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BRI GHT MARKET I NSI GHT


No.1 Spring 2013
Greentech - the forest as a future resource
I NS I GHT
No.1 Spring 2013
I NDEX & REPORT OF THE WORLD BI OREFI NERY I NDUSTRY
I NS I GHT
No.1 Spring 2013
INDEX & REPORT for the GLOBAL PULP & BIOREFINERY INDUSTRY
I NS I GHT
VISCOSE
THE COMEBACK
Major Capacity Increases Cause Volatility
GLOBAL MCKINSEYS ADVICE ABOUT THE PARADIGM SHIFT EUROPE FRANTIC ACTIVITY AT SCA ORTVIKEN
LATIN AMERICA BRIGHT FUTURE DESPITE RISING COSTS CHINA TIME FOR RECOVERY
NORTH AMERICA FORD FOCUSES ON NEW CELLULOSE MATERIALS R&D&I THE CENTRE FOR WORLD-LEADING RESEARCH
PROFILE MATS NORDLANDER, HEAD OF STORA ENSO RENEWABLE PACKAGING
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BRI GHT MARKET I NSI GHT
CONTENT
Peter Berg, McKinsey:
Advice to the forest industry
Volatitlity in the viscose market
CHAPTER 1
6
9
GLOBAL
Frantic acitivity at SCA Ortviken
SCA R&D:
Full focus on new materials
SCA strand:
Equipped for the future
Interview with Ulf Larsson,
President of SCA Forest Products
Aditya Birla Domsj:
Leading viscose manufacturer
CHAPTER 2
12
13
EUROPE
14
16
18
The hurricane Sandy gives
Resolute a boost
Ford devlops new cellulose materials
CHAPTER 4
30
32
NORTH AMERICA
Pressure from rising costs
Five companies
ve growth strategies
Fibria and Ensyn teams up
to produce biofuels
Tres Lagoas the worlds
forest industrial metropolis
CHAPTER 5
34
35
LATIN AMERICA
36
39
FSCN The centre of
worldleading research
Bonanza for the mills
Focus on energy efciency
Fourth generation paper

CHAPTER 6
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41
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43
R&D&I
Chinas import boost the pulp price
CHAPTER 7
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CHRONICLE
A strong market 2013 and 2014
CHAPTER 8
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INDEX
INDEX
PAGE 47
VISCOSE
PAGE 9
STORA ENSO FOCUSES ON CHINA
PAGE 24
Lumber demand: Time for recovery
New emission standards
Merger in Taiwan
Stora Enso invests
EUR 1,6 billion in Guangxi
Interview with Mats Nordlander,
Stora Enso Renewable Packaging
Russia and the
Angara paper project
CHAPTER 3
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CHINA & ASIA
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EDITORINCHEIF
EDITORIAL STAFF

DESIGN
PUBLISHER
SALES
WEBSITE
ADDRESS
PHONE
E-MAIL
CARL JOHARD
PER ARONSSON, HENRIK BRANDO JNSSON, LEONARD JOHARD,
JAN HKERBERG, MIKAEL JFS, NILS LINDSTRAND, LENNART PEHRSON
JOAKIM KARLSSON (ART DIRECTOR) & TERSE LIND, SWEET WILLIAMS AND POP
CALEJO FUTURE INTELLIGENCE AB
HKAN FREUDENTHAL, SALES DIRECTOR
WWW.BRIGHTMARKETINSIGHT.COM
STRANDGATAN 4, 85231 SUNDSVALL, SWEDEN
+46 60159090
INFO@CALEJO.SE
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BRI GHT MARKET I NSI GHT
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 biorefnery
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
Te Index is a unique proprietary developed forecast model for (NBSK) pulp based on ar-
tifcial neural networks (ANN). Te model distinguishes itself by including a large amount
of fundamental data and taking into account the frequencies of market fuctuations. Tis
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. Te model is also able to identify
whether the price will increase or decrease in nearly 8085 percent of cases where long-
range forecasts are made. In a 24-month range, the forecast is very close to the actual price
trend. Te model predicted two years ahead the deep dip in 2009 and 2011 as well as the
increase during the autumn 2012.
