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UPM is embarking on the most ambitious investment in its history by building a new pulp mill in Uruguay. This historic leap is also welcomed as great news among pulp buyers.
Located in Paso de los Toros, the new pulp mill will significantly increase the volume of UPM’s pulp trade and improve the group’s earning power. In addition, it is a move warmly welcomed by the company’s customers.
Bernd Eikens, Executive Vice President at UPM Biorefining, recently met with Chinese customers who eagerly anticipate the new production facility. “They wish we could accelerate the project and finish it sooner. It’s encouraging to hear that there is already strong demand for the new mill’s products. In this respect, the road is paved for a successful project,” Eikens states.
With demand for market pulp estimated to increase by approximately 3% annually, UPM’s customers and their hunger for pulp offer good indication of market prospects in the near future.
Demand is driven by increased urbanisation and the growing purchasing power of the middle class, especially in developing economies. These megatrends are increasing the demand for tissue, packaging and speciality papers.
“If you look at some of the Asian countries and China in particular, there is huge growth potential for pulp even though the tissue market has grown substantially. The same applies to Africa and various other countries around the world,” Eikens explains.
He also points out that pulp has good market prospects in developed countries too, as wood fibre is a raw material required for the manufacture of various products replacing fossil fuel-based plastic.
“As the population ages, demand is growing for fibre-based products such as nappies and other sanitary products.”
A well-timed investment
The production capacity of the new Paso de los Toros pulp mill will be over 2.1 million tonnes of eucalyptus pulp. This means that UPM’s pulp production capacity will increase by more than 50%. The production facility is scheduled to start up in the second half of 2022.
“It is exciting to grow with our customers,” Eikens states. UPM’s investment is well timed, as only a limited amount of new pulp-producing capacity is expected on the market during the next three years. The new pulp mill is a USD 2.7 billion investment that requires years of planning. In addition, the mill needs access to competitive, sustainably produced wood resources.
The largest risks associated with the pulp market relate to fluctuations in the global economy. Eikens expects the new pulp mill to yield profit even in varying market conditions as it will be one of the world’s most competitive pulp mills.
The mill’s key assets include its efficient system of wood sourcing and logistics. Its competitive edge is sharpened by the size of the pulp mill capacity, the best available production technology available and skilled personnel.
“When the efficiency and cost structure are in order, we don’t have to reduce production even if the market price of pulp decreases. Lower prices are a problem for production facilities that have high production costs because they have to scale down their production.”
Uruguay rich in synergies
Prior to sealing the deal on the investment, UPM mapped out various alternative locations for the new pulp mill.
Uruguay was chosen because it meets all the credentials for responsible forest industry. The country is stable both politically and socially. In addition, the local legislation provides clear regulations on the use of forest plantations, which contributes to a responsible model of business.
Another key factor was that UPM has systematically increased the number of its forest plantations in Uruguay, and the group already has another operational pulp mill in the country — the Fray Bentos pulp mill, which started up in 2007.
“We know Uruguay well, and we already have an established organisation with a pool of skilful employees there.”
Eikens adds that the synergy benefits of the two mills are substantial, as the new mill can utilise UPM’s existing organisation in Uruguay, from human resources management to financial administration.
“We can also share our production and maintenance expertise. Minimising transport distances from the forest plantations to the pulp mills can in turn critically improve the cost efficiency of both mills. In addition, we are able to use the same vessels and port logistics in the outbound transport of pulp.”