't set targets for individual markets, but we do always want to be or have the opportunity to be the market leader in the markets we operate on. Growth is higher on the emerging markets than on the more mature markets in Western Europe. For example, consumption of tissue per capita in Eastern Europe is currently only one quarter of the amount we use per capita here in Western Europe. Our 55 tissue plants in 23 countries give us a very good position to meet the Author: Carl Johard, Sundsvall demands of our customers. The demand for more highly processed products is higher on mature markets in comparison to emerging countries. As the amount of disposable income increases, more tissue is consumed, especially tissue for specific applications, such as facial tissues, paper towels, handkerchiefs etc. instead of just buying toilet paper. HOW DO YOU INTEND TO CONTINUE AND DEVELOP YOUR COOPERATION WITH VINDA? Vinda has been a way for us to approach the Chinese market and learn how it works. Now we are waiting to see how things go before we decide what the next step will be. THE HYGIENE MARKET IS STILL VERY FRAGMENTED, ESPECIALLY IN CHINA AND EASTERN EUROPE. WILL SCA CONTINUE TO PARTICIPATE IN THE CONSOLIDATION OF THE INDUSTRY ON A GLOBAL SCALE AND SPECIFICALLY IN CHINA AND EASTERN EUROPE? Selective acquisitions are a natural part of our growth strategy. WHAT CONCERNS DO YOU HAVE ABOUT THE INCREASE IN CAPACITY EXPECTED IN ? HOW WILL SCA AND THE MARKET HANDLE IT? SCA CURRENTLY HAS PRODUCTION IN 23 COUNTRIES. WILL THERE BE MORE OF THEM AND/OR WILL THEY GET BIGGER? We have actively contributed to the consolidation of the hygiene market in Europe, which contributes to a better balance between capacity and needs. We believe that good knowledge of the needs of customers and consumers will form the basis for good competition and SCA is working hard in this area. The world financial climate is such today that speculative investments for more capacity without a relatively reliable provision for the volumes are getting rarer. AFTER ACQUIRING GEORGIA PACIFIC'S EUROPEAN OPERATIONS, SCA IS CUR- RENTLY IN SECOND PLACE GLOBALLY BEHIND KIMBERLY CLARK. IS SCA AIMING TO ULTIMATELY BE A LEADING GLOBAL PRODUCER IN HYGIENE? SCA is already a global market leader in hygiene right now among other things, with 25 percent of the market for incontinence products. We are already number one globally in AFH tissue paper with a market share of 19 percent. COMING FROM LOCAL PRODUCTION AND LOCAL MARKETS WITH A LOCAL FOCUS, TIS- SUE IS ON ITS WAY TO GROW INCREASINGLY INTO BEING AN INTERNATIONAL COMMODITY. HOW DOES THAT AFFECT SCA'S STRATEGY AND ACTIONS ON THE MARKET? SCA has 55 tissue plants in 23 countries, so we have a very good position to meet the demands of our customers. Tissue paper cannot be transported too far, so local production and distribution is needed. We are however working on brand migration, i.e. reducing the number of local or regional brands in our portfolio and instead using the same brand and positioning on several markets. Preferences on different markets with regard to tissue paper are also relatively PHOTO: HÅKAN LINDGREN BILDTEXT SCA has an overall target of 3 4% organic in tissue, says SCA s President Jan Johansson. similar. This produces synergy effects in areas such as marketing costs and R&D. The Tork brand is used around the world. APP HAS HAD BIG PROBLEMS WITH ENVIRONMENTAL OPINION, WHILE SCA STRESSES THAT SUSTAINABILITY IS A PART OF SCA'S BUSINESS MODEL. HOW IMPORTANT ARE SUSTAINABILITY ISSUES FOR FUTURE SALES? We believe that environmental considerations will become more and more important when consumers choose goods. Our environmental efforts thus become more and more important in relations with our retailers. We strive to not only meet the requirements of our customers, but also be good enough to separate us from our competitors and create a competitive advantage. NEW INVESTMENTS FROM SEVERAL SUPPLIERS IN NEW ADVANCED PRODUC- TION TECHNIQUES ARE SOON TO BE IMPLEMENTED. HOW DOES THAT AFFECT THE MARKET AND SCA? HOW FAST WILL THEY GET A FOOTHOLD AND HOW FAST WILL OLD CAPACITY BE PUSHED OUT? In addition to investments in new technology for increased capacity, we regularly upgrade our machinery in conjunction with new innovations being introduced or as a result of our efficiency efforts in our plants. For personal care, that generally means that our machines are updated module by module and thus remain competitive over time. On the tissue side, we have two types of machines: the relatively capital-intensive paper machines that produce with high efficiency for many years, and the converting machines which produce the end product that is delivered to our customers. These converting machines are upgraded regularly in the same way as our personal care machines. We work together closely with our machine suppliers on a global basis, which is a key part of our active innovation efforts for more satisfied customers and consumers and for additional sustainability improvements. AS OPPOSED TO ITS HYGIENE OPERATIONS, HAS SCA TAKEN A MORE DEFENSIVE STANCE IN FOREST PRODUCTS? THE PRINTING PAPER MARKET KEEPS RECE- DING WHAT IS SCA'S STRATEGY THERE? WILL SCA CONTINUE TO PARTICIPATE IN THE CONSOLIDATION OF THE EUROPEAN PRINTING PAPER MARKET? We are a relatively small player in printing paper and are not going to drive a consolidation of the market. We are working from our position, reducing our exposure to the paper qualities we estimate to have the worst chances, gradually shifting to more highlyprocessed qualities and seeing what the best way is for us to make use of the commodities and the production capacity we have. HOW'S IT GOING WITH SCA ÖSTRAND AND SCA ORTVIKEN'S AMBITIONS TO DEVELOP INTO BIOREFINERIES? WHEN WILL WE SEE SOME OTHER KIND OF PRODUCTION BESIDES GRAPHIC PAPER AT ORTVIKEN? SCA Ortviken has increased its capacity to produce more processed printing paper products and is now working on developing supplementary products. SCA Östrand has been granted authorisation to increase its current production of sulphate and CTMP pulp, but some decisions about when new steps in the development are to be taken haven t been made yet. Excess capacity may be possible for production of bioenergy for the surrounding area. SCA IS CURRENTLY A NET IMPORTER OF PULP. WHAT PLANS DOES SCA HAVE TO INCREASE ITS SELF-SUFFICIENCY RATE? WHAT IS THE CURRENT BREAKDOWN IN TISSUE WITH RESPECT TO THE USE OF PULP FROM FRESH FIBRE OR RECYCLED FIBRE? SCA s self-sufficiency rate for pulp is at 37 percent. In tissue, we currently use 46 percent fresh fibre and 54 percent recycled fibre. We currently do not have any plans to increase our pulp production. WIND POWER IS GRADUALLY BEING EX- PANDED WHAT GOALS FOR THE FUTURE DOES SCA HAVE FOR SCA ENERGY? WILL ENERGY BE AN ADDITIONAL STRATEGICALLY IMPORTANT ASPECT ASIDE FROM FOREST PRODUCTS IN THE FUTURE? Energy is a very important input good in our production and at this time we see advantages in bringing energy partnerships under the roof of one company. Our efforts should be seen in light of the fact that we have a lot of land suitable for wind power and can contribute to a secure supply of energy. THE FOCUS ON A NUMBER OF HIGHLY EF- FICIENT SAWMILLS THAT WAS PREVIOUSLY ANNOUNCED IS NOW IN THE PROCESS OF BEING MADE A REALITY. WHAT WILL BE SCA TIMBER'S NEXT STEP? SCA Timber has zeroed in on sawmills that are at the forefront in Europe with regard to cost-effectiveness and productivity, and also on developing products and business models. An increasingly large portion of our production is either customized for industrial reprocessing or for delivery to DIY stores. GLOBAL 8 9

6 BORREGAARD BORREGAARD An Advanced CHEMICAL Borregaard, which employs 1050 people in factories and sales offices across 17 countries globally, is one of the world s oldest and most advanced biorefineries. Although we use wood as a raw material, we re not a traditional forest industry. We re a specialist chemical company and all our bioproducts are for chemical applications, explains Per Sørlie, CEO of Borregaard FACTORY Author: Carl Johard, Sundsvall Borregaard uses every part of wood to produce various types of chemicals. Our business model is based on us purchasing commodities, such as wood and electricity, and selling specialties. We try at all times to create as much value as possible by using all the components of wood in the form of fibres, lignin and sugar. We are a global niche player striving to achieve a sizeable market share in niche areas with high entry thresholds. We would rather be a big fish in a small pond than the other way round, says Per Sørlie. MAJOR INTEGRATION AND FLEXIBILITY IN THE MARKET To ensure the greatest possible resource efficiency, the plant in Sarpsborg is built to achieve a high degree of integration. From a tonne of biomass, we extract around 40 percent specialty cellulose, 40 percent lignin, 5 percent bioethanol and 3 per mille vanillin the rest becomes bioenergy. This is a relatively fixed composition with high value creation and good utilisation of the raw material. The integration is the big challenge, as there is no desire to reduce the pace of such an efficient system. That has consequences for other parts, says Sørlie. HIGH DEGREE OF FLEXIBILITY Each product group has many applications and areas of use, which gives Borregaard great flexibility in the market. If we have fluctuations in one market, such as the construction industry due to low activity, we can then steer the lignin or specialty cellulose towards more lucrative markets for the time being. We ve built up unique product and marketing expertise and presence, comments Sørlie. Borregaard is currently organised into three business areas: - Performance Chemicals, which includes LignoTech with its lignin-based products and sales activity. - Specialty Cellulose, which includes ChemCell producing specialty cellulose and bioethanol. - Other Businesses, which produces vanillin, fine chemicals and basic chemicals. SPECIALTY CELLULOSE With specialty cellulose, Borregaard ChemCell leads in producing ether, acetate, nitrocellulose and microcrystalline (MCC). Viscose is also manufactured, but to a lessening extent. We are extremely good at specialty cellulose with a viscosity that few can compete with. Our ether is used primarily in the construction industry, our acetate is employed in various types of filter, our nitrocellulose is used for specialist printing ink and to make plastic flexible, and our MCC goes largely to the food industry, says Per Sørlie. OTHER BUSINESSES Other Businesses is split into two segments Borregaard Synthesis and Borregaard Ingredients. Within Synthesis, Borregaard produces fine chemicals for the pharmaceuticals industry, including x-ray contrast media and chemical components of asthma medication. Production of medical products is subject to the most stringent requirements concerning operation, hygiene and traceability. This is particularly true for diagnostics, such as Borregaard s x-ray contrast media. It requires a very special manufacturing process with high standards of cleanliness and only a few companies have this level of equipment and expertise. It s a mature segment, but a growing part of our business, states Per Sørlie. With Ingredients, the company is one of the world s leading manufacturers of wood-based vanillin aroma and ethylvanillin. Borregaard has been making vanillin for over 50 years and has been the world s only manufacturer for the past 20 years. The Group s wood-based vanillin currently accounts for seven percent of the world market for vanillin aroma, while 92 percent is based on petrochemicals and less than one percent is naturally produced from orchids or by vanilla farmers. Borregaard also makes the petrochemical-based ethylvanillin, which is four times as strong as ordinary vanillin. PERFORMANCE CHEMICALS Borregaard is also one of the world s leading suppliers of lignin binding agents, which are important raw materials in fields such as cement and concrete mixes, car batteries and animal food. Borregaard has a turnover of NOK 1.7 billion in this business area, with a highly diversified customer base of over 3300 customers and 500 different products. On the concrete front, Borregaard's customers are the major chemical groups. They produce a ready-made admix that they add to the cement. Borregaard is the only lignin supplier in the world to offer global coverage, which is good for huge multinational chemical companies such as BASF. There are four sulphite techniques for the manufacture of lignin calcium sulphite, ammonia, sodium and magnesium. The vast majority of plants built in modern times are magnesium sulphite factories, while the very best from a lignin perspective is calcium sulphite, which has softwood as its raw material, says Per Sørlie. We have agreements with all the calcium sulphite factories in the world, which means that we control the world s production of the most superior lignin grade. In addition to the one in Sarpsborg, Borregaard has five other lignin factories, in the USA, the Czech Republic, South Africa, Spain and Germany. At three of these, Borregaard works with partners such as Sappi, Domtar and Lenzing. Borregard s research centres in Norway, Spain, South Africa and the USA employ 76 chemical and civil engineers from 10 countries. EXCITING AREA FOR THE FUTURE Lignin is an environmentally friendly material that can also be used in food. It has an incredible number of applications, where prices can differ by a factor of 10 between a simple and a more advanced area of use, says Per Sørlie. Extensive development work is therefore underway at Borregaard with the aim of moving the use of lignin up the value chain. One exciting area for the future is car batteries, and Borregaard is keeping a close eye on the growth in electric cars in Asia. All modern electric cars have a starter battery which is a lead-acid battery. A drop of lignin in the car battery makes the acid more viscous, extends the lifetime of the battery by 5-7 times and allows start-up at temperatures as low as -20 degrees Celsius. HIGH HOPES FOR THE BALI PROJECT Borregaard has high hopes for the demonstration plant that the company has built in Sarpsborg with support from the EU and Norwegian authorities. The aim of the plant is to achieve cost-effective production of lignin and bioethanol from fresh bio raw materials. The project is based on unique technology developed in house and named Bali. At this plant we can use raw materials other than wood, such as biomass, and also use enzymes to convert raw materials into sugar, which leads to a simpler production process, says Sørlie. Trials have been successful. The output from the Bali plant is raw materials, lignin and sugar for bioethanol production. We ll be making a commercial assessment of the project in mid-2014 and then the next phase will involve considerable investment. If we opt to do this as a joint venture with a partner in the bioethanol field, we can halve the investment costs. Although we are already the world s largest producer of next-generation bioethanol, sugar and bioethanol are raw materials outside of our core business, says Sørlie. Borregaard currently manufactures 20 million litres of bioethanol in Sarpsborg, and has long had a close sales partnership with Statoil in Norway. NEXT STEP MICROFIBRILLAR CELLULOSE Another project that Borregaard has great faith in is Exilva, focusing on the manufacture of microfibrillar cellulose, which can be used as an absorption agent, amongst other applications. It s a fine chemical with fantastic absorption properties. We re now working with several customers to build a pilot plant in Sarpsborg, and we ll be taking a commercial decision on this project too in the second half of Based on Exilva technology cellulose is extracted, without drying, from the bleaching plant and placed in a buffer tank. What will be required is a wholenew factory of 2000 to 3000 tonnes as an extension of the pulp production, concludes Per Sørlie. EUROPE 10 11

7 BORREGAARD BORREGAARD A DIFFERENT INDUSTRIAL CULTURE Author: Carl Johard, Sundsvall Borregaard has built a large control room to handle 16 factories from one location. Borregaard is not just a chemical company it is also a marketing organisation with tentacles around the globe. What sets Borregaard apart from most other forest industry companies is its strong focus on crosspollinating its three core areas of expertise: sales, R&D and production. Over the past 20 years, Borregaard has built up an impressive external sales organisation. Sales and marketing currently accounts for 10 percent of the total workforce and employs 100 people. But these 100 salespeople in turn account for 90 percent of sales. This means that one in 10 of Borregaard s employees work on the front line. The sales team comprises 25 nationalities, working in 17 countries around the world. We used to rely on a network of agents or distributors, but today we have our own people on the ground, close to the customers. They account for much of the value creation, because they know how our products will be used by the customer and they can also be involved in setting the right price for the products. There is greater scope to influence the price in specialty than there is for raw materials, where the price is set by the market, explains Per Sørlie, CEO of Borregaard. FOCUS ON R&D R&D is another dedicated focus area, accounting for four percent of all employees. Borregaard s research centres in Norway, Spain, South Africa and the USA employ 76 chemical and civil engineers from 10 countries. That represents just over seven percent of the workforce, which is quite a high proportion compared with many other industries, says Per Sørlie. The researchers work on both developing existing products and coming up with brand new ones. We are upgrading the product portfolio all the time. Within R&D, the researchers spend two thirds of their time improving existing processes, products and applications that can be run in the existing plants, and one third of their time developing new products that can be produced in new factories, says Per Sørlie, adding: 18 percent of sales come from newly developed products that didn t exist five years ago. FOCUS ON STAFFING Production efficiency remains high on Borregaard s agenda. To increase production efficiency, Borregaard among other things has drawn lessons from the nearby oil industry. We ve learned from the oil and nuclear industry. We ve followed suit and built a large control room to handle 16 factories from one location. This increases efficiency, but it also gives us better control over our processes, comments Per Sørlie, who continues: If you run a specialty cellulose factory, you run a multipurpose factory, where each customer has individual requirements. The operator always knows which grade is in production, who the customer is and what requirements they have. 18% OF SALES COME FROM NEWLY DEVELOPED PRODUCTS HIGH AVAILABILITY Per Sørlie stresses that three things are important in a factory high availability, high production capacity and high quality. We have on-site operators and we have off-site operators. Those who are out at the factory are responsible for ensuring the equipment is always available and those back in the control room have to keep production running at full tilt and maintain quality at all times. With regard to its energy costs, Borregaard has recently built a factory that will be able to use the waste from the cleaning plant to produce biogas amounting to 37 GWh per year (45.9 by 2015). We ve done a great deal to become a green supplier. We have long electricity contracts and most of our thermal energy comes from waste refining and energy recovery, concludes Per Sørlie. Author: Carl Johard, Sundsvall WE HAVE PLENTY OF ROOM TO MANOEUVRE Our top priority is to increase our margins, and we ll be doing that by manufacturing more advanced products in our existing factories, explains Per Sørlie, CEO of Borregaard. WOULD IT BE POSSIBLE TO BUILD UP A BIOREFINERY LIKE BORREGAARD AGAIN? No. Over the years, Borregaard has received considerable support and impetus from the trademark group Orkla, which initiated a different direction for the company and also helped with the commercial side of things. I don t think other forest industries today would be able to do what Orkla did with Borregaard. It s a major step to go from wood processing to chemicals and from commodity to specialty. It has taken extensive investment and a significant change of culture within the company. WHY IS BIOETHANOL NOT A FUTURE AREA OF INTEREST FOR BORREGAARD? Most of those who call themselves biorefineries are focused on commodities. Bioethanol is one such commodity and we are far too small to be able to compete with the large oil companies. We need to focus on higher value creation. WHY DON T YOU FOCUS MORE ON VISCOSE? Borregaard withdrew from that market 20 years ago, although we still sell a little viscose in small quantities. It is an attractive market, but it s no good if you don t have a proper cost structure. The barriers to entry into the textile cellulose market are too low. It is far too easy for new suppliers to establish themselves. Viscose staple fibre is on the way to becoming a, and you need to be a major player with the right positioning to survive. WHAT HAS FLOATING ON THE STOCK MARKET MEANT FOR YOU? Orkla is already listed, so it has been a relatively simple transition for us. Floating on the stock market is a good solution as it allows us to continue developing the chemical side of things in the direction of adding more value. The flotation also gave us a robust balance sheet. We now have plenty of room to manoeuvre with less than one billion in debt and reserves of over one billion that we can free up at short notice. HOW DOES THE FUTURE LOOK WILL YOU GROW ORGANICALLY OR VIA ACQUISITIONS? There is not much out there to buy and we will primarily be developing the company through organic growth. In the immediate future, we want to develop our lignin business in Performance Chemicals through the Bali project. We believe we can make better use of the raw materials, and we can produce even more advanced products. We re confident that Exilva can be developed into a new business area and a new pillar for Borregaard. Our top priority is to increase our margins, and we ll be doing that by manufacturing more advanced products in our existing factories. Since we re always making full use of our capacity, we need to focus on what is most attractive. We re keenly focused on optimising our overall product mix. LISTED FOR THE SECOND TIME We will primarily be developing the company through organic growth, says Per Sørlie, CEO of Borregaard. Founded in 1889, Borregaard has been gradually converted from a traditional pulp mill to an advanced chemical biorefinery. In 1986, Borregaard and Orkla merged. Last year, Orkla decided to sell an 81 percent stake in the biorefinery on the Oslo Stock Exchange and in May this year the remaining 19 percent stake was also sold off CUSTOMERS AND 500 DIFFERENT PRODUCTS WITHIN LIGNIN EUROPE 12 13