PROFESSIONAL AND EXPERIENCED STAFF
Te Bright Market Insight is produced in close collaboration with academia and the forest
products industry and its editorial board includes Anders Anders Luthbom, former BI
Director of SCA, Henrik Essn, BI Manager at Billerud and Mikael Jfs, Senior Analyst at
Credit Agricole Chevreux in Stockholm.
Te editorial staf are very professional and experienced business journalists around the
world. Tey each cover the following areas:
Te international biorefnery market with analyses, inteviews and news about new
capacities and shut-down capacities as well as trend reports.
Downturn in the biorefnery and pulp markets in Europe, Latin America, North
America, and China and Asia.
Reports on prices, inventories, supply and demand with market analyses.
R&D&I the latest research news from leading international research centers.
DONT MISS THE WEBSITE
In addition, Bright Market Insight's website, which requires individual login credentials, is
updated with industry-specifc news, interviews, market analyses and long-term forecasts
12 months a year. Te package also enables subscribers to download key diagrams for their
companies' internal powerpoint presentations via brightmarketinsight.com.
We hope you enjoy an insightful read
WELCOME
TO A BRIGHT
FUTURE
Bright Market Insight
C
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CARL J OHARD
EDI TOR-I N-CHI EF
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BRI GHT MARKET I NSI GHT
MORE EFFICIENT
AND FLEXIBLE PRODUCTION
WITH STRICTER CONTROL
OF RAW MATERIALS
AND ENERGY
In this interview, Peter Berg,
forest industry expert at McKinsey
& Company describes four distinct,
major development trends currently
taking place in the forest industry:
1. Radical change in
consumption habits.
2. Geographic shift in production.
3. Competition for raw materials.
4. Greater demand for sustainability.
HOW IS GLOBAL CONSUMPTION OF PAPER
PRODUCTS CHANGING?
In the west were seeing a stagnating or
falling market, with less paper being used
(particularly graphic paper) than before,
while consumption of paper is still growing
strongly in emerging economies. Reports in-
dicate a decline of as much as 40-50 percent
per capita in the west in the past decade,
which is putting the industry under im-
mense strain. In my view, the decline in the
consumption of print and writing paper will
be even faster than it has been in the past. In
developing countries, people tend to adopt
technological innovations faster and switch
directly to reading newspapers on mobile
phones and the Internet, i.e. technological
leap-frogging. If you look at where the
penetration of mobile subscriptions is the
highest, its in the emerging markets where
people have simply bypassed landline
telephony and its costly infrastructure. On
the packaging side the picture is brighter,
with growth more or less all over the world.
However, growth in the west remains slow
and hesitant.
HOW QUICKLY ARE CONSUMPTION HABITS
CHANGING?
We usually see a critical threshold for
adopting new technology at around 20-25
percent. Above this level, the trend accele-
rates. When the penetration of broadband
reaches around 25 percent, the Internet
has become a natural part of everyday
life. When 25 percent of employees use e-
readers at work, the number of uses increase
and the spread rate accelerates, which has
a direct impact on paper consumption.
Technology is constantly developing and in
the last two years the number of magazine
apps for e-readers has increased twenty-
fold, while books and magazines have
gone digital and are now available online.
Te one thing that has prevented e-book
reading from spreading even faster are the
critical legal issues about rights and pricing.
It now appears as though the big US
publishing frms and newspapers have found
a workable method for paid information.
WHAT PRODUCTION CHANGES DO
YOU ANTICIPATE FROM THIS SHIFT
IN TECHNOLOGY?
Production is largely being built up where
the consumption is. Tis means that much
of the production is shifing to Asia, and in
particular China, which from its previously
modest levels has become the worlds
largest market for paper consumption. Asia
previously accounted for one-third of the
global production of graphic paper, today it
accounts for half.
However, new question marks have
arisen about future pulp production in
South America and Asia.