8 SÖDRA SÖDRA THE DURABILITY OF PLASTIC AND THE LOVELY FEEL OF PAPER THIS IS DURAPULP What is DuraPulp? DuraPulp is a bio composite mainly consisting of selected wood fibres and a bio-polymer called PLA (polylactic acid). Its ingredients come from renewable, non-fossil based raw materials, which means that it is carbon neutral. The PLA content is a company secret and the specification of DuraPulp may vary depending on product application and customer needs. EUROPE What is DuraPulp made of? Today PLA is produced mainly from corn starch, but DuraPulp is a brand new composite material with unique properties. Anna Altner, project manager for DuraPulp at Södra, says that getting an as yet unknown product out onto the market is a difficult but stimulating task. The challenge is that the product is so new, it doesn t fit in with the existing conversion methods. It s neither plastic nor paper, but something entirely different, which requires a whole lot of new thinking, methods and machinery. Naturally, it takes time to convince manufacturers that it s worth investing in a product like this. However, designers of various kinds have been interested from the beginning. There s a huge desire among furniture designers, for example, to work with new Author: Per Aronsson, Sundsvall materials. They see it as a chance to make things that weren t possible before. The key is to get the process working, so that we can go from the finished raw material to a chair, lamp, chest of drawers or whatever else it might be. That requires tools, new machinery, active problem-solving and a large dose of imagination. SUCCESS THROUGH DESIGN There are no products in ordinary shops as yet, but the prototypes that have been developed so far have attracted a great deal of attention. We ve been to the Milan Furniture Fair twice. The first time was in 2009, where we premiered a chair that began as a degree project. What we didn t understand was the value of working with well-known designers. We were overwhelmed with positive responses. These successes spurred us on to continue developing the material and get it onto the market. The pilot production plant was not brought on stream until 2012, but the whole thing began back in 2000 as a project at Innventia, a research institute for the Swedish forest industry. According to Anna Altner, it has been, and still is, an incredible journey. Although cool designer furniture is impressive, the most important focus of all is going to be on packaging with specialist properties. The key factor is, of course, the way the material combines the durability of plastic with the soft feel of paper. This provides stiffness with the benefit of being able to do things not usually possible with paper. The fact that DuraPulp is also renewable is another advantage. THE PROTOTYPES THAT HAVE BEEN DEVELOPED SO FAR HAVE ATTRACTED A GREAT DEAL OF ATTENTION Anna Altner, DuraPulp Wet forming has once again become a method with great potential. THE ART OF COMMUNICATING THE WHOLE VALUE CHAIN DuraPulp is sold as a composite pulp. It can then be activated using heat or pressure. The key here is to find smart and economical solutions. We re quite excited about wet forming. It s an old technique that we want to develop together with our customers. With the increase in interest in fibre-based materials, wet forming has once again become a method with great potential. Anna Altner states with conviction that DuraPulp is a fantastic raw material and that it is an honour to get to work with something so innovative. Although the idea of a composite material is nothing new, DuraPulp will be a material that opens up all sorts of new opportunities. Of that Anna Altner is sure. But as I said, launching a new material is a complex task. Communicating the whole value chain is a major challenge with so much to explain and so many people who have to be convinced. At the same time, it s enjoyable and there are new things happening all the time. We come into contact with inquisitive people with great ideas and that leads on to development projects and new contacts. MAYBE SOMETIME NEXT YEAR? Prototypes are all very well, but when will ordinary consumers see DuraPulp in the shops? I hope and believe it will be next year. I can t say too much yet, but it will probably have something to do with packaging... other starch-based plants can also be used, for example, sugar cane and tapioca. The PLA market is fairly new, it is growing and the industry is putting considerable effort into finding other sources for PLA, such as wood-based products and agricultural waste. As the market increases, so does the momentum for finding alternative resources. PLA production accounts for less than 0.5% of the annual production of corn in the U.S. What are the options for processing the material? DuraPulp can be used in two different ways activated or non-activated. The material s properties vary according to how it is processed. You need heat and pressure to activate DuraPulp. When activated, DuraPulp becomes very strong, rigid, dimensionally stable and has low water absorption. Its properties are more comparable with plastic. Its strength means savings can be made on materials. Non-activated DuraPulp is mainly of interest to the speciality paper area where it can impart high folding resistance, for example, as well as high tear strength and high dimensional stability. Which industrial processes are suitable for DuraPulp? DuraPulp bales can be converted with different techniques, for example: Is DuraPulp certified for food contact? Södra is actively working with this issue and there will soon be DuraPulp on the market that can be used for food applications

9 SÖDRA Södra and H&M WANT TO DRESS THE WORLD IN NEW TEXTILE FABRICS In December 2011, Södra Cell began the industrial production of textile pulp at its mill Mörrums Bruk. The company is now reviewing the possibilities for converting another line. Major initiatives are being planned to increase the production of wood fibre-based textiles and find applications for them. In December 2011, Södra Cell began the industrial production of textile pulp at Mörrums Bruk. In the first year, it produced around 100,000 tonnes. The textile pulp has been sold to customers in Europe and particularly Asia. The customers have come back and Södra Cell is now reviewing the possibilities for converting another line. COLLABORATION WITH H&M The opportunities for textile pulp in the market are interlinked with the problems that both cotton and synthetic fabrics face when sustainability and global resources have become increasingly important. Cotton production has long had a reputation for its high water consumption and the extensive use of chemicals. Cotton is also grown on land that in many cases could be put to better use for food production. The need for finding an alternative to cotton has resulted in the CelluNova development project, a collaboration between Södra Cell and other players including H&M. FUTURE FASHION The Swedish fashionwear company also plays a key role in Future Fashion, a strategic research initiative in which Mistra has invested SEK 40 million to provide a meeting place for the fashion industry, forest industry representatives and researchers in business administration, psychology and materials science. Author: Per Aronsson, Sundsvall H&M has a key role as a major player in the fashion world. The diversity of Future Fashion is impressive. Research practitioners include Innventia, the Swedish University College of Arts, Crafts and Design, SP, Swerea IVF, Chalmers, the Copenhagen Business School, Stockholm School of Economics, Malmö University and the University of the Arts London. Among the companies participating in the programme, H&M has a key role as a major player in the fashion world, while recycling companies such as Myrorna, I:co and Soex contribute valuable expertise in sub-projects that have been set up to find different ways to change human behaviour with a view to increasing the recycling of clothes. THE NEED FOR FINDING AN ALTERNATIVE TO COTTON HAS RESULTED IN THE CELLUNOVA DEVELOPMENT PROJECT UPM BUILDS THE WORLD S FIRST BIOREFINERY FOR BIODIESEL Author: Per Aronsson, Sundsvall Finnish forest company UPM is building the world s first biorefinery for the production of renewable diesel based on residual products from cellulose production. The plant will be located on UPM Kauka s industrial site in Lappeenranta, Finland. Sari Mannonen, project manager for UPM Biofuels, says that this represents a dramatic revolution for the entire industry. Global events forced UPM to find new business solutions and the seeds for the biorefinery project were actually sown in Like everyone else, we noted a sharp decline in demand for paper. We realised that we needed something else, something new for UPM as a company. So we looked at our assets and saw that we had major quantities of residual products from the forest and decided to exploit that situation. It might sound obvious and simple, but it s also important to carefully analyse what is actually possible. CUTTING GREENHOUSE GASES BY 80 PERCENT The planned manufacture of renewable diesel, which will commence next year, is based around the residual product crude pine oil. Sari Mannonen says that the vast majority of all the crude pine oil. that UPN needs for the process will come from its own pulp production. The research that has led to various solutions and products has also been conducted in-house. It definitely feels good and is a confidence booster, but the most important thing is to develop a green and sustainable product. Our diesel, which we call UPM BioVerno, will cut greenhouse gases by 80 percent compared with fossil-based diesel. Another advantage is that we won t be using maize, sugar or other foods in the biodiesel process. What we produce will come exclusively from the forest, with the bonus that we ll be able to make use of a residual product. Sari Mannonen reports that everyth- ing has gone according to plan from the beginning of the project. The only cloud on the horizon is the uncertainty surrounding future EU rules. It s causing a great deal of uncertainty about what will happen in this market and how it will be structured. This in turn is causing investors to hold off on making decisions, which is naturally slowing things down. The industry knows that the EU is in favour of biofuel, it s just unfortunate that the future regulations remain unclear. GROWING DEMAND Sari Mannonen is an eternal optimist with a strong belief in UPM s new direction. THE BIOFORE COMPANY UPM calls itself The Biofore Company. This is a name of its own choosing, where Bio stands for future focus, sustainable solutions and good environmental performance. Fore stands for forest and the ambition to stay at the cutting edge of developments. The basic concept is to integrate the bio and forest industries. UPM "The market for biofuel is currently growing and the future looks bright green", says Sari Mannonen, project manager for UPM Biofuels. The market for biofuel is currently growing by around 7 percent a year in Europe. In 2010 there was demand for 14 million tonnes. By 2020 that figure is forecast to have risen to 36 million. That is almost a tripling over a ten-year period. So yes, the future looks bright green. EUROPE 16 17

10 STORA ENSO BASF Author: Carl Johard, Sundsvall STORA ENSO TURNS WASTE PAPER INTO NEW PACKAGING Stora Enso s new new lightweight containerboard machine at Ostroleka in Poland, that went on stream in early 2013, runs exclusively on recovered fibre. Ostroleka Mill is near the city of Ostroleka, 120 km from Warsaw. The history of the mill dates back to 1959, the year of inception of the state-owned company Ostroleka Pulp and Paper Mill. Ostroleka Mill is the biggest mill in Stora Enso Poland by mill area. The mill comprises a pulp and paper mill, a corrugated board and boxes mill and a sack mill. STARTED UP IN EARLY 2013 Ostroleka Mill s new light-weight containerboard machine BM 5 started up in early The machine is currently in the ramp-up phase, which is expected to last a couple of months. The investment cost of the machine was EUR 285 million, and its capacity is 455,000 tonnes of product per year. Our new BM 5 will strengthen our posi- 455, 000 TONNES OF CORRUGATED BOARD PER YEAR Our new BM5 will strengthen our position in the growing markets of Central and Eastern Europe, says Mats Nordlander, EVP Renewable Packaging. tion in the growing markets of Central and Eastern Europe, and at the same time support our packaging growth strategy, says Mats Noirdlander, EVP, Renewable Packaging. The corrugated board and boxes mill manufactures single-wall and double-wall corrugated board of all types of flute, which are then used for the production of different kinds of American-type boxes and die-cut boxes. The sack mill is one of the most modern sack producers in Central and Eastern Europe, equipped with three state-of-theart sack lines. The product range comprises open-mouth pasted sacks, valve pasted sacks and paper sacks on reels. The demand for modern light-weight corrugated packaging is increasing rapidly. The market in Central and Eastern Europe will grow by over 5% per year, says Mats Nordlander, EVP, Renewable Packaging. NEW CONTAINERBOARD MACHINE A SUSTAINABLE INVESTMENT Stora Enso s integrated network for collecting paper for recycling in Poland, the new efficient power plant that uses more than 50% biofuels and this new state-of-the-art containerboard machine with low energy consump- tion will make Ostroleka the benchmark for cost and product offerings in Europe. Stora Enso has established its own collection system in Poland based on collection and sorting stations that it has set up around the country. The packaging material it collects is transported to those collection stations, where it is separated from other waste material and baled. The final raw material is then transported to Stora Enso s mill at Ostroleka and made into new products: cardboard boxes and board packaging. The board waste may just look like colourful rubbish to some, but this raw material keeps huge board machines in motion. True recycling means more than just sorting. It means that perfectly functional new products are made from the recycled materials, says Jerzy Janowicz, Mill Director of Ostroleka Mill. We have to continue to rethink, and the investment in Poland is another step in our transformation into a value-creating renewable materials company focusing on growth markets, says Stora Enso CEO Jouko Karvinen. BASF AND ZELFO PUT THEIR CLEVER HEADS TOGETHER The two German companies BASF and Zelfo Technology have entered into a partnership focusing on the development and use of nanocellulose, also known as nanofibrillated cellulose. Extracted from wood fibre, nanocellulose has extraordinary strength characteristics. In contrast to Kevlar and other products, which are drawn from fossil raw materials, nanocellulose is also renewable. However, just a few years ago, the manufacturing process was so energy-intensive that it was not economically viable to begin full-scale production. Now research has solved that problem. Author: Per Aronsson, Sundsvall CROSS-FERTILISATION Nanocellulose has many uses, including strengthening paper and board, and thus giving the products new properties. Other interesting possibilities are surface sizing, surface coating, thickeners in low-calorie food, oil recovery applications, cosmetic products and applications in the electronics industry. The idea of the collaboration between BASF and Zelfo is that the two companies will cross-fertilise each other. BASF brings the chemical know-how, while Zelfo covers the fibre technology. The goal is to soon begin production on an industrial scale. The partnership combines BASF s chemicals with Zelfo Technology s expertise Founded in 1865, BASF is one of the world s leading chemical companies. Zelfo Technology is focused on the development and optimisation of cellulosic materials. and patented process for optimising cellulosic raw materials, explains Uwe Liebelt, who is head of BASF s Paper Chemicals division. BETTER, MORE SUSTAINABLE PRODUCTS The aim of the collaboration is to use a renewable material to develop better products and more sustainable packaging. By offering improved cellulosic materials, as well as products from recovered paper pulp and cellulose waste from agriculture, we ll be able to meet the sustainability demands of the future, concludes Richard Hurding, CEO of Zelfo Technology. EUROPE 18 19

11 MONDI MONDI Mondi Dynäs is the only mill left in the region of Ådalen, which was once the very heart of the Swedish forest industry. Our ambition is to be the best kraft paper mill in the world, says Robin de Jong, Managing Director of Mondi Dynäs. Mondi Dynäs, which was placed under the business area Mondi Packaging Paper in 2000, is now the only mill left in the region of Ådalen, which was once the very heart of the Swedish forest industry. Today, Mondi Dynäs is an integrated mill with 300 employees, producing 250,000 tonnes per year of sack kraft paper and speciality kraft paper on two paper machines. TOP-QUALITY PRODUCTS The majority of the volume is used in bags for the cement industry and the rest is speciality kraft paper that the bag industry uses in specialist applications for waste management and in the chemicals and construction materials industries. Our strength lies in our employees, the modern mill and the local access to long virgin fibre of extremely high quality. Bag converters and end-users worldwide benefit from the strength and quality of the fibres we use, but our competitiveness depends on always maintaining top quality, states Robin de Jong, Managing Director of Mondi Dynäs. WORLD RECORD Mondi Dynäs manufactures various grades of kraft paper. Investments made in the mill over the years, combined with advanced research and development, have resulted in significant improvements in the runnability, printability and strength of Mondi Dynäs kraft paper. The majority of the kraft paper that Mondi Dynäs produces is shipped to the emerging markets in Asia. High Ambitions at MONDI DYNÄS Author: Carl Johard, Sundsvall Our ambition is to be the best kraft paper mill in the world, says Robin Jong, MD of Mondi Dynäs. While Europe s cement bags have reduced in size to kg, Asia still uses cement bags of kg in an extremely demanding and challenging environment. At the ABOUT MONDI The Mondi Group is a market-leading paper and packaging group with a global presence, formed in 1967 as a subsidiary of the Anglo American Group in South Africa. In 2007 the Mondi Group became an independent company listed on the stock exchange in London and Johannesburg. Mondi currently operates 102 industrial facilities and has 25,700 employees in 30 countries around the world. In 2012 its sales amounted to EUR 5.8 billion. Its operations are primarily located in Europe, Russia and South Africa. The Mondi Group is divided into two divisions: South Africa and Europe & International. Production is integrated, and the Group has access to its own pulp and forests. Mondi manages its own forests, covering 2.4 million hectares. In Sweden, Mondi has 500 employees, with 130 in Örebro, 10 in Sunne and 320 in Dynäs. same time, the European market is declining, while the tiger economies of Asia are growing by 4-8 percent year on year. FOCUS ON EMPLOYEES, SAFETY AND THE ENVIRONMENT Mondi Dynäs sees its employees as one of its most important resources, which is why job satisfaction and staff development are in strong focus here. Safety and the environment are also key issues both internally and externally. We have a loyal workforce and we re always on the lookout for new talent in Sweden. We try to create a good working environment, so we can retain and develop expertise within the mill, says Robin de Jong. A key asset is the solidarity within the Mondi Group. We have a wealth of expertise within the Group and we can share information and experience between the factories and the mills to improve skills. We also have an internal network of large, strong and leading players in packaging and paper. MAJOR FOCUS ON BENCHMARKING Collaboration within the Group is also important for benchmarking between the kraft paper mills in the Czech Republic, Bulgaria, Austria and Finland, and also other sister mills within the Group. Major resources have also been put into product development centrally within Mondi and out at all the Mondi Packaging Paper mills. A handful of people at Mondi Dynäs work full-time on the quality development of existing and new products. However, the operators and other employees are also involved. Our ambition is to be the best kraft paper mill in the world, concludes Robin de Jong. Author: Carl Johard, Sundsvall THE MONDI WAY Human resources development plays a crucial role for Mondi when it comes to establishing its core values and a distinct corporate culture. To support this, the Group has created its very own training organisation The Mondi Academy. The Mondi Academy was formed 15 years ago. The reason was that we wanted to give our employees a broad grounding in our product portfolio. We have various products and we want our employees to be fully aware of what we manufacture and how the production process works. Initially, the courses were mainly of a technical nature, with a focus on market development and innovation as a driver of our competitive position, explains The Mondi Academy Manager Birgit Hoettl. However, The Mondi Academy has developed over the past 15 years, with more and more courses being added to the portfolio. Today the Academy offers a wide range of technical, business and management courses in various locations across Europe. There are also rolling training programmes on other work-related issues at operational level. Mondi Dynäs manufactures various grades of kraft paper. In the past 15 years 4,000 people completed The Mondi Academy s courses. Alongside all this, we re developing an increasing number of customised training programmes for different target groups. We want our employees to know as much as possible about Mondi from various angles and to develop their personal and professional skills, says Birgit Hoettl. LIFELONG LEARNING The training offered through The Mondi Academy is an integral part of Mondi s investment in Knowledge Management. Our skills development varies depending on the business and the annual needs assessments that take account of the plans and development goals of the workplace and its individuals. We aim to provide lifelong learning and support the career development of our employees, says Birgit. The past 15 years have seen 4,000 people complete The Mondi Academy s courses and 600 employees took part in Despite such a scale, the central organisation for The Mondi Academy is made up of only 2.5 people. THE MONDI WAY The Mondi Academy plays a key role for Mondi in entrenching core values and establishing a distinct corporate culture The Mondi Way. These courses are definitely popular with staff. Over the past few years, we ve further developed Mondi s corporate culture through our Inspire initiative that brings to life our core values. We expect our employees to be dynamic, entrepreneurial, responsible, transparent, respectful and empowered, explains Niki Fraiss, Marketing Communication Manager for Mondi Europe & International. Participation not only improves the skills and understanding of employees, but also their motivation to optimise their own performance and exploit their knowledge. We invest in the training and development of our employees, not only so they can do their jobs safely and productively, but also so they can realise their potential. EUROPE 20 21