In South America, per-country prices
and payroll expenses have risen drastically
Peter Bergs advice to the forest industry about the paradigm shift:
PARADI GM SHI FT
CONSUMER
DECLINE PER CAPITA
IN THE WEST IN THE PAST DECADE
50%
Author: Carl Johard, Stockholm
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BRI GHT MARKET I NSI GHT
while in China the government has signal-
led that it intends to limit the production
of paper in certain regions while stimula-
ting domestic pulp production.
DO YOU THINK THAT MILLS WILL BECOME
MORE DIVERSIFIED, WITH MORE NEW
PRODUCTS AND BROADER PRODUCT
PORTFOLIOS?
Yes. Were in the middle of a paradigm
shif. Te problem for the forest industry
is that it operates in markets mainly for
the production of commodities, where
investments are high, margins low and its
far too easy for competitors to build new,
more efcient capacity. For future success,
the industry needs to develop unique, in-
demand and higher-value products in new,
smaller segments and niche areas where not
everyone can or wants to get involved.
DO YOU EXPECT GREATER
COMPETITION FOR RAW MATERIALS?
Yes. Its becoming absolutely vital to keep
the costs of raw materials and energy under
control. Expansion will take place where
the prices of raw materials are at their
lowest.
If Europe and other regions and
countries are to meet their environmental
goals, the use of biomass for heating and
power will rise sharply. Meanwhile were
seeing the quality of recycled fbres go down,
which will result in the price of recycled
fbre, and consequently also fresh fbre, go
up. Were also seeing rising demand for
stronger material and reinforcement pulp,
which is good news for long-fbre pulp
mills in the Nordic region and North Ame-
rica. Tis all means that locally there may
be ferce competition for wood materials.
PARADI GM SHI FT
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You must be lighter on your feet and able
to respond quickly to structural changes,
says Peter Berg, McKinsey.
The various segment of the pulp market.
Wood demand will increase in Europe, with the main driver being
energy source applications.
800
750
700
650
600
550
500
450
400
350
300
2010 2015 2020 2025 2030
m
3
million
Paper & Board
392 million t
Pulp
167 million t
Recycled Fibre
224 million t
43% 57%
80% 20%
34 % 66 %
54 % 46 %
64 % 36 %
Chemical
134 million t
Mechanical
33 million t
Market Pulp
46 million t
Integrated Mills
85 million t
Hardwood
24 million t
Softwood / Other
22 million t
Eucalyptus
16 million t
Acacia / Other
8 million t
PULP MARKET STRUCTURE
EUROPEAN DEMAND FOR WOOD BIOENERGY TRADITIONAL WOOD USAGE
SOURCE: EU WOOD
SOURCE: FIBRIA
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BRI GHT MARKET I NSI GHT
Tere are still signifcant expansion oppor-
tunities in the southern hemisphere. China,
which is a major pulp importer, is the joker
in the pack. Te country intends to expand
its short-fbre pulp capacity and there are
clear directives from the government for
the country to increase its pulp production,
which means more plantations but also an
increase in imported raw materials. At the
same time, the fear is that, because of the
high cost of land, the price of Chinese fbre
will remain high
by international
standards.
Brazilian plan-
tation eucalyptus
is much cheaper
than Chinese
fbre. However,
Brazil is currently
experiencing a
period of great
uncertainty, with
rising land costs
and payroll expenses. Today you need to
venture further inland to fnd suitable
locations, which in turn requires more
infrastructure investments and means
higher transport costs. We will probably
also be seeing an increased cost base in this
part of the world.
Russia, on the other hand, has around
20 percent of the worlds timber stocks. But
it has no infrastructure and the cost of buil-
ding the necessary road and rail networks
would be gigantic. International interest in
Russia has also been dampened as a result
of reports of uncertain owner relationships,
cumbersome legal structures and business
difculties.
HOW WILL SUSTAINABILITY
REQUIREMENTS AFFECT THE MARKETS?
Its hard to say it depnds on the situa-
tion. Growing environmental awareness and
CSR initiatives are fuelling demand for sus-
tainable materials. Tis could lead to plastic
being replaced by paper, paperboard and
other sustainable bio-materials, but also, in
some cases, to paperboard being replaced by
plastic. In all, the general trend is a reduced
need for packaging.
WHAT DO YOU THINK WILL HAPPEN
TO THE PRICE OF PULP?
Teres a limit to how far pulp prices can
can increase. Te paper producers must
either see their margins shrink or they will
need to increase their paper prices. In many
paper and paperboard segments, its the
wrong time to increase prices. It would only
lead to reduced demand. Margins are at
breaking point, which will probably help to
accelerate the market trend towards more
refned products.
IS THE PULP MARKET BECOMING LIGHTER
ON ITS FEET?
Yes. Te forest industry has always had a
long planning horizon when it comes to
raw material purchases, and this culture has
ofen also fltered through to forest industry
companies and their marketing. But this ap-
proach is becoming harder to sustain as the
market is changing more quickly as a result
of rapidly changing consumer habits and
fnancially unstable producers.
Chinas pulp buyers have been very
opportunistic in the last ten years, causing
a change in the market with greater price
fuctuations and shorter planning horizons.
So today you need to be lighter on your
feet and must be able to respond quickly to
structural changes.
HOW WILL THIS CULTURAL CHANGE
MANIFEST ITSELF?
What well probably see is further conver-
sion of machinery and a growing number of
swing machines. More companies, some of
them Chinese, are considering switching to
fexible pulp mills, which can quickly switch
from paper pulp to dissolving pulp and
back. Tis will make it even harder for us to
understand and anticipate the dynamic in
the market.
WHAT ADVICE WOULD YOU GIVE YOUR
CLIENTS IN THIS UNCERTAIN MARKET?
To survive, you need to be highly mobile
and light on your feet, have your own
production fexibility and an in-depth
understanding of how to improve production
efciency in a volatile market. Its also a
good idea to supplement your basic strategy
by guaranteeing a long-term supply of
raw materials.
PARADI GM SHI FT
THE CRITICAL
25%
FOR ADOPTING NEW TECHNOLOGY
THRESHOLD
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BRI GHT MARKET I NSI GHT
The viscose market is experiencing
global growth. All the plans for new
capacity for dissolving pulp in China,
South-East Asia, Latin America and
North America entail an imminent
risk of a drop in price.
You need to have a clear and
distinct market for your products,
otherwise you risk ending up in an
open, less attractive spot market
where prices could uctuate con-
siderably, says Peter Berg, forest
industry expert at McKinsey in
Stockholm.
In the frst half of the 20th century, the
viscose fbre industry had a period of strong
growth, but this was followed by an equally
dramatic decline in the second half of the
century because of the success of the oil
industrys newer synthetic fbres. However,
in recent years the industry has been show-
ing signs of recovery.
Today, 60 percent of the worlds textiles
are oil-based synthetic fabrics, around 30
percent are cotton-based while around 5
percent are viscose-based, depending on the
sub-segment.
RISING TEXTILE CONSUMPTION
With a growing global population, the
consumption of textiles will continue to
increase. Cotton production, on the other
hand, has reached its ceiling and will strugg-
le to keep up with demand. More agricul-
tural land is needed for food products,
while countries such as India and Pakistan
recently introduced export restrictions on
cotton.
Despite shrinking crop areas, greater
efciency in cotton harvests is expected to
help keep cotton production at todays sales
MAJOR CAPACITY INCREASES
CAUSE VOLATILITY IN THE
VISCOSE MARKET
that the price diferential in relation to
regular pulp will decrease with time, says
Peter Berg, forest industry expert at
McKinsey in Stockholm.
NORMAL PRICE DIFFERENCES
Te price of dissolving pulp has recently
been hit by short-term dynamic changes.
Te rise in the price of dissolving pulp
in 2007, and most recently in 2010, was
caused by an increase in the price of oil
and therefore also the price of polyester
while the price of cotton also rose as a result
of years of poor harvests. Te market has
subsequently adjusted and prices have
dropped. Te diference in price between
paper pulp and dissolving pulp is now, as
before, USD 200-250 over the long term.
levels, which are equivalent to 26-28 mil-
lion tonnes per year. In a growing market,
the natural alternative will instead be viscose
and oil-based fbre, says Lars Winter, CEO
of Aditya Birla Domsj.