12 SCA SSG SCA KEEPS MAINTENANCE IN-HOUSE SCA has created a joint maintenance organisation for its three plants: Ortviken, Östrand and Tunadal. The goal is to make major savings and create a more efficient, streamlined maintenance organisation. The results are promising and the next challenge is to create a joint storage facility. 100 PEOPLE WILL BE REDUCED WITHIN THE SCA MAINTENANCE ORGANISATION Author: Carl Johard, Sundsvall The central mainentance organisation consists of around 250 people with duties in five areas: mechanical, electrical, premises, storage and projects. SCA Forest Products has done it exhaustively. After meticulously studying how the maintenance of the group s plants in Norrland was conducted, the decision was made to keep its maintenance in-house by building up a joint maintenance organisation, initially for SCA Ortviken, SCA Östrand and the Tunadal sawmill. Our analysis showed that there is real potential for us to boost efficiency and save on costs by coordinating our maintenance work in-house. The plan is to utilise resources between plants more flexibly, widen the procurement base, manage work methods and resources and reduce labour hire. The best, most workable proposal is to keep the maintenance in-house, and to build an organisation for it to serve the three plants with maximum flexibility, says Ulf Larsson, President of SCA Forest Products. SCA MAINTENANCE This led to the creation of SCA Maintenance at the end of Today the three plants have a coordinated maintenance organisation. We have combined the maintenance work at Ortviken, Östrand and Tunadal into one organisation. First we laid a foundation, then we calibrated our maintenance work according to SSG's maintenance standard 2001, to get workable comparative figures and KPIs. We completed the technicality analyses and organised storage and job order processes at all three plants according to how we want to steer the operation, says Pär Eriksson, Manager of SCA Maintenance, and continues: The efficiency programme is proceeding according to plan, says Pär Eriksson, head of SCA Maintenance. Our biggest challenge was coordinating the work, deploying the personnel where they are needed the most and working both in the long and short term. We want to spread the know-how and experience between the three plants. Whatever we accomplish in a well-developed, exemplary manner in Östrand, for example, should also be for the benefit of the other plants and vice versa. RESPONSIBILITY FOR OPERATING RELIABILITY To achieve its objective, SCA Maintenance has put together an organisation consisting of three small local maintenance teams of people at each plant and concentrated the remaining maintenance duties in the central organisation that we can deploy to the three plants as required. We have recalibrated our job order process. Local maintenance is responsible for the operating reliability of each plant. It has operational responsibility and decides what, when and how the maintenance should be performed. It is therefore also responsible for long-term and preventative maintenance. Local maintenance decides what needs to be done and orders contractors and specialists from the central organisation, says Pär Eriksson. The central maintenance organisation consists of around 250 people with duties in five areas: mechanical, electrical, premises, storage and projects. One of the most important tasks over the next year is to create a joint storage centre for the three plants. THE RIGHT DIRECTION The coordination programme is aimed at making significant savings. Among other things, the number of maintenance positions will be reduced by 100 people. We base all our work on measurements using KPIs and we are seeing clear signs that we are heading in the right direction. If all goes according to plan, in one year we will have a much more efficiently planned maintenance system and will have improved the way in which we utilise our strengths and our personnel, he concludes. UNIQUE NEW TOOL FOR BENCHMARKING During summer 2013, a new system solution for benchmarking will be launched by SSG Standard Solutions Group AB a joint venture owned by the five largest Scandinavian forest industry groups. The participating companies will begin reporting key maintenance figures in autumn This new solution offers considerable potential. BENCHMARKING One of the main priorities of SSG's new Reliability and Efficiency Committee has been to create a workable tool for benchmarking key maintenance figures. The system solution is now complete and the unique new tool, which has been developed in cooperation with the companies on the committee, is ready for launch. INDUSTRY STANDARD Industry standard SSG 2001 underpins this benchmarking model. SSG 2001 covers general regulations and instructions on how to measure and define jointly selected performance indicators for maintenance work. The standard is based on the European standards SS-EN and SS-EN 15341, supplemented with experience from a number of companies in the pulp and paper industry. We ve therefore developed a system solution that makes it possible to monitor maintenance work and draw comparisons between specific mills in terms of a number of predetermined performance indicators, explains Mats Karlsson, head of SSG s Technology & Maintenance business area. Alongside this, SSG has also developed the SSG Dut Agreement, which details the frameworks that surround the cooperation and what is expected from SSG and the participating companies. Some 15 mills will be participating initially, including BillerudKorsnäs, Holmen, Metsä Board, Munksjö, SCA and Södra Cell. The tool will launch as a full-scale system, with participating mills divided into three different production sectors: chemical pulp mills, integrated chemical mills and other mills. As the SSG standard is based on European standards, it will also be possible to use the benchmarking tool internationally. Our aim is to gradually extend the service, adding more performance indicators and mills, says Mats Karlsson. We have huge expectations of SSG s new benchmarking tool and we will be using it straight away within SCA Maintenance, states Pär Eriksson, head of SCA Maintenance. We have huge expectations of SSG s new benchmarking tool, says Pär Eriksson, head of SCA Maintenance. PHOTO: KRISTOFER LÖNNÅ EUROPE 22 23

13 METSÄ GROUP PAN Papirna METSÄ FIBRE PLANS MAJOR BIOGAS PLANT IN JOUTSENO Finland s commitment to the international community is to increase its proportion of renewable energy to 38 percent and cut carbon emissions by at least 20 percent by the year Meeting these targets will require a host of measures from both public institutions and private companies. Wood-based biogas is an extremely interesting option that is becoming more and more topical. The greatest challenge lies with the technology, says Pertti Lehmonen from Metsä Fibre, who is project manager for an exciting biogas project. Together with Helsingin Energia and natural gas company Gasum, a feasibility study is being conducted into the construction of a biogas plant at the pulp mill in Joutseno, a strategically perfect location in south-eastern Finland. There are just a few people from each of the companies working on this project, making it a small and efficient organisation. Author: Per Aronsson, Sundsvall The final investment decision has not yet been taken. I can t say exactly how much would be required, but it s going to be several hundred million euro. BIOGAS FROM WOODCHIPS AND BARK This will be a large-scale plant, with production capacity of an impressive 200 megawatts. That is enough to supply 50,000 households with electricity and heating for a year. The biogas will be produced solely from wood chips and bark, which will be converted into at least 95 percent methane. Since there is already an existing network for natural gas, the finished biogas can be piped to locations such as Helsingin Energia s power station in Vuosaari and used instead of fossil natural gas. It s a very neat and energy efficient solution. However, as I said, we have a number of technical challenges ahead of us, not least the issue of how to purify the gas. To be honest, there was a shortage of expertise from the start about how this works and what is required, but we re learning all the time. FACT Gasum, a natural gas company, owns an extensive distribution network for natural gas that can also be used for biogas. Helsingin Energia is one of Finland s largest energy companies, selling electricity to around 400,000 customers nationwide. Metsä Fibre is one of the Nordic region s leading cellulose companies. 200 MEGA- WATTS PER YEAR FROM THE NEW BIOGAS PLANT PUBLIC SECTOR SUPPORT NECESSARY If the plant is to be built, it will require help from the relevant state funding programmes that support private investment in cutting carbon emissions. Whatever happens, Pertti Lehmonen feels that biogas is of particular interest. It is not a passing trend. It is a renewable energy source whose potential is increasingly being appreciated in terms of energy security and the environment. Gas in general is a growing market and that means biogas is likely to become even more interesting in the future. Chinese Investors Enter Joint Venture IN CROATIA A Chinese investment group has joined forces with Croatia s PAN Papirna to form a joint venture that will produce 250,000 tonnes of pulp and 330,000 tonnes of coated graphic paper per year. A Chinese investment group has signed an agreement with Croatian paper and packaging manufacturer PAN Papirna Industrija to invest 320 million euros (US$415 million) in building a greenfield paper mill in Croatia. Dravacel, a joint venture company, will build and run a pulp and paper facility in Slatina, northeast Croatia. China International Investment Stock Ltd will hold a 70 per cent stake in Dravacel, while the remaining 30 per cent will be held by PAN Papirna. A geothermal plant to supply power will also be built. THE LARGEST GREENFIELD INVESTMENT IN CROATIA The construction of the plant, which will employ about 500 people, is planned to start in spring this year and is scheduled for completion in This is the largest greenfield investment in Croatia, said Marinko Mikulić, chief executive officer (CEO) of PAN Papirna, when the investment was announced in Zagreb in November The plant will use a locally grown perennial grass hybrid specially developed as a feedstock for the mill, he said. NEEDS FOREIGN INVESTMENT Dravacel will have a production capacity of 250,000 tonnes of pulp and 330,000 tonnes of coated graphic paper per year. PAN Papirna will also produce up to 200,000 tonnes per year of recycled and virgin-fibre packaging paper at the Slatina site, once the company has transferred and refurbished Author: Jan Hökerberg, Hong Kong PAN Paprina manufactures packaging paper and corrugated board. the paper machine from its paper mill in Zagreb, which is scheduled for closure in the middle of next year, Mikulić told the news service EUWID Pulp and Paper. Croatia, which is set to become the 28th member of the European Union (EU) on 1 July 2013, needs foreign investment to revive its economy after three years of recession and stagnation. Unemployment in the nation of 4.2 million reached 19.6 per cent in November. Croatia applied for EU membership in A LEADING NON-BANKING FINANCIAL INSTITUTION China International Investment Stock Group Limited (CIISGL), headquartered in Beijing, was founded in 2004 in Hong Kong. As a leading non-banking financial institution, CIISGL offers a wide range of financial services, such as direct investment, venture capital, project financing and corporate advising. Its business activities cover multiple fields, such as energy conservation and environmental protection, ecological planting, energy resources, consumer services, healthcare and mineral resources. FACTORIES IN ZAGREB PAN Papirna was founded in 1983 and manufactures packaging paper and corrugated cardboard at its factories in Zagreb (to be shut down) and Donji Andrijevci. About 30 per cent of its finished products are exported. 250,000 TONNES OF PULP AND 330,000 TONNES OF COATED GRAPHIC PAPER PER YEAR EUROPE 24 25

14 TRADE WAR TRADE WAR POLITICAL BALANCING ACT TO PREVENT TRADE WAR BETWEEN USA AND CHINA Author: Lennart Pehrson, New York Competition in the Chinese market for dissolving pulp is increasing. Domestic manufacturers are losing market shares and are blaming exporters in North and South America for illegal price dumping. In a worst case scenario, the conflict could escalate into a trade war between the USA and China. Following complaints from Chinese pulp and paper producers, the Chinese Ministry of Trade in Peking launched an inquiry which is expected to be completed in It was supposed to have been completed in February but may due to circumstances be delayed until August. All the leading exporters in the USA, Canada and Brazil are being scrutinised. These companies will be asked to answer questions about their pricing practices in relation to their production costs. The findings will be the source material for decisions that may lead to penalty duties being levied by Chinese law. ACCUSATIONS FROM CHINA It is currently impossible to say if there are any grounds for the Chinese accusations of dissolving pulp being sold below production costs for the purpose of winning market shares. But if penalty duties, or any other form of quota trading is introduced, the affected export companies will be subject to a different cost structure. Even if prices do increase, it will be harder to fend off the competition from the Chinese manufacturers and stay profitable. It is also significant that China is now accusing manufacturers in the USA and other countries of selling at dumped prices. Seven domestic manufacturers of dissolving pulp are behind the accusations and they are also backed by eight other Chinese producers. Together these companies account for 80 percent of China s production of dissolving pulp. AMERICAN ANGER The US and other industrial countries have long been severely critical of China s low-price exports. The US previously levied penalty duties on polyester fibres imported from China. According to the United States International Trade Commission, Chinese manufacturers have previously dumped their export prices in a manner that has harmed American producers. The penalty duties on polyester fibres were extended in September It is not entirely surprising that the USA is accusing China of price dumping. Opinion in the USA has long maintained that WORLD DISSOLVING PULP DEMAND Million Tonnes 5,5 5 4,5 4 3,5 3 2, China will continue to see rising wood pulp production along with rising imports of wood chips to make that pulp. SOURCE: RISI, OUTLOOK FOR GLOBAL DISSOLVING PULP MARKET, 2011 China exports everything from car components to solar panels, and sells them on the American market below retail prices. There is anger in the USA about China not respecting copyrights and patent rights and ignoring the prevalence of extensive pirate bootlegging. One longstanding complaint is that China consciously keeps its currency at an artificially low level in order to sustain the low-price exports that have been its growth engine. SERIOUS CONSEQUENCES FOR THE GLOBAL ECONOMY A potential conflict about the price of dissolving pulp the chemical raw material for viscose fibres for China s textile and clothes industry cannot be separated from the trade relations between the USA and China or from protectionist sentiment around the world. Cautionary voices have been raised for a number of years about a possible trade war between what are today the world s two largest economies. This threat has often been downplayed by people who believe that both parties have too much to lose by going down the protectionist path. China needs the USA s large market for its exports. The US cannot afford to jeopardise its future in China, which will grow into a gigantic market for American products and services. What s more, a bilateral trade war would not only harm the US and China but would probably also have serious consequences for the global economy. POLITICAL PRESSURE But there is also a risk that domestic political opinion will demand less restraint and more action. Stronger protectionist sentiments could gain a foothold in the USA if the slow economic growth and high unemployment continue. There has also long been acceptance in the US Congress of pressure to introduce new trade barriers against China. Trade wars generally escalate in stages one protectionist measure triggers an opposite reaction, which in turn creates a vicious spiral. Even if the inquiry into the above-mentioned companies in the USA, Canada and Brazil fails to come up with real evidence of dumping, China may be tempted to respond to what it perceives as a protectionist threat from the USA if the general political trade climate becomes more hostile. POLITICAL SAFETY VALVE China will also have trouble fending off domestic discontent if its exports fall and the country s economic growth slows down. In such a situation it would be hard not to listen to domestic companies who claim to be harmed by unfair foreign competition Penalty duties, quota trading and other protectionist measures could be a short-term political safety valve but the consequences in the longer term could be more brutal. THERE IS A RISK THAT DOMESTIC POLITICAL OPINION WILL DEMAND LESS RESTRAINT AND MORE ACTION NORTH AMERICA 26 27

15 FORTRESS FORTRESS Much at Stake for FORTRESS Author: Lennart Pehrson, New York FORTRESS IS PUTTING ALL ITS EGG IN ONE BASKET TO MEET DEMAND FROM A GROWING MARKET Fortress Paper has thrown the dice. The company is pulling out all the stops to ensure the continuation of strong global population growth. Its business concept is based on forecasts about rising food prices, which in turn will generate a growing need for dissolving pulp. The strategy may be risky, particularly at a time when the price of dissolving pulp is under pressure and there is talk of problems with overcapacity. But, as with all gambles, the pay-out can be high if you play the right number. Canadian company Fortress Paper s assumption is that, as the number of mouths to feed increases, food will become more expensive. As a result, farmers who today grow cotton will have cause to review their future choice of production. Many growers will find it more profitable to abandon cotton in favour of grain and other food crops. The fall in availability of cotton will mean that the clothing industry will need alternative raw materials. This should lead to rising demand for dissolving pulp as the raw material for manufacturing viscose fibres. ALL EGGS IN ONE BASKET Fortress is putting all its eggs in one basket to meet demand from a growing market, particularly Asia. The company s plant for manufacturing wall paper in Dresden is being sold to a German rival Glatfelter The company s management has admitted that its ability to handle its consderable debt depends on the performance of the two dissolving pulp plants in Quebec. Gernsbach. The purchase sum of EUR 160 million will strengthen Fortress s cash flow and ease the way for upcoming acquisitions as the company pursues its aggressive strategy of achieving the position of global leader in the market for dissolving pulp. Fortress s portfolio retains the Swiss paper plant Landquart, which specialises in the production of paper for currency bills and other securities. It produces paper for the Euro bills, among others. The operation is supported by Optical Features in Canada, which supplies the thin film that is used in passports and other ID cards. TWO DISSOLVING PULP PLANTS But the focus is mainly on manufacturing dissolving pulp at the company s two plants in Canada. Fortress whose head office is in Vancouver has converted and upgraded a conventional cellulose plant in Thurso, Quebec, and production is now entirely geared towards the chemical processes needed to produce dissolving pulp. Its annual production capacity is 200,000 tonnes. Last year, an additional cellulose plant in Lebel-sur-Quevillon, also in Quebec, was acquired. This plant was also upgraded and converted for the production of dissolving pulp. Its planned capacity is 250,000 tonnes per year. DEPENDENCE ON ASIA But despite strong optimism about the potential of dissolving pulp, low prices and growing competition has made it difficult for Fortress to be profitable. Despite a positive contribution from the production of securities, the company posted a loss of around CAD 20 million in Its total revenue amounted to CAD 316 million. Demand for dissolving pulp and its price trend have traditionally been strongly linked to general economic growth. A weak global economy has left its mark. But Fortress nevertheless anticipates a rise in demand from Asia, particularly China. Asia is already the dominant market, accounting for more than two-thirds of global demand. The company s forecast is based on a growing population and an expanding middle class will precipitate an increased need for textile fibres that can be covered by dissolving pulp. SIGNIFICANT RISKS The conditions for a continued capacity expansion seem to be in place. Strategic acquisitions and more rational and costefficient production will hand Fortress the advantage even if the competition should increase. The plan could result in a huge payout if all the pieces fall into place. But it is also burdened with considerable risk. The uncertain outlook for the global economy means that growth in China could slow down which would also affect other Asian markets. A high level of debt also makes the company more vulnerable to decreases in cash flow. The company s management has admitted that its ability to handle its considerable debt depends on the performance of the two dissolving pulp plants in Quebec. EVERYONE WANTS A SLICE OF THE PIE A lot of things in general are dependent on the Chinese market. First and foremost an expected increase in demand from China that has driven the capacity expansion. It is the Chinese market that recently got the Swedish company Södra Cell to begin producing dissolving pulp. In other words, other companies besides Fortress are relying on China s future need for large quantities of dissolving pulp, primarily to meet the need for rayon fibre for the textile and clothing industry but also for manufacturing other products such as fibres for cellophane and cellulose acetate. THE THREAT OF TRADE WAR The threat not only includes unpredictable factors such as China s future growth and HISTORICAL MARKET PRICES Price (US $ per Tonne) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, jan/06 jun/06 nov/06 VISCOSE apr/07 NBSK (LIST) sep/07 feb/08 jul/08 dec/08 DISSOLVING PULP (SPOT CHINA) price relation to cotton but also possible trade barriers. Earlier this year, the Chinese Ministry of Commerce launched an inquiry to determine whether producers of dissolving pulp in the USA, Canada and Brazil have dumped their export prices. Fortress Paper is one of the manufacturers under review in the inquiry. If the inquiry results in the levying of penalty duties, it would be a hard blow to Fortress s future sales and profitability, which means much is at stake. may/09 oct/09 mar/10 COTTON NBHK (LIST) aug/10 jan/11 jun/11 nov/11 apr/12 COTTON LINTER PULP (SPOT CHINA) The fall in availability of cotton will mean that the clothing industry will need alternative raw materials. sep/12 feb/13 SOURCE: CCF, FOEX NORTH AMERICA 28 29