GROWING INTEREST IN
DISSOLVING PULP
Tis market trend has precipitated a gro-
wing interest in dissolving pulp. Te viscose
market is experiencing global growth. New
greenfeld plants are being built in South-
East Asia, while in Europe and in North
America, older pulp mills are being conver-
ted for dissolving pulp production.
Te volume trend for regular paper
pulp and rising prices are persuading more
people to switch to dissolving pulp. But
when the capacity increases, there is a risk
Author: Carl Johard, Stockholm
G
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In a growing market, the natural alternative to cotton will be viscose bre, says Lars Winter,
CEO of Aditya Birla Domsj.
VI SCOSE
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BRI GHT MARKET I NSI GHT
Tis means that when pulp prices go up, so do dissolving pulp
prices, and vice versa, says Peter Berg.
IMPORTANCE OF STRONG MARKET POSITION
Peter Berg says that mills in the Nordic region and North America
that are considering converting to the production of dissolving
pulp will not necessarily hit the jackpot.
It will be hard for them to compete with low-cost companies,
so they'll need to fnd their own unique position in the market
where they can manufacture some form of specialised dissolving
pulp or fnd a collaboration partner further along the refnement
chain. You need to have a clear and distinct market for your
products, otherwise you risk ending up in an open, less attractive
spot market, where prices can fuctuate considerably, says
Peter Berg.
FOCUS ON GREEN PROCESSES
Tere is one cloud on the horizon for viscose: like its competing
fbres: polyester polyester and cotton, it is associated with certain
environmental problems.
Te viscose process contains carbon disulphide, a chemical
which is hard to eliminate and which makes the product less eco-
friendly. From an environmental perspective, its better than cotton
and polyester, but today there is considerable interest in other
chemical processes such as Lyocell, which does not contain this
chemical, says Peter Berg.
Viscose has been refned in recent years, which has resulted frst
and foremost in greater comfort, a superior ft and higher quality.
But to succeed in the highly competitive textile market, the
forest industry needs to develop a material that is far superior to
cotton and also cheaper, greener and stronger. Te research-driven
trend of developing new fbre variants will continue, says Peter Berg.
You need to have a clear and distinct market for your products, otherwise you risk ending up in an open, less attractive spot market,
where prices can uctuate considerably, says Peter Berg, McKinsey.
VI SCOSE
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BRI GHT MARKET I NSI GHT
Global production of viscose staple
goods is currently dominated by
China, South and South-East Asia
and Western Europe.
By far the largest producer is China, which
is also the worlds largest textile market. Te
country accounts for 58 percent of global
capacity, compared with 8 percent just 20
years ago. China today has 27 plants boas-
ting an average annual capacity of 75,000
tonnes. Te biggest plant has a capacity
of 230,000 tonnes. Te rapid increase
in capacity in the last few years has been
driven by a strong demand for viscose from
the fast-growing, export-oriented domestic
textile industry. Tis increase in capacity has
been insufcient, however, and imports to
the country have therefore also increased.
Afer China, the rest of South and
South-East Asia is the second-largest produ-
cing region, and has tripled its capacity in
the last decade.
New capacity expansions of 800,000
annual tonnes are planned in China. Both
Lenzing and Birla have announced plans to
increase the size of their plants in Nanjing
and Xiangfan. Xinjiang Faluda has an-
nounced that capacity will be tripled to
300,000 annual tonnes, Shandong Yamei is
reported to have plans to increase capacity
by 200,000 to 260,000 annual tonnes in
total, while Anhui Shumeite and Sateri
have announced plans to build completely
new plants with a capacity of 180,000 and
200,000 annual tonnes respectively.
Domestic growth in China is being
undermined by lack of capacity and long
delivery times. Textile mills have struggled
to keep up with demands for rapid delivery
times from the western fashion industry,
which plays into the hands of suppliers in
closer locations, such as Turkey, Eastern
Europe and North Africa.
Lenzings fth viscose production
line at its Indonesian subsidiary,
South Pacic Viscose, is now in
operation. The plant, with a capaci-
ty of 320,000 annual tonnes, is the
worlds largest manufacturer of
textile bre.