16 INTERNATIONAL PAPER INTERNATIONAL PAPER BRAZIL THE NEXT SCALP IN INTERNATIONAL PAPER S GLOBAL CAMPAIGN Author: Lennart Pehrson, New York over the world are expected to provide a real boost to demand. GROWING MARKET International Paper has long been established in Brazil and has a large market share for uncoated fine paper which has also been exported to the rest of Latin America. The Jari deal puts the company in a stronger position in the growing market for board paper, corrugated board and industrial packaging. According to the company s own analysis, Brazil s consumption per capita of both corrugated board boxes and uncoated fine paper is not only below the USA s it is also lower than China s. This suggests there is scope for a strong increase in consumption if the economy in general takes off in the next few years. NORTH AMERICA International Paper is putting its faith in Brazil as a growth market. The global paper company is preparing for a strong economic upturn in conjunction with the 2014 World Cup and the summer Olympic Games in Earlier this year a deal was concluded that saw International Paper invest more than USD 470 million in a joint venture with the Brazilian packaging manufacturer Jari Cellulose. International Paper has a 75 percent ownership in the new holding company, Orsa International Paper Embalegens. Jari was previously part of the Brazilian conglomerate Grupo Orsa. The assets being transferred to the new company are mainly made up of plants for manufacturing corrugated board and box packaging, which are located in south-eastern Brazil, where the country s industry and consumer market is most developed. A MAJOR BOOST IN DEMAND EXPECTED At its head office in Memphis, International Paper s management underlines that it does not see the quest for growth as having any intrinsic value. The company s main goal is instead to deliver good results by generating a strong cash flow. But the deal with Jari was an opportunity to strengthen the company s strategic position globally while Brazil is in itself a market with considerable growth potential. The fact that the country will be hosting two gigantic sporting events in the next few years underpins the optimistic forecasts about the Brazilian market. The impact is expected to be strong on an economic level too. Major investments in infrastructure and visitors from all The fact that the country will be hosting two gigantic sporting events in the next few years underpins the optimistic forecasts about the Brasilian market. PHOTO: DIEGO BARBIERI / SHUTTERSTOCK.COM FOCUS ON BRIC COUNTRIES The Brazilian initiative is also an indication of International Paper s strong optimism about the BRIC countries. Brazil, Russia, India and China are regarded as future markets, when demand for different paper products stagnates or falls in the USA and Western Europe. Weakening demand in the more mature markets is not only caused by a slowdown in the economy; while the vision of the paperless office has yet to materialise, the increased use of smartphones and tablets has shown that the need for certain paper products is on the decline. Before the deal with Jari in Brazil, International Paper also invested around USD 360 million in a 75 percent stake in the Indian paper manufacturer Andhra Pradesh Paper Mills. In its own forecasts, India s growth in the next few years will be in double figures. MASSIVE INVESTMENT IN RUSSIA In 2012 the American company also saw a record result in Russia one of the major bright spots of the year. The Russian campaign is continuing with a massive production expansion within the framework of its collaboration with Ilim, Russia s leading pulp and paper manufacturer. These ongoing investments are among the largest in International Paper s history and will help to meet growing demand both in the Russian and Chinese markets. In China International Paper has long been established in Brazil. the company is expanding in a joint venture agreement with Sun Paper. North America continues to account for more than two-thirds of International Paper s revenue, which totalled around USD 26 billion in The figure is now even higher 87 percent for corrugated board and industrial packaging, the largest operation that generates nearly half of the company s combined revenue. Uncoated fine paper accounts for 22 percent while paper cups and other consumer products account for 11 percent, with a portion of 44 in the USA and 62 percent in the rest of North America. FOCUS ON EMERGING MARKETS But this situation appears to be changing in the long-term. The possibilities for growth in traditionally strong industry and consumer markets in the USA and Western Europe are limited. This weak trend is reflected in International Paper s combined sales falling by more than six percent from 2011 to It seems as though economic growth will, at best, continue at a low level for the foreseeable future. In the face of these circumstances, International Paper will meet future demand first and foremost via aggressive initiatives in emerging markets such as Brazil, Russia, India and China and other countries in Eastern Europe, in South America and in Asia

17 ELDORADO ELDORADO MORE THAN 100 KILOMET- RES FROM THE PLANT IS NOT A PROBLEM - IT MEANS WE CAN SEARCH FOR CHEAPER LAND not a problem. It means we can search for cheaper land, he says. Eldorado has leased land amounting to 130,000 hectares in total. ELDORADO ESCHEWS OWN RAW MATERIALS Eldorado Brasil, which commissioned its plant in Três Lagoas at the end of last year, has in just a short time become Brazil s main contender in the pulp industry. The company has already gobbled up market share from its competitors and drawn Brazil s former Minister of Trade onto the board of directors. It also decided to go against the flow when it comes to raw materials. Author: Henrik Bandão Jönsson, Rio de Janeiro While competitors Fibria and International Paper, who have also set up plants in Três Lagoas, spent heavily on land acquisitions in the region, Eldorado has done the reverse. It has leased land, signing 150 lease contracts in two years, amounting to 130,000 hectares in total. Our competitors have bought 80 percent of their land and leased 20 percent. We have done the reverse. We lease 80 percent of our land and have bought 20 percent, says Germano Vieira, Head of Forestry at Eldorado. STEEP LAND PRICES One of the reasons for the decision was that the start-ups in Três Lagoas have triggered enormous inflation on land prices. Ten years ago, one hectare of land in the Mato Grosso do Sul cost around USD 1,000. Today one hectare costs as much as USD 4,000. We also prefer not to own too much land. There is less damage to the region, he says. Germano Vieira is unwilling to say exactly how much Eldorado paid per hectare as a lease fee. He did however say that the company paid twice as much as the cattle farmers and slightly less than what sugar cane mills normally pay in the region. Our advantage is that sugar cane needs to be harvested as close to the plant as possible. Within 40 kilometres. For us being more than 100 kilometres from the plant is LONG-TERM CONTRACTS The 150 lease contracts are signed for two 14-year eucalyptus cycles. Initially we tried to draw up contracts for three growing cycles, but the landowners thought that 21 years was too long, he says. According to Germano Vieira, the landowners have been willing to lease their land not just for money reasons. Eldorado has also been helping the owners to legalise their land. A lot of them did not have their papers in order and had no environment licences. We have fixed that for all of them. This has created goodwill towards us in the region, which will be useful if we need to lease more land, he says. NEW DEVELOPMENT CENTRE Eldorado is also in the process of starting up a development centre in Andradina, 45 kilometres from Três Lagoas, where studies of genetics, sustainability, insects and other factors that can affect the quality of raw materials will be conducted. The company has entered into a partnership agreement with Brazil s best agricultural college Vila Viçosa and with North Carolina Agriculture and Technical State University in the USA. The development centre will be located next to Eldorado s plant school where it produces 35 million eucalyptus plants each year. Investments in leasing and buying 150,000 hectares of land in the Três Lagoas region have cost the company a total of USD 445 million. Eldorado has decided to go against the flow when it comes to raw materials. EXPERIENCED BUSINESSMAN AND FORMER MINISTER Eldorado s new board member Miguel Jorge was Brazil s Minister of Trade during Lula da Silva s second term of office between 2007 and Before that he was editor-in-chief of one of Brazil s largest and most influential daily newspapers O Estado de S. Paulo, and was also vice president of Volkswagen and Santander in Brazil. As an experienced businessman and former government minister, he will play a pivotal role in making us a world-leading company in the pulp industry, says José Carlos Grubisich, CEO of Eldorado Brasil. ELDORADO PLANS FOR THREE MILLION TONNES PER YEAR Eldorado s plant in Três Lagoas was officially opened at 12 noon, on 12 December 2012 by Brazil s vice president Michel Temer and has the capacity to produce 1.5 million tonnes of paper pulp a year. This year, the company hopes to pull in one billion US dollars and the company hopes to start a second line and produce 3 million tonnes per year by LATIN AMERICA 32 33

18 LWARCEL CENIBRA Lwarcel Launches MAJOR NEW FOREST INITIATIVE AND INCREASED PULP PRODUCTION Author: Henrik Bandão Jönsson, Rio de Janeiro Author: Henrik Bandão Jönsson, Rio de Janeiro CENIBRA EFFICIENCY DRIVE AIMS TO DOUBLE PULP CAPACITY Brazilian export firm Cenibra, which is owned by Japan Brazil Paper, is investing in the mechanisation of its forestry. The restructuring programme has met with strong resistance from trade unions. If it goes through, Cenibra plans to introduce a second pulp line and double its pulp capacity to 2.3 million annual tonnes. After obtaining all the necessary per-mits, Brazilian company Lwarcel has begun work on doubling its forest holdings to 90,000 hectares and increasing its pulp production from 200,000 to 1 million annual tonnes. Brazilian company Lwarcel has received an environment licence to expand its forest and pulp production in Lencóis Paulista in the state of São Paulo. Today the company produces 250,000 tonnes of paper pulp per year and when the new plant is completed, that figure will rise to one million tonnes per year. Finnish consulting firm Pöyry has been commissioned to build and equip the factory, which is expected to start producing at the beginning of DOUBLED FOREST HOLDINGS Lwarcel, which is owned by the Trecenti family, will invest around one million US dollars in the expansion and increase its forest holdings from 43,000 to 90,000 hectares. Today 75 percent of the factory s production goes to the domestic market and the rest of Europe, mainly Germany. With the new initiative, Lwarcel will invest in the growth markets in Asia. RAILWAY PROGRAMME In order to facilitate access to the port of Santos there will be a logistical switch from road to rail. Both of the freight rail companies ALL and MRS operate services in the vicinity of Lençois Paulista. With bigger volumes, railways are a profitable alternative, says owner Carlos Renato Trecenti. Brazilian export firm Cenibra is restructuring its operation. Previously, the company s 1,500 full-time employees harvested the forest by hand with chainsaws. Now Cenibra has decided to mechanise its forests 100 percent. This means the company will be contracting around 3,500 people from a staffing company to plant the new forest. Cenibra s decision to engage a third party for labour has prompted the trade union to take action. The case appeared before the labour court in the state of Minas Gerais last autumn. Our goal is to make Cenibra the most cost-efficient company in Brazil, says Cenibra s CEO Paulo Brant. LATIN AMERICA PHOTO: ATTEM / SHUTTERSTOCK.COM RISING TENSIONS IN MARANHÃO Brazilian pulp and paper producer Suzano has started eucalyptus harvesting in the state of Maranhão in the northeastern area of the country, in order to guarantee wood supply for its new 1.5 million tonnes/yr bleached eucalyptus kraft (BEK) pulp mill under construction at Imperatriz city. The company is currently using 11 machines working in three daily shifts, 24 hours per day, at the company's Planalto farm, located at Governador Edson Lobão city. The harvest is being conducted by 60 trainee workers who attended a course Suzano designed to qualify a local work force. Suzano's forest base in Maranhão is 68% wholly-owned and 32% owned via partnerships. The company estimates it will need 154,000 hectares of plantations to keep the new mill in production, with a USD 575 million investment. AMBITIOUS GOALS Cenibra, which is owned by Japan Brazil Paper, is now trying to convince the labour court that mechanisation is the only sustainable alternative in the long term. Manual harvesting is costlier and more dangerous. It is also worse for the environment, says Cenibra s CEO Paulo Brant. It is simpler to harvest the forest mechanically despite it being planted in hilly terrain. It is also more financially sustainable. Our goal is to make Cenibra the most cost-efficient company in Brazil, which will improve our position in the world rankings. Both the environmental and the social aspects will benefit. And if we succeed it will be profitable to build a new plant, he says. A SECOND PULP LINE According to the company s estimates, the restructuring programme will reduce costs for getting the raw material to the plant by 8 to 10 percent. This reduction could also be bigger given the efficiency enhancement of the workforce, he says. The mill in the state of Minas Gerias produces around 1.2 million tonnes of pulp a year. If the investment pans out, a second line could be on the agenda which means a doubling of capacity. The investment has cost USD 19 million and has among other things entailed the purchase of 25 harvesters and tractors. CENIBRA HAS 130,000 HECTARES OF PLANTED LAND NEAR BELO ORIENTE IN THE STATE OF MINAS GERAIS 34 35

19 KLABIN CMPC TENSE WAITING IN PARÁNA Author: Henrik Bandão Jönsson, Rio de Janeiro Work on Empresas CMPC S NEW ADDITION IN BRAZIL IS UNDERWAY Author: Henrik Bandão Jönsson, Rio de Janeiro Everything is in place for the biggest investment in Klabin s history. The Puma project, an investment of USD 3.4 billion, awaits the final go-ahead from the board of directors. The Puma project got its name from the large cat that still inhabits the forestlands near Klabin s paper mill in Monte Alegre in the state of Paraná. The new mill will be built 50 kilometres away in one of the state s most impoverished regions, and it will produce 1.5 million tonnes of pulp a year. The plant, which is scheduled to be built later this year, will be the largest in the world to handle both pine and eucalyptus in the same line simultaneously. LARGEST INVESTMENT IN PARANÁ S HISTORY Not only is the investment the largest in Klabin s 113-year history, it is also the largest single private investment in the history of the state of Paraná. When the mill in Monte Alegre was commissioned in 1945, it attracted so many workers that a whole new town sprang up nearby. Today Telêmaco Borba has more than 70,000 inhabitants and provides a good standard of living. ENGAGES 10,000 PEOPLE The idea is for Klabin s new mill outside the town of Ortigueira (population 23,000) to spark a similar trend. The region is the most impoverished region in Paraná and the state government has promised to train as many as 10,000 people as qualified personnel for the plant. 8,000 people to build the plant and, when it is completed, 2,000 people to operate it. FACTS ABOUT THE PROJECT Klabin has 276,000 hectares of land adjoining the Monte Alegre mill. The plant will be entirely self-sufficient in energy and will have no carbon emissions. The investment will also require the building of a railway line to be linked to the line that goes from Londrina to the port of Paranágua. Klabin is one of Brazil s leading board and paper manufacturers and has 16 mills in Brazil and one in Argentina. BOARD INDECISION Construction was scheduled to begin on 19 February but was postponed because the board had yet to give its approval. We have done everything that we promised and obtained all the permits in just one year, says Ricardo Barros, commercial counsellor for the state government. He has a team of twelve people working full-time on the project, which is still waiting for the final go-ahead from the board room. The decision could come tomorrow or in November. Nobody knows, says Carime Kanbour, Director of Information at Klabin. THE PUMA PROJECT IS PART OF A SENSITIVE PROCESS INVOLVING NUMEROUS NEGOTIATIONS Fabio Schvartsman, CEO of Klabin Construction of Empresas CMPC s new facility in Guaíba in Brazil is now underway. USD 2.1 billion has been invested in a new line that will increase capacity from 450,000 tonnes to 1.75 million tonnes of eucalyptus pulp per year. We believe the mill will be operational by the first half of 2015, says Walter Lidio Nunes, CEO of the subsidiary Celulose Riograndense that will run the plant. HOW IS THE CONSTRUCTION WORK GOING? We began building in early April and already have 600 men on site, levelling the ground and laying the foundations. We believe the mill will be operational by the first half of WORK WAS POSTPONED A COUPLE OF TIMES. WHY WAS THAT? There were no financial problems. The funding has long been in place. It was mostly a question of finding the right technical solutions for the factory before we got started. THERE ARE MANY COMPANIES INVESTING HEAVILY IN SOUTH AMERICA AT THE MOMENT. ELDORADO HAS RECENTLY OPENED ITS FACTORY, KLABIN IS PLANNING A MAJOR INVESTMENT AND STORA ENSO S PLANT IN URUGUAY IS DUE TO LAUNCH SOON. IS THERE A RISK OF IT BECOMING TOO MUCH? Well, when it gets too expensive to produce pulp in the northern hemisphere, we ll be ready to take over here in South America. Here the costs remain low, and of all the players on this continent, we are the most competitive. CMPC purchased the Construction of Empresas CMPC s new facility in Guaiba in Brazil is now underway. factory and the planted forest from Fibria after the financial crisis of This means we already have all the infrastructure and the forest holdings in place. Eldorado, for example, built a factory before they had any forest. That s not for us. We re going to do very well and we ll be able to produce at the lowest prices. WHICH MARKETS WILL THE NEW MILL BE TARGETING? North America, Europe and Asia, but also the domestic market. We ve noticed an interesting change among Brazilian consumers. The economic advances of recent times have led those who used to buy the cheapest toilet paper to treat themselves to much better quality paper nowadays. The same is going to happen in other developing countries as living standards improve. The market for finer paper grades is growing all the time. HOW ARE YOU SOURCING QUALIFIED WORKERS FOR THE NEW FACTORY? Without the slightest problem. The new factory is located alongside the old one in Guaíba, which has more or less merged with Porto Alegre. We are located in a region with almost 4 million inhabitants and will be creating 8,000 direct jobs. State Governor Tarso Genro (who was Brazil s Justice Minister between 2007 and 2010) has praised our investment and is supporting us all the way. HOW LARGE IS YOUR FOREST? We have 213,000 hectares of planted land, of which 80,000 hectares is protected forest that we re not touching. This makes us the largest private landowner in the state of Rio Grande do Sul. LATIN AMERICA 36 37

20 BILLERUDKORSNÄS BILLERUDKORSNÄS BILLERUDKORSNÄS BEGINS JOURNEY UP THE VALUE CHAIN We want to help manufacturers and brand owners develop packaging solutions that are stronger, more attractive, more cost-efficient and gentler on the environment. We will thereby also secure our position as the natural choice of partner in smarter packaging, says Per Lindberg, CEO of BillerudKorsnäs in this interview. WITH THE RECENT YEARS ACQUISITION FROM UPM AND OF KORSNÄS, THE NEW BILLERUDKORSNÄS IS NOW A WORLD- LEADING SUPPLIER OF NEW STRONG FIBRE-BASED PACKAGING MATERIAL. WHAT IS THE STATE OF THIS MARKET AND WHAT IS YOUR POSITION IN IT? Our aim is for BillerudKorsnäs to spearhead the development of new fibre-based packaging material as part of the overarching goal of generating profitable growth. Our market currently consists of 75 percent consumer products, of which 58 percent is used for food and beverages. Large portions of the market for consumer board are extremely stable, as opposed to the market for industrial board which is more cyclical. This was one of the motives for our acquisitions in Finland and in Korsnäs. We wanted more consumer products we could rely on. From where we stand, there is a greater chance of consolidation on the consumer side. To reduce the effects of cyclical fluctuations, we will continue to increase our exposure to consumer products. We will also be investing in markets outside Europe to capitalise on a general growth in the economy. WHAT POSITIONS DO YOU HAVE IN THE GLOBAL MARKET? We have world-leading positions in several segments. We are number one in kraft paper and white sack paper in Europe and, outside the integrated market, also number one globally. Mondi and Segesa are bigger than us, but they are integrated producers. In liquid packaging board we are number two globally and number two in Europe in consumer board. And in containerboard we are number one in fluting and number one in sections of the European liner market and our ambition is to be recognised as the top-ranking supplier globally. IN THIS CONTEXT HOW IMPORTANT IS IT TO HAVE ACCESS TO YOUR OWN FORESTS AND FIBRE RAW MATERIALS? HOW MUCH PULP DO YOU PURCHASE EXTERNALLY? We are 100 percent self-sufficient in pulp. We are well-balanced, perhaps slightly long on the pulp side. Author: Henrik Bandão Jönsson, Rio de Janeiro Our goal is to be world-leading in our specified niches and to gain recognition as the company that ovreall delivers the best solutions, says Per Lindberg, CEO of BillerudKorsnäs. We don t have our own forests but we own five percent of the shares in Bergvik Skog. For us, reverse integration is not on the agenda at least not in the short or medium term. Volumes will be available on the market irrespective of who owns the forests. For us, buying forests is not a feasible option it is a costly investment with very low return. IF YOU HAD BEEN CEO OF KORSNÄS 15 YEARS AGO WOULD YOU HAVE KEPT THE FORESTS? I would have balanced the pros and cons very carefully. Yes, you do get a certain degree of stability by owning your own forests, and better control over your raw material costs. But you also end up with a huge balance sheet and getting it to post a return is not easy. You need to have another type of investor. If you can wind up the forest part, remove it from the balance sheet and let someone else own it, I think you can generate a higher return on the value of the forest. But the equation is by no means self-evident. YOU MENTIONED THAT BILLERUD- KORSNÄS CAN OFFER ITS CUSTOMERS SMART SOLUTIONS AND A GLOBAL NETWORK. CAN YOU TELL US MORE ABOUT BILLERUDKORSNÄS S GLOBAL NETWORK? Our aim is to offer customers total packaging solutions and be a natural partner in smarter packaging. To achieve this you need to build up a network of expertise. We have done this by collaborating more with conversion suppliers, packaging manufacturers, brand owners and also machinery suppliers. Our customers are very much part of this we are already collaborating with more than 1,500 customers in over 100 countries. IS IT ALSO A MEANS TO STRENGTHEN THE CUSTOMERS BRANDS? Yes, it s an opportunity for us to work in a slightly less conventional manner. Traditionally, material suppliers focus exclusively on delivering material. We aim to offer total solutions. The purpose of the network we are now building is to create solutions. IT IS A MODERN APPROACH TO THE VALUE PROPOSITION. DOES THAT MEAN THAT YOU SEE BILLERUDKORSNÄS AS A FUTURE SERVICE SUPPLIER? Yes, absolutely. It is part of the areas we are working in and the business opportunities here are huge. We want to help manufacturers and brand owners develop packaging solutions that are stronger, more attractive, more cost-efficient and gentler on the environment. Our aim is to generate value that strengthens our customer s brands and competitiveness. We will thereby also secure our position as the natural choice of partner in smarter packaging. Let me give you an example. Traditionally-speaking we have focussed on fluting. In our view it is the best alternative in the market particularly for packaging fruit and vegetables in humid environments. Traditionally, most suppliers only sell material. We, on the other hand, intend to use design and materials to fashion a one-stop solution for fruit and vegetables in the form of a lighter, stronger box which eliminates problems in the supply chain. We have our own network to help us achieve this. Sensors that keep track of temperature, humidity, G-force and different gases in transportation could be part of the packaging solution. This in turn will provide useful data for wholesalers and stores who transport goods to storage. They can then integrate the information in different ways. This means we will deliver more than material on rolls. We will create refinement value and give the customers better possibilities of controlling their business. Thanks to the combination of three unique cornerstones worldclass packaging material, a complete range of services and a global network of partners, everything we do becomes a packaging solution in the long run. HOW FAR AHEAD IN THE FUTURE IS THIS GOING TO BE? We are currently working on the boxes and assuring the boxes integrity and their effect on transportation. We have the technology the big challenge is integration. YOU TALK ABOUT HELPING BRAND OWNERS DEVELOP AND PRODUCE THEIR BRANDS AND PACKAGING? WHAT RESEARCH AND DEVELOPMENT RESOURCES HAVE YOU BUILT UP TO ACHIEVE THIS? We will do so. It will be the end-result of this work. We may choose to invest in certain areas and not in others. A future platform and cash cow thinking will enable us to control our resources too. HAVE BILLERUD AND KORSNÄS BROUGHT THEIR OWN RESEARCH RESOURCES TO THE JOINT PROJECT? We already have existing research resources in the organisation. We have merged the various research units into one shared research resource. Part of the responsibility for development in the form of product care remains with the mills. Business development has been concentrated in the business units while the more traditional research and development work has been placed in a joint department. WILL YOU BE INVESTING MORE FINANCIAL RESOURCES IN R&D&I? Yes, I think we will. These investments will be key for attaining our future goals. NO 1 IN KRAFT PAPER AND WHITE SACK PAPER IN EUROPE, AS WELL AS GLOBALLY OUTSIDE THE INTEGRATED MARKET AND IN FLUTING AND SECTIONS OF THE EUROPEAN LINER MARKET PROFILE 38 39

21 BILLERUDKORSNÄS ILIM GROUP YOUR INITIATIVE ON HIGH-QUALITY NICHE PRODUCTS WHAT DOES IT ENTAIL? As regards board, big volumes on the packaging market are today return fibre-based. It has become a raw material which is not where we want to be. We want to be in areas where fresh fibre can make a difference, where its strength and printability is an advantage. The segments that we currently occupy are relatively small in terms of global consumption. That s where we will continue to be. We are not interested in large segments because of the large volumes. We are looking at niche markets, because that is there we can make a difference and charge a fair price for our products. Our goal is to create value for customers. By specialising in customers and end-users specific needs in selected niche segments, we can continuously improve the business conditions for our customers. IS LIQUID PACKAGING BOARD SUCH A NICHE? Absolutely. We are living in symbiosis with our customers. It is a difficult market with a limited number of customers, but once you ve got your foot in the door, others will find it equally difficult to do the same. HOW WILL YOU GENERATE GROWTH IN WHAT YOU REFER TO AS THE CONSUMER-CENTRIC SEGMENT? In the consumer segment there are more possibilities to differentiate, but also increased stability over time. We have a good chance of growing in some of our existing segments. WILL IT BE ORGANIC GROWTH? Our vision and goal is to be bigger. The question is when it will happen; how big we can get and how much value we can add. I am positive that we can grow organically but it will probably be in combination with acquisitions. But we are looking a few years ahead. GIVEN YOUR FOCUS ON NEW FIBRE, DOES THIS MEAN THAT PRODUCTION WILL CON- TINUE TO BE LOCALISED IN THE NORTHERN HEMISPHERE WHERE THERE IS AN AVAILA- BILITY OF NSBK? Even if there were an abundance of NSBK in Latin America, that would still be the case. The northern hemisphere is more natural for us. YOU TALK ABOUT FOCUSING MORE ON PROCESS EFFICIENCY? WHAT DOES THAT ENTAIL? We intend to achieve world-class process efficiency by implementing systematic and quality-related improvement of processes and cost-efficiency in our production, sales and administration. We thereby hope to secure long-term competitiveness and generate strong cash flows that can be used for profitable growth. The way things stand, efficiency work is conducted inside the framework of integration previously with the Finnish mills and now with Korsnäs. We expect to save SEK 530 million by bringing all indirect departments such as HR, finance, purchasing and IT under one roof. We will not throw in the towel when it comes to production efficiency enhancement. ARE BILLERUDKORSNÄS PRODUCTION UNITS BECOMING MORE FLEXIBLE IN THEIR PRODUCTION? We have 17 machines in the system and in a case like this, efficiency rather than flexibility is the order of the day. At the moment we are focusing on efficiency by redistributing our products so that we can increase the run times on each machine. EIGHT MILLS IN THREE COUNTRIES On 29 November 2012 Billerud merged with Korsnäs. The new company, BillerudKorsnäs, is a leading player in new fibre-based packaging material and packaging solutions, with annual sales of around SEK 20 billion. In 2012 BillerudKorsnäs acquired two packaging paper machines in Finland from UPM-Kymmene. BillerudKorsnäs has begun to channel synergies from both deals, the UPM acquisition and the merger of Billerud and Korsnäs. The group expects to make around SEK 530 million in annual savings. Billerud Kornsäs today operates eight mills in three countries: Beetham in the UK, Jakobstad and Tervasaari in Finland and Frövi/Rockhammar, Gruvön, Gävle, Karlsborg and Skärblacka in Sweden. DO YOU INTEND TO DEVELOP THE PULP MILLS INTO BIOREFINERIES? We have a number of exciting projects on the go, including Pyrogrot in which we are manufacturing green pyrolysis oil from forest waste branches, tops and stumps. For this, we recently received a grant of EUR 31.4 million from the EU s NER300 programme. Our goal is to build a fullscale plant in Skärblacka and for the green oil that is produced to replace fossil oil in oil-fuelled power plants. In the next phase, looking ahead a few years, pyrolysis oil could also be used as vehicle fuel. We are delighted over the EU s positive assessment of this this future investment and we have now entered the project planning stage. WHAT IS YOUR NEST STEP? WHAT ARE BILLERUDKORSNÄS S VISION AND GOALS? WHERE WILL BK BE IN 10 YEARS? ONE OF YOUR GOALS WAS TO BE A WORLD LEADER BY 2020 WHAT IS REQUIRED OF YOU TO GET THERE? Our goal is to be world-leading in our specified niches and to gain recognition as the company that overall delivers the best solutions. THAT S A TOUGH GOAL. YOU HAVE A NUMBER OF AMBITIOUS COMPETITORS. Yes, it s not an easy business. We are under no illusions that we will achieve it in 2013 but in a few years time we will. NOW THE WORLD'S LARGEST PULP MILL STARTS MOVING This investment at Brask will significantly improve the competitiveness of Ilim and the Russian forest pulp and paper industry, the Management says. On 24 April Ilim Group began production at the Bratsk mill in Eastern Russia. The new line, which has a capacity of 720,000 tonnes per year of bleached sulphate market pulp, will be the world s largest. Most of the new production will be aimed for exports to China. The Russian-American Ilim Group is on its way to completing construction of the Big Bratsk project, which in full production will be the largest single softwood pulp line in the world. Bratsk is a city in Irkutsk Oblast, in southeastern Siberia on the Angara River, near Russia s vast Bratsk Reservoir. It already hosts a pulp and containerboard mill with bleached softwood and containerboard lines. The mill was originally launched in 1965 and new production facilities were constructed during the 1970s. It is one of the Russian pulp and paper industry s major producers, traditionally supplying market pulp and containerboard to Southeast Asia. In 2007, US-based International Paper (IP) and Ilim Holding formed a 50/50 joint venture called Ilim Group, which became the largest foreign-domestic alliance in the Russian forestry sector. In 2010, the Ilim Group said it will invest US$700 million to upgrade the facility and construct a new pulp mill with an annual capacity of 720,000 tonnes of bleached softwood pulp, which will bring the overall pulp production at Bratsk to over 1 million tonnes per year. The new pulp line has been the first to be built in Russia for more than 30 years. Most of the new production will be aimed for exports to China. The project will modernise the entire Bratsk mill, making it more competitive, improving product quality and lowering costs. One of our key goals and main reasons in creating the joint venture with IP was investment program implementation, says Zakhar Smushkin, chairman of Ilim Group. We have already finished building the world s largest neutral sulphite semi-chemical pulp mill in Koryazhma and invested in large-scale forest equipment in Siberia. We have now started this new project at Bratsk. Author: Jan Hökerberg, Hong Kong This investment at Bratsk will significantly improve the competitiveness of Ilim and the Russian forest, pulp and paper industry as a whole," Smushkin says. Maximo Pacheco, president of International Paper in Europe, the Middle East and Africa, and an Ilim Group board member, says, This strategic investment at Bratsk reinforces IP s commitment to Russia and will further strengthen our position as a supplier to China." 720 THOUSAND TONNES PER YEAR IS THE CAPACITY OF THE NEW LINE EXPECTED TO EXCEED ONE MILLION TONNES PER YEAR Start-up was expected in the second half of 2012, but the project has been delayed. In September, 2012, the project was over 80 per cent complete. On 24 April the Ilim Group began production. The mill will now continue to increase production to full capacity in the next six months. The total production volume at Bratsk is expected to exceed one million tonnes per year. Ilim,s production start-up is being followed with great interest and many market experts believe it will have an impact on the price trend. Metso Corporation of Finland has supplied the main technology for the new mill. The value of the order was in 2010 estimated at EUR 180 million. Metso has supplied a complete fibre line, a recovery boiler, an upgrade of the evaporation plant and an automation system for all process areas. CHINA & ASIA 40 41

22 FIVE YEAR PLAN FIVE YEAR PLAN PHOTO: IM_PHOTO / SHUTTERSTOCK.COM China needs to repair the economic model that has been so successful for the past two decades when China has been dubbed the factory of the world. CHINA INFECTED WITH OVERCAPACITY China has to cure its industrial problems. The domestic industry has overcapacity in almost every sector and consolidation is a must. 600 MILLION PEOPLE HAVE BEEN LIFTED OUT OF POVERTY IN CHINA SINCE 1978 Since 1978, when the reform era started in China, the nation s per capita annual income has grown from RMB 1,400 to more than RMB 37,000, and 600 million people have been lifted out of poverty. It is a fantastic achievement that has no comparison in modern history. But it is also a fact that China needs to repair the economic model that has been so successful for the past two decades when China has been dubbed the factory of the world. The former premier, Wen Jiabao, made it clear already in 2007 in a speech at the National People s Congress, when he cautioned that, the biggest problem with China s economy is that the growth is unstable, unbalanced, uncoordinated and unsustainable. In recent years, there has been plenty of talk about reforms in China, but for various reasons most of them have been postponed, Author: Jan Hökerberg, Shanghai with a few exceptions such as an on-going healthcare sector reform. HUGE PROBLEMS AHEAD There are huge problems for the domestic Chinese industry to cope with. Due to the three-decade long one-child policy, the workforce is both ageing and shrinking. At the same time, wages are increasing, making Chinese enterprises less competitive. Many multinational companies have already moved out of China and shifted to less expensive suppliers in Bangladesh and Vietnam. Meanwhile, most of the Chinese factories are still inefficient and dirty. The environmental problems are huge. A World Bank study has shown that the total cost of air and water pollution in China is about 5.8 per cent of China s annual gross domestic product (GDP), yet coal use in China has tripled over the past decade. Productivity is an important factor in economic growth. While it is true that China has succeeded in creating indigenous national champions in a number of high-technology industries, China still has a long way to go in terms of improving productivity. China s labour productivity has improved a lot over the past decade, but it is still far behind the productivity performance of developed economies. Indeed, after some 30 years of economic reform, China s labour productivity is still behind countries such as Thailand, Colombia and Morocco, said professional services consultancy Ernst & Young in a recent report on China s productivity imperative. URGENT NEED FOR CONSOLIDATION Most of the industries in China are not consolidated, and almost every sector has a problem with overcapacity. China is one of the very few non-consolidated big industrial markets, said SKF China s president Erik Nelander in Dragon News, a member magazine for Swedish Chambers of Commerce in Hong Kong and China. He foresees a huge number of mergers and acquisitions in the coming years. Yet, we haven t really seen that development. The state-owned enterprises have their own agenda, while many privately owned companies have for a number of years had comfort in seeing the market grow by 15 per cent per year without having to do so much. Many private companies are also still run by the original founders and haven t carried out the necessary generation shift, says Nelander. Overcapacity is a kind of disease in almost all industries in China today. Every province, or even county, wants to have their own steel company, automobile company and their own manufacturers of refrigerators, DVD players, TV sets, etc. These industries have to be consolidated and we have probably only seen the beginning. Many of these companies will be acquired when the market decides,, even if this development will take a longer time in a centrally controlled economy such as China s. PAPER INDUSTRY NO EXCEPTION The paper and packaging industries in China are no exceptions. While the manufacturers have to rely on imports of pulp, there is still an overcapacity in the manufacturing indu- ESTIMATED REGIONAL PER CAPITA TISSUE CONSUMPTION IN CHINA, 2011 (KG PER CAPITA) Western Economic Zone 2.5 Cheng Yu Economic Region 4.1 Beijing 8.7 Northern Central Region 3.2 Southern Central Region 2.9 stry. The top Chinese producers account only for a small percentage of the overall capacity. Yuan Xiaoyu, UPM s director of corporate relations in China, explained in an interview in the European Union Chamber of Commerce s magazine EuroBiz that one of the biggest challenges the company faces in China is the overcapacity of paper production: It has caused very serious market competition. During the past 10 years, the Chinese paper industry has developed very rapidly with a huge amount of investment in modern papermaking technology. Some of the investments have clearly exceeded the market growth, therefore leading to overcapacity. In the past we didn t see so much but nowadays the domestic Chinese companies have introduced similar scales of machinery, so their capacity has grown very rapidly. She says that the competition has started to force smaller companies out of business and others are being merged and acquired by bigger local competitors, which means that they are now more able to compete with foreign-owned international companies. TISSUE MAKERS START TO CONSOLIDATE There is also fierce competition among the tissue manufacturers in China, since the market potential is huge. The penetration rate of the main tissue product, toilet paper, is below 70 per cent and per capita consumption is less than 25 percent of Western markets. The four main tissue suppliers in China are Asia Pulp & Paper (APP) of Indonesia and the three local companies Hengan, Vinda Paper (where SCA owns 22 per cent) and Zhongshun. The leading global hygiene companies from the US and Japan have China is one of the very few non-consolidated big industrial markets Northeastern Economic Zone 3.7 Bohai Bay Economic Rim 4.3 Shanghai 10.6 Yangtze River Delta Economic Zone 6.0 Pan-Pearl River Delta Economic Zone 5.8 The penetration rate of the main tissue product, toilet paper, is below 70 per cent and per capita consumption is less than 25 per cent of Western markets. SOURCE: RISI CHINA & ASIA 42 43

23 FIVE YEAR PLAN FIVE YEAR PLAN concentrated on the personal care market in China. All top tissue players invest heavily to grow capacity, which in a longer perspective will squeeze out the small players. The top four control today around 40 per cent of the market, and it is expected that their share will grow to 50 per cent in 2016, says Stephan Dyckerhoff, President of SCA Hygiene Products North Asia, to SCA s magazine Shape. One problem in the consolidation process is that China s state-owned banks tend to prefer to lend to state-owned enterprises that also often have access to cheap land and energy, instead of financing millions of job-creating private companies. As a consequence, many private entrepreneurs have to rely on unofficial moneylenders, or in other words loan sharks, for their financing. BUILDING NATIONAL CHAMPIONS China s remarkable economic growth has led to the creation of many giant corporations. In 2012, China (including Hong Kong) had 73 entries in business magazine Fortune s annual ranking of the world's 500 largest companies. Ten year earlier there were only 11 Chinese companies on the Fortune Global 500. The state-owned energy titans Sinopec, China National Petroleum Corporation (PetroChina) and State Grid are ranked at the fifth, sixth and seventh places. Most ESTIMATED REGIONAL PER CAPITA TISSUE CONSUMPTION IN CHINA, 2011 (KG PER CAPITA) Thousand Tonnes/a /00 02/01 Average /04 The Chinese tissue market is in a very strong growth phase. 04/03 05/04 Volume growth has tripled! 06/05 07/06 08/07 09/08 10/09 11/10 12/11P SOURCE: RISI of the Chinese corporations on the list are state-owned enterprises in the fields of commodities and infrastructure, as well as banking, insurance, telecommunications and automobiles. Over the past decade, China has aggressively tried to build national champions, or globally competitive multinationals, in different industries. The role of these national champions is to ensure that more profits stay in China and that Chinese growth does not rely too much on foreign-owned multinational companies. The companies are also encouraged to go global to secure supplies of natural resources and acquire know-how and access to new technologies. These national champions are provided with generous credit facilities, such as soft loans and funding for research and development (R&D) from both national and local governments. The main issue with the national champions in China is that it is the state, not the market, that picks the winners. If these national champions are to compete globally they need to learn how to compete in a free market, says Christer Ljungwall, science councillor and head of the office of science and innovation at the Swedish Agency of Growth Policy Analysis in Beijing, to Dragon News. China has around 110,000 state-owned enterprises, of which some 120 are considered central governed directly by the central government. The government s goal is to reduce the huge number of stateowned companies through mergers and acquisitions and create a smaller group of large conglomerates. LOOKING AT JAPAN AND SOUTH KOREA China is looking to the models provided by its neighbouring countries Japan and South Korea, which built large domestic industrial conglomerates called keiretsu in Japan and chaebol in South Korea. But China lacks companies such as Toyota or Hyundai, which have been able to drive their development through innovation in close cooperation with suppliers. In China, it is not the big state-owned enterprises that are leading development. Rather, technological innovation is taking place at smaller privately owned companies. Most Chinese suppliers deliver parts to many different companies in various industries, not just to one major client in one particular industry. As The Economist notes, In Japan and South Korea, the leading companies took an intimate interest in every stage of a product s birth: conceiving it, procuring the materials, fashioning the parts, assembling them and marketing the result. This chain of production was contained within a family of firms, led by a national champion. In order to create national and globally competitive champions, China also has to perform a balancing act to comply with regulations established by the World Trade Organisation (WTO). For example, the WTO prohibits direct export subsidies, but the US has claimed that China violates the rules providing unfair advantages to its automotive companies. Recently, the European Union (EU) has announced plans to investigate alleged anti-competitive behaviour by Chinese mobile telecom equipment makers and to impose punitive import duties on solar panels from China. RESISTANCE FROM GOVERNMENTS Shutting down a dirty coal mine is a relatively easy task compared to consolidating an entire industry. For decades, for example, China has tried to reduce the number of domestic automobile companies from around 80 to a dozen without any success. In China, the main resistance comes from local governments that rely on tax income and different types of fees from enterprises within their jurisdictions to build infrastructure and develop the county or the province. However, on 22 January this year, a policy guidance circular for consolidating nine key industries was issued by China s Ministry of Industry and Information Technology (MIIT). The nine sectors are automotive, steel, cement, shipbuilding, electrolytic aluminium, rare earths, electronics and information, pharmaceuticals and agriculture. Specific objectives and targets, to be reached in 2015, have been set up for each of the nine industries. For example, in the automotive industry, the goal is to concentrate 90 per cent of the production in the hands of the China is racing up the value chain trying to link research institutes together with innovative enterprises by creating different types of clusters. top 10 companies and to cultivate three to five major automobile corporations with core competency. Large automobile corporations will be supported to extend their business into service areas that include R&D, modern logistics, automobile finance and information services. Furthermore, cross-border mergers and acquisitions are planned, along with the development of global production and service networks. The circular sets up similar objectives for the other eight industries. A COUNTRY OF PARADOXES China is a country of paradoxes. While developed countries have slowly moved from one phase to another in their economic and industrial development, China has skipped many of those phases in its rapid development. The majority of the labour-intensive companies that helped to make China the factory of the world are still there. Many of them, however, are poorly run and have low productivity. At the same time, China is racing up the value chain trying to link research institutes together with innovative enterprises by creating different types of clusters, such as the technology hub Zhongguancun, which is known as China s Silicon Valley, in Beijing. CHINA & ASIA 44 45