According to Lenzing Asia is the most
important market for the Lenzing group.
Tis is where the company generate
more than half of its fbre revenue, and
so its logical that Lenzings biggest plant
should be in Indonesia, he explains.
PRODUCTION IN CZECH REPUBLIC
Meanwhile, Lenzing has taken full control
of the Czech pulp manufacturer, Biocel
Paskov, by acquiring the remaining 25
percent of the outstanding shares in the
company from the Heinzel group.
Afer conversion, Biocel Paskov will
produce both paper pulp and 260,000
annual tonnes of refned grades of dissol-
ving pulp. Te pulp will mainly be used by
Lenzing for its own needs.
Lenzing is also preparing for the
production of 80,000 annual tonnes at its
plant in Patalganga in India.
G
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WORLDS BIGGEST
VISCOSE FIBRE PRODUCING PLANT
CHINA: THE WORLDS
LEADING REGION
VI SCOSE
Fine paper
21%
Viscose and
other
4%
Tissue
8%
Publication
paper
16%
Packaging paper
and board
51%
CHANGING TIMES IN GLOBAL MARKET
Viscose is still a small but growing part of the the global forest industry, while publication
paper is decreasing in an overall growing market.
SOURCE: RISI INDUSTRY STATISTICS 2009
10
BRI GHT MARKET I NSI GHT
SCA Ortviken has stepped up its product development work to nd
new products to succeed publication paper.
We have a bright outlook on our future. Ten years from now
we will remain strong, we will have wider product portfolio, a skilled
staf and be well-positioned in terms of the raw material,
says Kristina Enander, Mill Manager at SCA Ortviken.
FRANTIC ACTIVITY AT ORTVIKEN
Ortviken paper mill, just outside Sundsvall,
manufactures 880,000 tonnes of coated pub-
lication paper, LWC, and uncoated paper
grades on four machines. Te raw material
is fresh spruce pulpwood, mainly from
SCA's own forests in northern Sweden.
As the global market for publication pa-
per is shrinking, SCA Ortviken is reviewing
its future strategy. Te strategy review has
led to two parallel development lines.
In the short term we need to develop
and refne the products we already have.
In the slightly longer term we also need to
fnd alternative products for our production
machinery, which in due time can succeed
the production of publication paper," says
Kristina Enander, Mill Manager at SCA
Ortviken.
Te latest product in the family is Grapho-
Invent, a new 90-gramme uncoated ofset
paper. It is part of the Bright Future project,
where last year PM5 was rebuilt to produce
higher-quality uncoated paper. Te project,
which was completed in the autumn of
2012, included the expansion of the plants
bleaching capacity and the rebuilding of
both PM5 and the water treatment plant.
STRUCTURAL CHANGES
Te structural change of the last few years,
with fewer people reading newspapers,
has prompted SCA to begin probing for
alternative products.
We are seeing dramatic changes in the
market and we need to do something about
our situation. We need to fnd new pro-
ducts for Ortviken. It is a process we have
already begun and will be stepping up in the
near future. We will be raising the tempo of
this development work signifcantly, says
Enander.
INCREASED EFFICIENCY
In other respects the plant is continuing its
endeavour of increasing productivity and
reducing costs.
We can hold our own in the industry
when it comes to factors such as develop-
ment, lower costs and increased producti-
vity, but we will not rest on our laurels. We
are now focusing on making our mainte-
nance work more efcient, says Enander.
SCA will invest some USD 57 million
in expanded cooperation between its ope-
rations in Sundsvall SCA Ortviken and
SCA strand and the energy company
Sundsvall Energi, increasing its deliveries of
energy to Sundsvall's district heating grid.
STRONG OUTLOOK FOR THE FUTURE
Over its 150-year history, Ortviken has
completed several successful product
renewals and the plant has every possibility
of being a strong and successful industry in
the future.
We have access to a fantastic fresh fb-
re; we have an industry that infrastructural-
ly-speaking is located near our raw material
and we have our own port. It is also a good
position to be in when it comes to other
developed products, and we will continue
producing publication paper at Ortviken
for a long time to come, says Enander.