24 BAMBOO SUN PAPER SUN PAPER FOCUSES ON LAO INVESTMENT Author: Jan Hökerberg, Shanghai China s Sun Paper s first attempts to invest abroad has not been an easy ride. While the company cancelled planned projects in Vietnam last year, it is continuing with the construction of a greenfield pulp mill in Laos despite serious delays. Sun Paper invests in Laos. Chinese bamboo could replace eucalyptus and spruce. Constant Lack of Domestic Fibre IN CHINA Author: Jan Hökerberg, Shanghai Chinese pulp mills rely heavily on woodchip imports, but domestic non-wood fibres, such as bamboo, could be a solution, for example, for the tissue industry. China s paper, tissue and packaging manufacturers face constant shortages of domestic wood-fibre resources and rely significantly on imports, agricultural residues and recovered fibre to meet their paper needs. Wood fibre from hardwood and softwood is the main fibre for pulp in China, with a share of some 60 per cent, while nonwood fibre (straw, bagasse and especially bamboo) makes up 34 per cent. Recycled fibre accounts for the remainder. VIETNAM THE LARGEST CHIP EXPORTER China s imports of woodchips from plantation-rich countries in Southeast Asia have increased steadily. Vietnam, Thailand and Indonesia are the major suppliers to China, together accounting for almost 90 per cent of all imports of hardwood chips. Worldwide trade of woodchips fell in 2012, and prices for pulp logs and woodchips were down in most regions of the world, according to the consulting firm Wood Resources International. However, China imported more woodchips in 2012 for its expanding pulp industry, while Vietnam remained the largest chip exporter in the world. NON-WOOD A SOLUTION A recent trend is that Chile and Brazil have began to supply eucalyptus chips to Chinese pulp mills. Pulp mills in China consume mainly hardwood fibre. However, imports of softwood chips started in 2010 when shipments started to enter Chinese ports from Australia, Russia, the US and New Zealand. The potential for non-wood to be developed as a differentiator could be a solution for Chinese tissue producers to enable relatively competitive costs and quality, whilst also acting as a sustainable fibre source. Bamboo has relatively long fibres and makes a good strength component in a tissue sheet; almost as good as the more costly bleached softwood kraft pulp, and so it could replace wood pulps such as eucalyptus and also spruce. Non-woods are a sustainable raw material resource either residues (bagasse, straw) or from fast-growing plants (bamboo) and they can replace pulp from natural forests. However, the production process is less sustainable as there are environmental issues to consider in the production. INTERESTING FOR THE TISSUE MARKET Bamboo, which is produced locally and based on local raw materials with less need for raw material imports and transportation from overseas, could make a very interesting niche product for the Chinese tissue market. Stricter environmental regulations have been imposed on non-wood pulp mills in China and there is a minimum size threshold for existing and new mills to create a feasible scale that enables proper environmental control. This therefore doesn t rule out the potential for non-wood to become a sustainable fibre resource for tissue. Like many other entrepreneurs in China, Li Hongxin is a self-made man. Some 30 years ago, he started selling paper door to door from the back of his small motorbike. Today, his company Shandong Sun Paper is the largest privately-owned paper manufacturer in China, one of China s top 500 enterprises and one of the world top 100 papermaking companies. The company produces close to 3.5 million tonnes per year of paper and board products. A NEW STAR Sun Paper is headquartered in the city of Yanzhou in Shandong province, close to Qufu, the birthplace of the philosopher Confucius ( BC). The company was founded in 1982 and was able to take advantage of China s opening-up policy and economic reforms that were launched in With the help of foreign capital and technology, the company was able to rapidly expand its production and become a new star in the national papermaking industry. In 2006, Sun Paper was listed on the Shenzhen Stock Exchange and also entered a joint venture with global giant International Paper for the production of high quality ivory board for the packaging of liquids and food. LACK OF FIBRE At the same time it also started to prepare to go global. In 2009, it announced plans for major investments in Laos as well as in Vietnam. The lack of fibre in China was an important factor behind the decision to step into the international arena. We are the very first Chinese [pulp and paper] company to establish plantations and facilities in other countries. This will hold us in good stead for the future for our pulp supply, with our competitors having to rely on the market which, as we know, can be subject to volatility, Li said in an interview earlier. THE PROJECT HAS BEEN DELAYED However, Sun Paper s first attempts to invest abroad have not been an easy ride. The project in Muang Phin, Laos, is what is referred to as a swing mill, and will have a capacity of 300,000 tonnes per year of bleached hardwood kraft (BHK) pulp, or 200,000 tonnes per year of dissolving pulp. In addition to the mill, which will be the biggest of its kind in Laos, a 100,000-hectares plantation of eucalyptus and acacia trees will be established nearby in Savannakhet province. The project was scheduled to be ready for production at the end of 2012, but has been delayed. Construction of the mill did not start until late last year. The Austrian company Andritz has been assigned to supply the fibre line, while the Swedish firm Noss has been chosen to supply an approach system for the swing dissolving pulp production. THE LAOS SCHEME WOULD MOVE ON In Vietnam, Sun Paper established a subsidiary in 2009, planning to build a wharf and a woodchip mill there to secure its raw material supply. Sun Paper owned 95 per cent of the shares in the subsidiary, and the remaining 5 per cent were held by a local firm. The purpose of the wharf in Vietnam was to help transport the pulp from land-locked Laos to China. The Vietnam projects were, however, cancelled in August, 2012, together with a Chinese greenfield pulp mill project in Fangchenggang in Guangxi autonomous region. The company said that the decision was made to save costs and comply with its development strategy. It also said that the Laos scheme would move on. Li Hongxin, the owner of Sun Paper, is an entrepreneur and a selfmade man. 10,000 EMPLOYEES While there are concerns that the cancellation of the Vietnamese project may affect Sun Paper's future shipments of pulp to China, a spokesperson from the company said in January this year that it will make the most of transportation channels in Laos and Vietnam to handle them. Sun Paper has an annual turnover of around 23 billion yuan (EUR 2.8 billion) and more than 10,000 employees. Its main products include liquid board packaging, electrostatic papers, coated graphic papers and copy papers. The company owns brands such as Golden Sun, Huaxia Sun, Brilliant Sun, Weier, Lecopy and Koolprint. CHINA & ASIA 46 47

25 SICHUAN YIBIN SHANDONG BOHUI SICHUAN YIBIN PAPER POSTPONES NEW MILL START-UP PHOTO: JIRI FOLTYN / SHUTTERSTOCK.COM Author: Jan Hökerberg, Shanghai The relocation of Sichuan Yibin Paper s new mill for cartonboard and fine paper is taking longer than expected. Chinese papermaker Sichuan Yibin Paper has postponed the start-up of a 350,000 tonnes per year cartonboard unit to the first quarter of 2014 at a greenfield mill close to the city of Yibin in China s southwestern province of Sichuan. The new machine will have a design speed of 900 metres per minute, and a daily capacity of 1,050 tonnes. It is planned to produce food packaging. DECIDED TO WITHDRAW FROM NEWSPRINT In addition to the new cartonboard machine, Sichuan Yibin Paper also plans to build a new 100,000 tonnes per year fine paper machine, a 95,000 tonnes per year bamboo pulp line and a 68,000 tonnes per year mechanical pulp line at the new plant. The company decided in August 2011 to permanently shut down its old mill in Yibin, which included three paper machines with a combined capacity of around 200,000 tonnes per year of newsprint, food packaging board, and printing and writing paper. The original relocation plan, to a site 30 kilometres from the old mill, stated that production would commence at the end of Sichuan Yibin Paper used to be a major newsprint producer in southwestern Chin, but has decided to totally withdraw from newsprint due to weakening demand. GUIDELINES FROM CHINA S STATE COUNCIL The decision to close the old mill for good Sichuan Yibin Paper has decided to totally withdraw from newsprint due to weakening demand. came a few months after the National Development and Reform Committee, which is part of China s State Council, had announced guidelines for closing down out-dated paper and pulp equipment nationwide in order to reduce pollution, increase efficiency and cope with China's overcapacity problem. The guidelines specify that chemical wood pulp lines with a capacity less than 51,000 tonnes per year, non-wood pulp lines below 34,000 tonnes per year, and recycled fibre-based pulp lines below 10,000 tonnes per year must be shut down. The same conditions apply to fine paper machines less than 1.76 metres wide and with a speed slower than 120 metres per minute, and cartonboard, linerboard and fluting machines less than 2 metres wide and slower than 80 metres per minute. 350,000 TONNES CARTONBOARD PER YEAR WILL BE PRODUCED IN THE NEW GREENFIELD MILL Bohui Paper is looking to secure wood supply in New Zeeland for production at Chinese mills. Author: Jan Hökerberg, Shanghai BOHUI PAPER LOOKING AT NEW ZEALAND China s Shandong Bohui Paper visits New Zealand s city of Gisborne to secure fibre resources. Chinese paper and pulp manufacturer Shandong Bohui Paper is said to be in investment discussions with the city of Gisborne on the east of New Zealand s North Island. Bohui executives have visited Gisborne three times and Gisborne s mayor Meng Foon has confirmed he will meet the company in China. Industry sources say that Bohui Paper is looking to secure wood supply for production at Chinese mills. ONE OF THE WORLD S LARGEST BOARD MACHINES Shandong Bohui Paper was founded in The company has an annual capacity of 1.25 million tonnes at its mill in Zibo, Shandong province, which produces cartonboard, gypsum paper, containerboard and printing and writing paper. The company is listed on the Shanghai Stock Exchange. Bohui Paper has invested RMB3.1 billion (EUR385 million) in the construction of a 1 million tonne per year cartonboard machine at a greenfield mill in Dafeng, Jiangsu province. The board machine, delivered by Voith Paper, will be one of the world's largest. To supply the new board machine, the company has ordered a bleached chemithermomechanical pulp line. SECURING FIBRE RESOURCES Securing fibre resources is an important issue for the company, which is probably why it has turned its eyes on New Zealand. Forestry amounts to some 4 per cent of New Zealand s gross domestic product (GDP). Much of the original native forest has been burnt off and logged, but extensive forests have been planted, predominantly with fast growing cultivars of the Monterey Pine (Pinus radiata). Wood chips, whole logs, lumber and paper products are exported from New Zealand. The Gisborne region is known for good growth rates, an extensive forestry infrastructure and an excellent log export port. CHINA & ASIA 48 49

26 R&D&I R&D&I GLOBAL INDUSTRY OPTIMISTIC ABOUT NANOCELLULOSE BARRIERS Author: Nils Lindstrand, Stockholm From what was once a long-term goal, bio-based barriers in packaging are today close to a major industrial breakthrough. Nanocellulose is one of a number of interesting possibilities. Industry and researchers are today tweaking technological solutions in a number of projects. Bio-based barriers have a number of serious advantages in packaging: they are simpler to recycle, have a lighter carbon footprint and in many cases, increase the lifespan of the content. Bio-based barriers could be an important step towards a sustainable society. NANOCELLULOSE BY THE TONNE SPEEDS UP DEVELOPMENT Nanocellulose is created by pressing mass through a very thin column. This process leads to the fragmentation of the cellulose, and a unique raw barrier material is created by exploiting the existing properties in the material. Among other things, nanocellulose enables you to build structures of extremely high density. Nanocellulose barriers can therefore be made dense enough to repel substances such as oil, oxygen and fat, which forges new opportunities for the packaging of fast food, for example. Nanocellulose can also be tailored by different pre-treatments and by building different structures. Sensitive industry goods such as electronics products can also benefit from nanocellulose. BENEFITS COMMON KNOWLEDGE The benefits of nanocellulose have long been common knowledge, but the extremely high energy consumption in manufacturing it has meant that its development possibilities were limited in practice. The development work performed by Innventia in the 2000s, with an energy saving of 98 percent compared with previous processes, has changed the picture. I am confident that we will see products with nanocellulose barriers within a few years. One issue that still remains unresolved is the best technique for drafting a nanocellulose barrier onto the packaging material made of paper. We are also working on improving the barrier properties of the cellulose. Our key goal is to find ways to prevent the material s moisture-sensitivity from weakening the barrier s properties, says Christian Aulin at Innventia. PHOTO: MOISES FERNANDEZ ACOSTA / SHUTTERSTOCK.COM I am confident that we will see products with nanocellulose barriers within a few years FINNISH DEVELOPMENT CENTRE One indication of the forest industry optimism about using nanotechnology to build new bio-barriers is the nanocellulose initiative currently in progress in Finland. In 2008 a research centre FCNT, the Finnish Centre for Nanocellulose Technologies was started up in a partnership between forest industry group UPM, research centre VTT and the Aalto University in Helsinki. The aim of the centre is to develop industrial processes for producing nanocellulose. More than 40 researchers are currently working at FCNT, most of them with backgrounds not in the forest industry. The centre wanted people who could think outside the box when it came to the new material s possibilities, without being limited by the conventions of the pulp and paper industry. FCNT not only handles material for barriers for packaging, but also nanocellulose for the construction, auto, furniture, electronics and food industries, the medical engineering industry and the cosmetics industry. NEW FILMS WITH INDUSTRIAL TECHNOLOGY At a recent conference at PFI in Trondheim, researcher Tekla Tammelin from VTT described the research that FCNT has done on air-tight films for packaging. By adding hemicellulose, particularly xylan, properties such as cellulose stability and film formation can be improved, without sacrificing air-tightness. By using a coating technique, where the nanocellulose is coated on top of the plastic film, FCNT has developed a process on an industrial scale at one of its facilities in Esbo near Helsinki. NANOCELLULOSE A SAFE MATERIAL According to a study conducted by the Paper and Fibre Research Institute (PFI) in Trondheim in collaboration with the Research Council of Norway, nanocellulose is a safe material from a health perspective. The experiments showed that nanocellulose is not harmful to cells, either chemically or mechanically. Norwegian researchers have shown that neither the membranes nor mitochondrites (which provide cells with energy) of cells in mice that were tested in contact with nanofibrillated cellulose from pine and eucalyptus trees were harmed. We did not detect any signs of damage from the nanocellulose, says Kristin Syverud, senior researcher at PFI. FACTS ARE KEY Philip Reme, Director of PFI, underlines the importance of this type of research being carried out. When standards and rules are imposed on new packaging or materials, it is vital to have available the type of facts that we have produced in these experiments, says Philip Reme. NEW PILOT PLANT SPARKS GROWING INTEREST IN NANOCELLULOSE To help develop processes for the industrial applications of nanocellulose, Swedish research institute Innventia invested a couple of years in a pilot plant to produce nanocellulose in greater volumes than was possible before. The pilot plant has a capacity to produce 100 kilos of nanocellulose per day. The research and process development that Innventia has conducted for a number of years and which continued in the form of a pilot plant has resulted in the sharp drop in the energy required for manufacturing nanocellulose in the last few years. With the pre-processing method we use today, we have lowered energy con- FACTS PFI, the Paper and Fibre Research Institute is located in Trondheim, Norway, adjacent to the Norwegian University of Science and Technology, NTNU. Today it is owned by the companies that make up the Swedish research institute Innventia. sumption from around 30,000 kwh/tonne to around 500 kwh/tonne, which is around 98 percent more efficient, says Mikael Ankerfors, senior researcher for nanomaterial at Innventia. This development has sparked new and growing interest in nanocellulose. The material is not new per se, but before its development in recent years, it was so energy-intensive to produce that it was hard to find profitable applications for it. TESTS ON A REALISTIC SCALE Innventia can continue the development process in partnership with industrial companies. Interest in nanocellulose has increased dramatically since Innventia built the pilot plant. We have lowered energy consumption, says Miakel Anker (left), senior researcher for nanomaterial at Innventia. Together with Innventia s other pilot plants, we now have the possibility of testing tech nological solutions and processes on a rea listic scale. We can also deliver nanocellulose for customers and partners to use in their own development work, says Mikael Ankerfors. R&D&I 50 51