Te energy extracted from Ortviken's
fue gas condenser provides surplus heat to
the district heating network corresponding
to the heating requirements of 5,000 single-
family houses per year. And three years ago
a new mechanical pulp line was opened,
which paves the way for signifcant quality
improvements and increased capacity.
"Ten years from now we will remain
strong, we will have a broader product port-
folio, a skilled staf and be well-positioned
in terms of the raw material, says Enander.
Author: Carl Johard, Sundsvall
We are seeing dramatic changes in the market and we need to nd new products for
Ortviken, says Kristina Enander, Mill Manager at SCA Ortviken.
SCA
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BRI GHT MARKET I NSI GHT
The winds of change are blowing
through the SCA R&D Centre in
Sundsvall, Sweden. Alongside the
traditional product development
work, more and more time is
being spent on researching new
materials and new business. And
this research has already come a
long way in some areas.
FULL FOCUS ON
NEW MATERIALS AND NEW BUSINESS
Major changes have taken place on the
research front over the past year, due to the
continuing dip in the market for publica-
tion paper and the sale of SCAs packaging
business. Tis has prompted SCA to
restructure its research operations.
"We are now set to further develop the
organisation, making it more business-
oriented and more closely tailored to gene-
rating new innovations and new business.
Our task for the future will be to develop
and propose new products, materials and
processes. We need to fnd new applications
for the fantastic forest raw material that
we have, says rjan Petterson, adding that
SCA R&D Centre will increasingly work
with the whole of SCA, including the
hygiene business, the new energy division
and also SCA Timber.
NEW R&D AGENDA
Te research centre has been working on a
handful of transformation projects over the
past two years.
Weve identifed a number of transfor-
mation areas that were now working on. In
many cases, these are areas that weve never
researched before.
Te areas identifed include packaging,
construction materials, composites, chemi-
cals, microfbrillated (nano)cellulose and
pharmaceuticals.
Packaging is an interesting area of
research, and a feld in which both the SCA
R&D Centre and Mid Sweden University
have material and design expertise.
Future Packaging products. Our strength
at SCA is that our fresh fbre raw material
is not only renewable, but also recyclable
and biodegradable. We are one of few
European producers of krafliner from
fresh wood fbre.
BELIEF IN BIOREFINERIES
On the chemical front, Ortviken has been
delivering extremely high-quality turpen-
tine at a rate of 300 cubic metres per year
since 1984.
We are the only forest industry
manufacturer in the world to produce
turpentine of such high quality.
Together with Mid Sweden University
and the Fibre Science and Communication
Network (FSCN), SCA R&D Centre is
now investigating the potential to
manufacture other chemicals.
Tere are a number of substances
that we can make use of, both from the
wood and the wastewater. Tis is set to
be a growth area of the future, says
rjan Petterson.
MICROFIBRILLATED CELLULOSE
Microfbrillated cellulose, or nanocellulose,
is another research area that is helping to
develop stronger fbres and materials. Tis
cellulose is of specifc interest when it comes
to construction and composite materials.
Composite materials are particularly
interesting to us, especially if they can be
manufactured on a large scale on existing
paper machines. Many of the paper pro-
ducts that we already produce are a kind of
composite material, comprising as they do
fbre, pigments and various surface layers,
says rjan Petterson.
Author: Carl Johard, Sundsvall
E
U
R
O
P
E
OF HIGH QUALITY TURPENTINE
SINCE 1984
300
The SCA R&D Centre has been working on a handful of transformation projects over the
past two years.
SCA

PER YEAR
CUBIC METRES
12
BRI GHT MARKET I NSI GHT
SCA strand produces diferent pulp grades, energy
and chemicals. With a modern, efcient and exible production
apparatus in place, new products and expansion are on
the agenda.
SCA strand is already a fully-functional
biorefnery with a capacity of 430,000 ton-
nes of totally chlorine free (TCF) bleached
kraf pulp, 95,000 tonnes of chemical
thermo-mechanical (CTMP) pulp and 450
GWh of green electricity, while also ma-
nufacturing and selling district heating and
chemicals, such as turpentine and tall oil.