27 R&D&I R&D&I AUTO INDUSTRY A STRONG DRIVING FORCE FOR CARBON FIBRE Author: Nils Lindstrand, Stockholm From what was once a long-term goal, bio-based barriers in packaging are today close to a major industrial breakthrough. Nanocellulose is one of a number of interesting possibilities. Industry and researchers are now tweaking technological solutions in a number of projects. The auto industry has taken the lead in fuelling demand for carbon fibre-based materials such as Carbon Fibre Reinforced Plastic (CFRP). BMW has, in collaboration with American carbon fibre producer SGL Group, created several new car models in CFRP that will enter mass production in But the auto industry is not solely responsible for driving demand for renewable materials; today s carbon fibre is produced using oil as the raw material. Until now the industry s goal has been to keep the weight of cars low in order to minimise fuel consumption. Several major clusters in Germany and North America have pilotscale equipment to develop processes for producing carbon fibre and CFRP. One such cluster is MAI Carbon (München- Augsburg-Ingolstadt), which includes Voith, BMW, Audi and the SGL Group. I recently visited the huge American research centre Oak Ridge National Laboratory (ORNL) in Tennessee. It has the equipment to make carbon fibre on an almost industrial scale, around 25 tonnes a year, says Per Tomani, who is overseeing the development of applications for lignin and carbon fibre at Innventia. AUTO INDUSTRY INTEREST The auto industry is keen to produce biobased carbon fibre and expects to see the cost of carbon fibre go down once lignin becomes available on an industrial scale. Cheaper carbon fibre will allow the material to be used in a far greater number of cars, not just exclusive models and brands. Swedish research institute Innventia joined the consortium that is developing carbon fibre at ORNL in order to benefit from the know-how that exists there and to map out the preconditions that will enable lignin to become a raw material. Innventia s carbon-fibre know-how is mainly focused on lignin as a raw material and on how we can produce high-quality lignin from pulp mills. We have had a process for producing lignin for more than ten years Lignoboost, which is currently owned and marketed by Metso Power. In the last few years, Innventia has intensified the work on developing the technology for modifying lignin and teaching us how to make carbon fibre from it. The auto industry is keen to produce biobased carbon fibre. INVESTMENTS MEAN UPSCALING This year Innventia has invested in new, bigger equipment for its carbon fibre research. The new equipment opens up new possibilities but it is only one step on the way. What we learn today will help us to continue our upscaling work, but the costs increase dramatically with every step. We need some form of national strategic initiative to provide us with sufficient resources in terms of both equipment and research personnel. Per Tomani emphasises that it is not Innventia s intention to produce all these resources for its own benefit. There are other centres in Sweden working in the same field. SICOMP, for example, conducts research in composite materials. But development resources shouldn t be spread too thinly either. The resources you have on home ground are the ones you know best and can use with the greatest efficiency. With more resources deployed at selected key centres in Sweden, the development process will be much quicker. There is considerable potential for generating new earnings. NEW BUSINESS MODELS NEEDED But developed processes are just one step towards the goal of making big earnings on carbon fibre from lignin. To succeed, new business models must be developed. Innventia s work on lignin and carbon fibre is currently being conducted in collaboration with companies along the whole value chain, including forest industry companies, chemical and material companies to industries that are interested in using the new materials. In addition to the auto industry, there are also companies in the aeronautical and energy engineering sectors. In my view, it is necessary for everyone to take part in the development work, both so that we can exchange know-how and contribute to the development of models for deciding who should do what. Should pulp mills be producing carbon fibre or deliver lignin to other companies? We need to discuss this along the whole value chain, says Per Tomani. LIGNIN AVAILABLE ON INDUSTRIAL SCALE Lignin from forest raw materials is now available on an industrial scale. In Plymouth, North Carolina, pulp and paper producer Domtar started up the first commercial plant using LignoBoost, the process that Innventia developed at the beginning of the 2000s in collaboration with players including Chalmers, and which was sold to Metso Power in The fact that there is now an industrial plant that produces and sells lignin from a LignoBoost is pivotal. We have been producing relatively small quantities of lignin using this technology at our research centre in Bäckhammar since But not only is the centre not on an industrial scale, it is too far away from companies in, say, North America who are interested in using lignin from the forest industry. NIH, Not Invented Here is always a factor to take into consideration. There is now a full-scale plant at the heart of the North American forest industry belt, which could create important inroads for new applications for lignin, says Per Tomani. GREAT PROGRESS IN RECENT YEARS Research has been conducted with success at several centres in the last few years. Innventia has been working on process stages such as melt extrusion and melt spinning and has hired more researchers and also collaborated with postgraduate students at different universities. One example is Ylva Nordström at Luleå University of Technology (LTU), who in her doctoral thesis showed that it was possible to produce carbon fibre from softwood kraft lignin. This, of course, increases the Swedish forest industry s potential for producing and selling carbon fibre. In another interesting collaboration, researcher Hannah Schweinebarth at Innventia has begun a six-month tenure at ORNL. The collaboration could make it possible to produce larger quantities of carbon fibre from differently characterised lignins and evaluate the functional characteristics of these fibres. The University of Tennessee is also joining the collaborative team, which will further strengthen the knowledge base. Per Tomani is optimistic about the possibilities for upscaling the processes to industrial level, and getting real products that are based on carbon fibre from forest raw materials into the market. But he also wants to see industrial production opening up on a wider front. We need to see specifications that describe more exactly which characteristics are required for which applications, says Per Tomani. Today s specifications are for extremely demanding products, such as flak jackets for the military. These requirements are difficult to satisfy and are too exacting for most other applications. Bark contains suberin, a strongly hydrophobic polymer. SUBERIN FROM BARK COULD REPLACE PLASTIC Bark contains suberin, a strongly hydrophobic polymer. In nature its task is to keep the interior of trees dry. However, suberin could perhaps also be used industrially as a manufactured water-epellent material. Researchers today are looking at possibilities for grafting suberin onto cellulose surfaces. Suberin is available in tree bark in relatively large quantities, which increases our chances of finding industrial applications for the material, says Mikael Lindström, researcher at Innventia. In a project at KTH Royal Institute of Technology, researchers have been creating a model for integrating bark bio-refinery into today s pulp mills. The bark is burned in a bark boiler as before, but before that, it is emptied of valuable chemicals such as suberin. The project has received funding from the EU, Vinnova and a number of Swedish forest industry companies. PHOTO: PETR MORAVEK / SHUTTERSTOCK.COM R&D&I 52 53

28 R&D&I R&D&I Author: Nils Lindstrand, Stockholm THE FOREST INDUSTRY MUST REDISCOVER THE CONCEPT OF CASCADING Cascading is a concept that needs to be reintroduced to the forest industry and industrial policy consultations. Forest industry companies today may need to attract new partners in order for them to create new markets and products. This will enable today s major pulp manufacturers to double as profitable biorefineries, says Anna Holmberg at Arizona Chemical. The cascaded use of biomass was an expression coined by speakers at the fourth Nordic Wood Biorefinery Conference in 2012 in Helsinki. Many international experts agree that you can generate long-term profitability for biorefineries by using more than just a fraction of the biomass. The profitability of individual products, energy for example, could disappear overnight if taxes or funding rules are changed by politicians or if there is a shift in public opinion. Long-term profitability for biorefineries is only possible if you operate them along the same lines as petroleum-based refineries, i.e. extract the valuable chemicals and burn the rest. This is the view of Anna Holmberg from Arizona Chemical, who belives that the forest industry would benefit by adopting some of the methods used by the chemical industry. You need to start in the right place, i.e. by identifying the customers needs. Once you ve done that, you can look in the refinery s chemical toolbox for a good solution to meet this need. Being green isn t enough only when green innovations give customers new functional solutions can we extract the full value of the raw material, says Anna Holmberg. NEW COMPANIES AND PARTNERSHIPS There s an old proverb that the forest industry has large, expensive machinery and it benefis the economy to use them to the max. The forest industry tends to gravitate towards solutions that make more money that they can invest in new machines for their existing plants. My personal view is that you have a lot to gain by strengthening your marketing thinking. To achieve this you may need to create a new company, a joint venture or some form of development company outside the traditional pulp and paper industry boundaries. New products need new business models. Perhaps suppliers and buyers need to sit down and create one together. CAUSE FOR OPTIMISM Arizona Chemical s goal is to encourage the bio-based green industry to adopt a number of fundamental principles. Cascaded use to exploit the maximum potential of biomass; stop funding for certain applications and focus on generating maximum economic value. Today we are seeing how biomass is being forced into the energy sector, not because it generates the highest value but Domsjö Fabriker in Sweden a successful example of cascading. because of funding reasons. But the profitability it creates is short-term and could disappear overnight, says Anna Holmberg. But there is still cause for optimism. Europe has the raw materials and know-how for building a profitable industry centred on biorefineries, with chemicals and energy products that are in demand all over the world, she says. CASCADED USE A TRADITION IN THE FOREST INDUSTRY In Anna Holmberg s view, today s forest industry needs to rediscover the concept of cascaded use. My personal view is that the need for new cascades in forest industry, ironically enough, conceals the fact that another concept of cascade-thinking is the foundation of the whole industry. The industry has always used the tree according to the cascade principle, i.e. by making timber from the finest part of the tree, and pulpwood and fuel wood from the other parts. This is standard practice for everyone working in the forest industry. It is part of the industry s DNA. But once the tree is divided up in this way, the forest industry often makes a limited number of things from each part, in order to be efficient. Perhaps now the time is ripe to adopt the basic principle and implenent the cascade principle for each part of the tree, to refine in the longer term and create new profitable products. Researchers in Sweden and Brazil COLLABORATE ON LIGNIN AND ETHANOL DEVELOPMENT PROJECTS A promising collaboration has been initiated by researchers in Sweden and Brazil to develop new types of biofuel and bio-based chemicals, without competing with food production. A promising collaboration was launched in November 2012 to develop new types of biofuel and bio-based chemicals, without competing with food production. By combining efficient processes, value chains and logistical systems for both lignin and cellulose, Sweden and Brazil are collaborating on developing new alternatives for bio-refining. The newly started project has been named POLYNOL and is a collaborative project between Innventia and companies and research centres both in Sweden and Brazil. MAJOR ECONOMIC SIGNIFICANCE Brazil is one of the world s leading countries when it comes to producing ethanol from biomass. Innventia is a leader when it comes to know-how about extraction of and applications for lignin. The growth of this area of research in the Brazilian industry could have huge economic importance. INCREASED AWARENESS IN EUROPE As part of her work at Arizona Chemical, Anna Holmberg frequently travels all over Europe. There are meetings to attend in Brussels and contacts with companies based in countries south of Scandinavia, where the discssion about cascaded use is more alive and well-established. On the continent there are discussions both in the industrial and political arenas about how to utilise bio-based raw materials through cascaded use. There are many decisions to be made in the next few years regarding the use of bio-based raw materials. In Europe, however, the discussion focuses mainly on agricultural crops, says Anna Holmberg. DOMSJÖ SUCCESSFUL WITH ITS BIOREFINERY One example of how to generate stable profitability while handling a large number of products is the success of Domsjö Fabriker in Örnsköldsvik, Sweden, which has completed the transition from pulp mill to biorefinery. Today it is a successful manufacturer of products for the textile and chemical industries. It has also stopped a major investment in bio-energy, precisely because of difficulties in guaranteeing long-term profitability. According to Lars Winter, CEO of Domsjö Fabriker, energy prices are currently too low to justify a major investment in bio-energy, and that Domsjö cannot rely on different forms of funding. Only if funding was guaranteed Lignin could become the main product. It has a large number of applications and is best for creating volume in pulp plants, says Niklas Berglin, project manager at Innventia. ALCOHOL INTO PLASTIC Ethanol has one exciting potential application as a raw material for the production of bioplastics, which gives ethanol a new value while also introducing it to the same value chain as paper and pulp, particularly when it comes to packaging. By using agricultural waste for ethanol production you can increase production even further, which will be necessary if it is to be used as fuel. The increased use of forest-based ethanol both as a raw material in the paper and chemical industry and as vehicle fuel is highly desirable. The EU is already in the process of limiting the use of agricultural years into the future, would a major energy project be worth investing in, he says. GOOD FOR THE WOOD INDUSTRY The wood industry has a lot to gain by using raw materials in cascades. A number of successful wood companies in Scandinavia have already done so, and have enhanced their profitability by improved sorting methods. They have created a system for selecting the parts that are suitable as raw materials to make profitable products such as windows and doors. At the same time, products such as OSB, chipboards and other wood fibre-based products generate profitability for other parts of the raw material. Here, too, they have found advantages in discussing and collaborating with customers to develop the right products and the right business model. Lignin could become the main product, says Niklas Berglin, project manager at Innventia. crops for this type of production, says Niklas Berglin. The launch in November was in the form of a pre-project. The main phase of the project is scheduled to begin in June this year. R&D&I 54 55

29 R&D&I ELECTRICALLY CHARGED PAPER PAVES THE WAY FOR NEW PRODUCTS RENEWABLE PACKAGING A NECESSITY FOR SURVIVAL R&D&I The discovery that surface-treated paper could be given electrical functions, with the paper as an active component, opens up new possibilities for security paper, packaging and advertising and other applications. Researchers at the Paper Surface Centre at Karlstad University in Sweden have a patent pending for a technology where paper is combined with ionic liquid and given some form of electronically controlled function. We discovered that we could use the porosity of paper to our advantage, says Germany Invests Strongly in BIOREFINERIES The plant was officially opened on 2 October by Chancellor of Germany Angela Merkel. Elson Montibon, researcher in coating technology at Karlstad University. He invented the new technology along with Lars Järnström and Magnus Lestelius. CONDUCTIVE SENSORS One possible application for the new technology is to equip the inside of packaging with a sensor which sends an electric pulse if something happens. Depending on the packaging, the sensor should be programmed to react to high temperatures, humidity, different gases or chemical impurities. And as surfaces can be made to change colour, this will enable packaging to change The German Government has conducted a major project to evaluate the potential of biorefineries in Germany. The initiative was taken by the German Ministry of Food, Agriculture and Consumer Protection, which engaged more than thirty experts from research organisations, colour if something happens to it during transportation. It can also be used for anticounterfeiting purposes. You could make security paper, for lottery tickets for instance, more secure by programming it to react if someone tampers with it, says Elson Montibon. Other possible applications are in advertising and communication, or for decorative purposes wallpaper that changes colour or advertising posters that are programmed to notify passers-by when tickets are on the verge of being sold out. industry and public authorities to develop a roadmap for how Germany can develop modern biorefineries and what significance they will have. A team inside the project group examined more closely the economic and ecological consequences of different technological solutions. Thirteen different concepts for biorefineries were selected and analysed in more detail. The results were reported to be very promising and the team concluded that a larger, more detailed study would successfully lay the foundation for a future biorefinery industry in Germany. POWERFUL RESOURCE A powerful development resource to aid the future development of biorefineries in Germany appeared in October last year in Leuna near Leipzig in eastern Germany, where there is now a Fraunhofer Center for Chemical-Biotechnological Processes which has a number of pilot plants for developing and upscaling various biotechnological processes. The purpose of this plant is to develop and upscale the technology for producing bio-based materials and chemicals. The plant cost around half a billion Swedish krona to build, and is designed to be flexible and adaptable to different types of development projects. Thanks to social media and the Internet, people are becoming more aware and better informed about all the stages of a product s lifecycle. Any company who claims to be better than its competitors in terms of sustainability and renewable materials must be prepared to prove it at every level, including their suppliers. Otherwise the consequences could be fatal. This was what John Newton, Group Manager Sustainability and Environment at the Australian packaging company Amcor had to say at a conference in Melbourne in March this year. THE IMPORTANCE OF LIFECYCLE ANALYSES Packaging researcher Keith Chessell had an even clearer message. Renewable materials in packaging are becoming increasingly important in the market. Those who do not grasp this fact are skating on thin ice. GROWING DEMAND FOR DESIGNERS Designers are an up-and-coming occupational group in industrial development and innovation. Swedish research and innovation centre Innventia now has three designers employed on a project basis. When we employ designers to create new prototypes or demonstrators, we attract the kind of publicity and attention which would otherwise be impossible to get by just showing diagrams and material samples, says Helena Halonen, Group Manager at Innventia. One publicised and early example of the designed demonstrator was kofesen, which was created at Innventia in 1999 by Farvash Razavi and Nandi Nobell to showcase the possibilities of bio-based composites, without established forms limiting the imagination. Nandi Nobell is still engaged at Innventia, together with Anna Glansén Enda Crossin, researcher at the Royal Melbourne Institute of Technology in Melbourne underlined the importance of performing lifecycle analyses (LCAs) on your products and packaging. An LCA will provide you with answers to questions that you will sooner or later receive from customers and partners. It also gives you the facts about where you can make the biggest improvements in your product s lifecycle from a sustainability perspective. You will be surprised by some of the answers you get. A MOMENTOUS TASK Social megatrends such as an aging population and the rising number of single-person households are the same in Australia as and Ann-Sofie Hartzell. Today Innventia has whole series of demonstrators in different forms that have been created to show the possibilities of the material. PERCEIVED QUALITY Demonstrators create better possibilities for both objective, physical sample evaluations and for investigating subjective perceptions of quality and reactions to different materials. Perceived quality is a key term when choosing your material, and it is important that we can map out how people react to the different properties of new materials. It Design packaging for young people and you exclude one-third of the population. Design it for elderly and you include everyone. they are in western Europe. Designers have a momentous task of creating packaging that is easy to open. The rapid increase in the number of households also makes it to imperative to design packaging that is simple to reseal. Keith Chessell encapsulated this task in one sentence. Design packaging for young people and you exclude one-third of the population. Design it for the elderly and you include everyone. is essential that we can recycle the positive reactions that many people have to biobased material, says Mikael Lindström, Deputy Business Area Manager of Packaging Solutions at Innventia. At Innventia there has been an established list of merited researchers in perception psychology. In the company s Human Product Interaction laboratory (HPI-lab) you can map out how people perceive and handle new materials. With methods such as eye-tracking, focus groups, panel tests, indepth interviews and grip measurements it is possible to link perception with objective product properties. R&D&I 56 57

30 CHRONICLE CHRONICLE Pulp Prices Have Given Way To DRAMA ON THE PRINTING PAPER MARKET Author: Mikael Jåfs, Stockholm "The price of pulp is not at the top of equity investors' agendas at this time. Their focus has instead shifted to the drama on the printing paper market. In 2012 and 2013, 12.5 percent of the printing paper capacity has disappeared due to closures. That means that we are heading toward a market that is in balance in the short term. All of the major participants are therefore trying to push through big-time increases in printing paper prices at the semi-annual negotiations. Whether or not they succeed depends in large part on the general economic trend," says Mikael Jåfs, Head of Nordic Equity Research at Kepler Chevreux. PULP PRICE VS GLOBAL AVG LEADING INDICATOR NBSK IN USD BASE 100 WORLD LEADING INDICATOR To be or not to be that is the most pressing issue for the global forest and paper industry may/98 may/99 may/00 may/01 may/02 There is a clear historical connection between key indicators and the price of pulp. If their growth curves are placed side by side, it can be clearly seen that they share a similar trajectory, but the price of pulp lags behind by about 6-9 months. SOURCE: BLOOMBERG, CA CHEUVREUX Our previous forecast and analysis of a positive pulp market has proven correct. Pulp prices are going up slowly. The macro signals concerning the world economy are also looking brighter and brighter and leading indicators show an improvement. We are currently in the middle of the change, and when we look back at the end of this year, we will probably be able to conclude that we have had a strong drive in the world economy in may/03 may/04 may/05 may/06 may/07 may/08 RISING PULP PRICES In my view the key indicators and therefore also the price of pulp bottomed out in the second half of There is a clear historical connection between key indicators and the price of pulp. If their growth curves are placed side by side, it can be clearly seen that they share a similar trajectory, but the price of pulp lags behind by about 6-9 months. One of the most crucial indicators is may/09 may/10 may/11 may/12 may/13 imports to China, and the latest signals suggest that they will continue to increase. Despite general concerns about the economic situation, we therefore expect that the price of pulp will continue to increase. However, the general economic and structural uncertainties are a constant overhanging threat. No one knows today how quickly demand for printing paper will decline in the mature part of the world. However, it is all too easy to be blinkered by the situation in Europe and North America when assessing the situation from a global perspective FOCUS ON PRINTING PAPER The stock market knows that 80 percent of the demand for pulp comes from products and regions with cyclical and long-term growth. That results in the price of pulp not being at the top of equity investors' agendas at this time. The stock market's focus has instead shifted from the pulp price trend to what is happening on the printing paper market. How did the companies succeed in fending off the printing paper price drop with the announced capacity closures that are to occur in the summer? If we lump together newspaper, magazine paper and fine paper, we had a total global capacity in 2011 of 42 million tonnes. One million tonnes of printing paper capacity disappeared from the market last year. Thus far this year, additional closures equal to 2.1 million tonnes have been announced, the great majority of which is printing paper. That means that 12.5 percent of the capacity will have disappeared in 2012 and This means that we are heading toward a market that is in balance in the short term, provided that the share of exports does not change or go down. Things are thus looking good on the basis of a theoretical calculation of balance. All major participants are now trying to push through big-time increases of the printing paper prices at the semi-annual negotiations. Whether or not they succeed depends in large part on the general economic trend. If it's weak, consumption will fall fast, if it levels out, there will be a more modest normalization of the market. Then we have a situation that makes it possible to try to stop the ongoing price drop and get a little price upswing going. At present, the equity market does not really believe that the printing paper producers will manage to stop the price drop. At present, there's therefore a lot of "wait and see". Sometime very soon, a number or news will probably come in from the system which will help to break the deadlock. CHINA STOKES THE PULP MARKET Anyway, the global demand for pulp is expected to continue to rise, despite the continuing slump in the printing paper market in Europe and North America. This is caused by an equal acceleration in demand for tissue, paper and packaging in the emerging markets. Tissue manufacturing in particular requires large quantities of pulp. China and Europe are today the world s two biggest pulp importing regions. Annual pulp consumption in China has increased from six million tonnes in 2000 to today s figure of 19 million tonnes. With new tissue and packaging lines starting up in the country, this is a development that is unlikely to lose momentum. Last year China s pulp imports rose by 20 percent compared with the previous year. This will probably help to increase the price of return fibre and pulp even more, particularly as Chinese buyers expect the price to be even higher in six months which history has shown to be the right time to replenish stocks. With lower paper usage in the developed economies, the equation will lead to gradually rising waste paper costs. Furthermore, as waste paper prices increase over time, this will trigger additional demand for pulp, as many producers want to reduce the pricing risk and turn to pulp as a raw material, which carries less pricing volatility. With lower demand for paper and higher consumption of tissue in the world, the tissue trend will become increasingly important for the price of pulp. Especially because tissue also eats up a lot of pulp. An important question that the stock market is asking itself is whether the tissue market is in the process of becoming over- CHRONOCILE 58 59

31 CHRONICLE BRIGHT MARKET INDEX built. You'll get a rosy scenario or a gloomy scenario depending on who you ask. The world market for tissue needs to be consolidated, just as it has in North America and Europe over the past 2 3 years on the consumer side. GLOBAL FIBER USAGE PRODUCTION CHAIN (MILLION TONNES) % 131 Integrated pulp SUSPICION OF FOREST INDUSTRY SHARES Even though the economic climate remains rather uncertain, the level of doubt and concern about listed companies in the forest industry such as Stora Enso, UPM, Metsä Board, Holmen, SCA and BillerudKorsnäs has been significantly reduced. This does not mean it has disappeared altogether, but it has merely been eased due to the steady gains made by the international exchanges in the last few months, and the price of pulp. There is still doubt on the stock market about companies in the forest industry. Another interesting aspect is that share prices and pulp prices also show a remarkably similar trajectory. I have looked at the share price performance between these points in time for Stora Enso (net seller), and UPM (neutral pulp balance), and compared it to SCA's (net buyer) share price performance. The result is fairly conclusive. In periods of falling pulp prices, SCA outperforms the other two companies, and in periods of rising pulp prices, Stora Enso and UPM tend to outperform SCA. Today, we believe that the pulp price is approaching a trough. If correct, the historical pattern would indicate that Stora Enso and UPM will outperform SCA during the coming months. In other words, when the price of pulp goes down, companies that are net buyers of pulp will outperform the net sellers. STRONG STOCK MARKET GOOD FOR THE INDUSTRY Stock markets bottomed out in August. Since then we have seen indices rising steadily on most global stock markets. In the short term, most people believe there will be a pause in this trend. However, I and our strategists believe that, after a relatively short period of market declines during the coming couple of months, the upward trend will continue for the rest of the year. Forest industry shares will subsequently also be given a lift on the back of increasing stock market optimism. BSK, is the Northern type of pulp from slow growing species, such as spruce and pine. BHK, is mostly northern hemisphere pulp from species such as birch, or aspen. BEK, is mostly plantation based fast growing eucalyptus. This is the grade that attracts most interest and capacity expansion plans. PULP PRICE VS CAPACITY EXPANSION BHKP prices cif Europe (USD/ton) Global production of paper, board and tissue Jan/02 Jan/03 92% 8% Total fiber consumption Minerals Printing & Writing Paperboard Tissue Corrugated Newsprint Others Valdivia Jan/04 APP Hainan Jan/05 Veracel Jan/06 Pulp Recycled fiber SOURCE: POYRY (NOX/2011) AND PPPC (NOV/2012), CA CHEUVREUX The Chinese tissue gross capacity addition should not be counted as the only factor influencing pulp price volatility. Santa Fé Jan/07 49% 51% Mucun Fray Bentos Kerinci PL3 Jan/08 Jan/09 Três Lagos Rizhao 190 Jan/10 APP Guangxi Jan/11 28% BSK Others BHK BEK Chenming Zhanjiang Jan/12 Eldorado Jan/13 53 Market pulp Montes del Plata Maranhão Jan/14 2,0 1,8 1,6 1,4 1,2 1,0 0,8 0,6 0,4 0,2 0,0 SOURCE: FIBRIA Greenfield capacity (000 ton) Market Trends 30 MONTH FORECAST CURRENT MARKET PRICE TREND STOCKS ON A SLOW RISE CHINA IMPORTS NEW CPACITY IN RUSSIA AND LATIN AMERICA FORECAST BRIGHT MARKET INDEX A BALANCED MARKET STRENGTH IN DOWNTURN Price Peak NOVEMBER 2014 Editor : L eonard Johard, Pisa Price Fall MARCH 2015 A BALANCED AUTUMN, A STRONG MARKET IN 2014 AND A DOWNTURN IN 2015 A better balance between supply and demand continued to drive the dollar-based prices in the market during the spring both for NBSK and for Bleached Eucalyptus Kraft (BEK). According to Bright Market Index s latest forecast from 2 July 2013, we will be seeing a calm and temporarily balanced market throughout 2013, new record highs in 2014 with price levels above 1000 dollars and a deep downturn in INDEX 60 61

32 BRIGHT MARKET INDEX BRIGHT MARKET INDEX CURRENT PULP MARKET PRICE TREND According to Foex, the dollar-based NBSK prices continued to go up gradually for most of June, while the dollar-based BHK prices fell slightly, just as Bright Market Index had previously announced in its forecasts. Prices also continued on a slow drop for all qualities on the recycled fibre side. The actual list prices for NBSK in North America went up in June by 20 dollars and totalled 950 dollars per tonne, according to PPI Pulp & Paper Week. In Europe, price increases have gone slower for both NBSK and BEK, and market participants in China are continuing to try to push through a price drop for NBSK, BEK and other qualities but with mixed success. The continuing price increases of earlier months took place amidst heavy resistance from buyers finding themselves in many cases in a desperate and tight situation. These same buyers are once again eager to claim that the trend of rising prices since the end of last year will soon meet its end. According to Bright Market Index, that is not the case. The market players in the US today find that there is a balance between supply and demand. The world s tissue market is growing constantly, while the entire global printing and fine paper industry is losing money. BMI believe that the prices will continue to be strong, which, on the contrary, will most likely speed up the industry's structural transformation. FALLING SHIPMENTS In May, according to PPPC, global shipments of pulp increased by 4.5% year-onyear to 3,684,000 tonnes, which was however a drop of (0.4%) month-on-month. The shipments to capacity number also fell in May to 89% in comparison to 93% in April. Deviations were however large on each of the different markets, with a cautious attitude in China, and a strong upswing in North America as a result of, among other things, several new tissue machines being put into service there during the month. In addition, many Canadian NBSK producers are choosing to keep low stocks due to maintenance and unexpected production stoppages. The amount of NBSK shipments increased marginally from 1,842,000 tonnes in April to 1,885,000 tonnes in May, while BHK deliveries fell by 3.1 percent monthon-month to 1,672,000 tonnes. STOCKS ON A SLOW RISE According to PPPC, aggregate BHK stocks of producers went up in May by one day to 33 days of stock. BSK stocks remained unchanged, i.e. 27 days, which is below the level of days usually indicated as the standard for a balanced market. In May 2012, the corresponding BSK stocks were at 30 days and BHK at 35 days. The change on the BHK market is probably due to the increased capacity on the market from Latin America. Stocks are expected to increase during the second half of the year as a result of additional new GLOBAL PULP PRODUCERS INVENTORIES tonnes Feb/10 Jun/10 Oct/10 Feb/11 Jun/11 Oct/11 Feb/12 Jun/12 Oct/12 hardwood capacity from Latin America, as well as soft wood from Russian Ilim. According to Europulp, pulp stocks fell in European ports month-on-month by 4.7% in May to 986,027 tonnes. According to UTIPULP, consumer pulp stocks in Europe increased month-on-month by 0.8 percent to 635,776 tonnes, while consumption fell by 1.9% to 953,285 tonnes. The increases applied to both BSK and BHK. In comparison to the same month one year ago, stocks were however 2.1% lower and total consumption was 6.8% lower. Statistics from UTIPULP include data from Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Portugal, Spain, Switzerland and the UK for sulphite and kraft pulp. CHINA IMPORTS Prices for market pulp are expected to stay the same in July as a result of strong buyer resistance from Chinese buyers. In spite of that, some Brazilian producers have flexed their muscles to push through price increases in June equal to 30 dollars per tonne for bleached eucalyptus kraft (BEK). HISTORICAL DATA (SOURCE: FOEX) FORECAST (SOURCE: BMI) According to PPPC aggregate BHK stocks of producers went up in May, while NBSK stocks remained unchanged. BMI is forecasting that the stocks will continue to rise from july Feb/13 Jun/13 Oct/13 Feb/14 Jun/14 Oct/14 Feb/15 Jun/15 Oct/15 Feb/16 Negotiations with customers have also been tough for BSK. One of the most important reasons for that is Ilim's new BSK line at Bratsk with 720,000 tonnes per year. This production, which has China as its primary target market, naturally has a temporary effect on both supply and balance. Chinese pulp imports fell in April to 1,487,000 tonnes, which is a decline of 0.2% month-on-month, but an increase of 5.8% year-on-year. Chinese pulp imports dipped 0.2% from March to April, up 5.8% from April The fall in NBSK imports of 9.0% was the biggest drop of the month. Meanwhile, BHK imports increased by 17.3%. NEW CAPACITY IN RUSSIA AND LATIN AMERICA Ilim's new line of production with 720,000 tonnes of BSK at Bratsk, Russia, is gradually approaching its capacity limit. The plant, which is a joint venture with International Paper, will continue to increase production to full capacity utilization in the coming months. The total production volume from Bratsk is expected to exceed one million tonnes per year. Ilim plans to sell production from its new pulp line primarily to China. Ilim's growth is being followed with excitement and many market observers think that it will have an effect on the price trend. In addition, 4.3 million tonnes of new BEK capacity will be added in 2013 in Latin America. Eldorado's greenfield mill with 1.5 million tonnes per year seems so far to have had little effect on global supply. In the third quarter, Stora Ensos and Araucos are staring a joint facility in Monte del Plata with a capacity of 1.3 million tonnes per year, and in the fourth quarter, Suzano is starting a new factory in the state of Maranhão, Brazil, with a capacity of 1.5 million tonnes per year. Brazilian pulp producer Suzano is getting close to starting its facility in Imperatriz, Maranhão, which will have a capacity of 1.5 million tonnes per year for BEK pulp when it is fully operational. Suzano is expecting to begin operations in the fourth quarter of In addition, UPM is still waiting for environmental authorisation to expand pulp production in Uruguay by 200,000 tonnes to 1.3 million tonnes per year. BSK SHIPMENTS TO CHINA tonnes Chinese pulp imports fell in April. But BMI is forecasting that the shipments will rise to new record highs in BSK SHIPMENTS tonnes Feb/10 Feb/10 Jun/10 Jun/10 Oct/10 Oct/10 Feb/11 Feb/11 Jun/11 Jun/11 In May global shipments of pulp increased by 4,5%. But BMI is forecasting that they vill decrease from december Oct/11 Oct/11 Feb/12 Feb/12 Jun/12 Jun/12 Meanwhile, in China, the closure of outdated pulp capacity is continuing. The Ministry of Industry and Information Technology (MIIT) previously announced that it will completely close 4.55 million tonnes per year of old paper and pulp capacity in According to the ministry, this year's target has now been reduced substantially to 8,310,000 tonnes per year of closed down capacity, in comparison to the previous year's yearly target of 9,950,000 tonnes per year. This industrial closure campaign has been going on for several years in order to encourage cleaner domestic production, Oct/12 Oct/12 Feb/13 Feb/13 Jun/13 Jun/13 Oct/13 Oct/13 HISTORICAL DATA (SOURCE: FOEX) FORECAST (SOURCE: BMI) Feb/14 Jun/14 Oct/14 Feb/15 Jun/15 HISTORICAL DATA (SOURCE: FOEX) FORECAST (SOURCE: BMI) Feb/14 Jun/14 Oct/14 Feb/15 Jun/15 Oct/15 Oct/15 Feb/16 Feb/16 INDEX 62 63

33 BRIGHT MARKET INDEX BRIGHT MARKET INDEX FORECAST BRIGHT MARKET INDEX NBSK ANALYSIS. JUNE, 2013 PRICES EUROPE 1200,00 $ 1100,00 $ 1000,00 $ HISTORICAL DATA (SOURCE: FOEX) FORECAST (SOURCE: BMI) A BALANCED MARKET The market cautiously strengthened, as predicted in our previous forecast, and higher shipments continue to strengthen the shortterm forecast. The market was two months ahead of our spring forecast and some of the continuing market trend forecast at that time has thus already been accounted for. Overall, the market is now in a temporary balance and no strong market pressures are expected until the beginning of As can be seen in our color charts, the main driver is China and other new markets, who will manage to keep the market afloat for the rest of the year. In this temporarily balance, it is difficult to say what direction the price is heading, but larger fluctuations either way seem unlikely. Due to an increased overall demand for NBSK pulp and global closures of old and inefficient capacity, it looks like the prices in the Bright Market Index forecast of NBSK is not significantly affected by the new coming pulp capacity during But the continued rise has temporarily stopped and the prices of BHK is expected to be kept back in the autumn of How the new capacity affect prices for BEK we will better learn when Bright Market Index in a few months launches a new prediction model for just BEK. STRENGTH IN 2014 Prices will take off next year, where we continue to predict significantly higher price ranges driven by a strong demand for new suppliers for emerging markets coinciding with lower stock levels from cautious producers. We have seen facts indicating that prices will be as high as around 1050 dollars for NBSK in the winter of In addition, effects from current fluctuations in the currency markets will push the prise up slightly. Higher estimates that have been revised for past months deliveries have come in this month, and we therefore now expect the market to stay balanced longer and that the upward trend will be slightly delayed in 2014, but with the peak still expected in the very same winter months and at the same level as before DOWNTURN The market cycle will again change in 2015, with an oversupplied market and lower demand in Europe leading to gradually falling prices. At the very end of the forecast window, our preliminary numbers for 2016 suggest that prices could fall far below current levels, but the uncertainties in these time scales remain large and are liable to change as we acquire more data in the important months ahead. 900,00 $ INFLUENCING FACTORS 800,00 $ 700,00 $ 600,00 $ 6 months 12 months 24 months 1. Price trend 2,4 45,6 16,7 2. NBSK -30,4-57,8-51,8 3. BHKP -26,4-22,4-20,9 4. Producer stocks -4,7 20,3 126,3 6. Shipments -0,9-1,7 14,6 7. Chinese import 48,2 46,1-14,1 8. Exchange rates 13,3 19,2-1,4 500,00 $ Feb/10 Jun/10 Oct/10 Feb/11 Jun/11 Oct/11 BMI forecasts a balanced autumn 2013, a strong market in 2014 with a price peak in November and a sharp price fall beginning in March Feb/12 Jun/12 Oct/12 Feb/13 Jun/13 Oct/13 Feb/14 Jun/14 Oct/14 Feb/15 Jun/15 Oct/15 Feb/16 The table above shows the impact of different factors on the market according to our statistical model. It focuses on how the current price level will affect future prices when compared with a scenario in which current variables are geared to average historical values since Positive values indicate where current levels contribute to a higher price trend. The table clearly shows that decreasing stocks and China s import needs will be reduced, resulting in a strong, immediate impact on prices in both the 12- and 24-month perspectives Exchange rates also affect the daily price to a certain extent while deliveries play a key role in the 24-month perspective BMI forecast Jul 870 Aug 870 Sep 870 Oct 870 Nov 870 Dec BMI forecast Jan 880 Feb 880 Mar 880 Apr 900 May 920 Jun 940 Jul 960 Aug 990 Sep 1010 Oct 1030 Nov 1050 Dec BMI forecast Jan 1070 Feb 1070 Mar 1060 Apr 1040 May 1030 Jun 1010 Jul 980 Aug 940 Sep 910 Oct 890 Nov 860 Dec In the color scheme red means strong positive effect and blue means strong negative effect. INDEX 64 65

34 BRIGHT MARKET INDEX BRIGHT MARKET INDEX BHKP ANALYSIS, JUNE 2013 HISTORICAL DATA (SOURCE: FOEX) FORECAST (SOURCE: BMI) BRIGHT MARKET INDEX ALWAYS GETS IT RIGHT PRICE TREND BMI FORECAST 950,00 $ 400,00 $ 300,00 $ 900,00 $ 200,00 $ 100,00 $ 0,00 $ 850,00 $ -100,00 $ -200,00 $ 800,00 $ -300,00 $ -400,00 $ ,00 $ 700,00 $ Calejo's model. Cross-validation for 24 month forecasts compared with actual price trend. We predict price trends with over 80% accuracy and are explaining over half the market variance on two years horizons, according to both cross-validation results and historical outcomes against our past forecasts. Details can be found in our White Paper, where we have evaluated the model. 650,00 $ 600,00 $ FORECASTING PULP MARKET Feb/10 Jun/10 Oct/10 Feb/11 Jun/11 Oct/11 Feb/12 Jun/12 Oct/12 Feb/13 Jun/13 Oct/13 Feb/14 Jun/14 Oct/14 Feb/15 Jun/15 Oct/15 Feb/16 BMI forecasts a temporarily balanced autumn 2013, a strong market in 2014 with a price peak in November and a sharp price fall beginning in February BMI forecast Jul 820 Aug 820 Sep 820 Oct 820 Nov 820 Dec BMI forecast Jan 830 Feb 840 Mar 850 Apr 860 May 870 Jun 880 Jul 890 Aug 900 Sep 910 Oct 910 Nov 920 Dec BMI forecast Jan 920 Feb 910 Mar 910 Apr 910 May 910 Jun 910 Jul 910 Aug 900 Sep 880 Oct 870 Nov 850 Dec 830 INTRODUCTION We evaluated the results achieved after 18 months of forecasts on the pulp market and present a series of numerical benchmarks to give an objective view of the accuracy of the results. We have also compared the actual results achieved by the forecasts to their theoretical performance. Our assumption for beginning the analysis is that pulp market price movements are dominated by changes in supply and demand. Although machine learning and statistical methods of varying quality have been successfully used for two decades in the financial markets, these markets are dominated by the speculative aspect. Pricing there is dominated by psychology and identification of trends. The dominance of fundamental prices in pulp pricing allows us to make market forecasts based on fundamental factors, rather than the financial price trending and reliance on pre-empting human assessments of the markets. When given the same information, statistical models and machine learning models have proven far more efficient than human experts in processing this information. We found the market to be highly favourable on the basis of numerous statistical tests of our pulp forecasting capability. Our analysis provides hard evidence that our earlier assessment was accurate. BMI MODEL Forecasts are based on using machine learning to automatically develop an optimal model for the market. Machine learning is a modern trend in statistics where the formal á priori assumptions of classic statistics theory are replaced with empirical equivalents. Its development was inspired by how the brain works, and is derived from theoretical learning models and new results are continuously tested on state-of-the-art systems using a long series of test problems. During the last decade, this field of research has consistently been a top performer when it comes to comparing statistical models in finance, medicine, image recognition, text classification and other areas. In the majority of comparative studies they have even outperformed human experts. The models can generally be categorised into sub-groups: support vector machines, neural networks and nearest neighbour methods, which are all closely interrelated. They are all based on a system of independent units or neurons, which each take care of their own small part of the calculation process. While this is a structure with a capacity for complexity, it has been shown in mathematical terms that the best models are often the simplest. The main object of machine learning is therefore to generate simple, strong prediction rules from data. The next step is a series of hard statistical tests to show that the underlying principles behind these rules remain unchanged over time and do not only provide an accurate historical description. EXPERTS INDEX 66 67

35 SUBSCRIPTION OFFER Bright Market Insight four issues for 290* Special offer *SAVE 290 bright market insight An exclusive quarterly market report for the global pulp and biorefinery industry. Packed with initiated interviews, news and analyses from the markets in Europe, North America Latin America, China and the rest of Asia and Oceania. Get it and keep updated! SUBSCRIPTION OFFER Bright Market Index pulp forecasts 12 times a year for 1980 bright market index Unique pulp forecasts 12 times a year. Up to 30 months time horizon. Personal login credentials to website with analyses and updatded forecasts. Log in and get the intel! Bright Market Insight. Bright Market Index. The Advantage of Knowing The Bright Market Insight and the Bright Market Index gives you cutting edge business intelligence on the future of pulp and paper, right on to your table. Read more and sign up to our offers at 70 bright market insight and bright market index are two trademark products from calejo business intelligence