We have gradually increased our
capacity over the last 20 years and refned
this concept even further. It is an integral
part of the sulphate process, where half the
wood is turned into pulp and the other
half is processed into energy and chemicals.
We invest substantial research resources in
creating new and developing existing
pulp business with our raw material, using
our processes as the starting point. Being
part of a company with such a broad, deep
expertise about the whole product and
production chain is a huge competitive ad-
vantage for us, says Ingela Ekebro, CEO of
SCA strand and Pulp Division Manager.
Te development of new products is
closely interlinked with SCA strands his-
torical growth and future expansion plans.
Our long-term goal is to double our
production capacity to 800,000 tonnes of
kraf pulp, 110,000 tonnes of CTMP pulp
and 500 GWh of energy plus additional bi-
products. It is necessary in order for us to have
a strong production economy in the future.
HALF INTERNALLY
Approximately half of the produced kraf
pulp is used in the production of SCAs
own hygiene and printing paper. Te rema-
inder is sold to external customers. CTMP
pulp is used in products such as sanitary
towels, printing paper, board products
and tissue.
GOOD AT PROMOTIONAL BATCHES
But what makes SCA strand truly unique
is the mills long experience of alternating
production.
When we stopped producing short-
fbre pulp, we were quick of the mark to
produce alternating batches of sofwood
kraf pulp. Today we manufacture several
diferent grades of sofwood pulp so that
we can customise the fbre properties for
the end-products they are intended for,
says Ekebro.
Switching between campaigns, which
involves the whole production chain from
choice of wood raw material to fnished
product is based on customer orders and a
carefully timed delivery plan.
Here we have the help of our process
design, which can handle these rapid
switches. Tis has been a major success
factor for us, says Ekebro.
PRODUCTS
SCA strand has developed special pulp
grades with properties tailored for printing
and tissue paper. Today the plant has a
number of diferent kraf pulp products
and even more on the CTMP side.
We are striving to fnd good pulp
products for highly dedicated end-users.
Our hallmark is developing and being able
ofer customised grades for tissue, kraf
board and printing products, says Ekebro
and continues:
In recent years we have also been focu-
sing on our own brand names and in this
context, our strong environmental profle
has been particularly signifcant for our
customers. Our brand name work has
helped us create knowledge in the organisa-
tion and a clarity in the communication to
our customers.
Accordingly, SCA strand recently
presented some of its latest grades such as
Luna and Celeste Filter, which is a kraf
pulp particularly suitable for flter products.
EFFICIENCY ENHANCEMENT A CHALLENGE
In order to reach its future capacity targets
and to be proftable in long term perspec-
tive and continue being a strong player in
the forest industry, SCA strand focuses
frmly on efciency enhancement.
We are sriving to nd good pulp products
for highly dedicated end-users, says Ingela
Ekebro, Mill Manager at SCA strand.
SCA
EQUIPPED FOR
THE
FUTURE
Author: Carl Johard, Sundsvall
13
BRI GHT MARKET I NSI GHT
Tese are turbulent times for the
industry. Products vanish and new ones
appear. Whatever we do really well today
may not be good enough tomorrow. Tis
is why we need to be supremely efcient
in everything we do. We are extremely
committed to maintaining a high produc-
tivity level and optimising the fbre for the
right end-product, says Ingela Ekebro and
continues:
We are working hard on our Lean
implementation and are becoming skilled
in making day-to-day improvements. Tis
includes a more strategic and structured
skills development for our 360 employees.
Processes and technology can all be bought,
but our competitive advantage is our
personnel.
RESEARCH AND DEVELOPMENT
Research and development initiatives are
equally as important.
We need to be even more fexible and
better at solving problems for our existing
customers. We work closely with SCA
R&D Centre and Mid-Sweden University
and we have our own development unit
which serves as a link between the research
and our mills. We also have a product
group, headed by our Marketing Manager
where we combine resources from marke-
ting, R&D and production, which decides
which products we should focus on. It is
an approach that we see as our competitive
advantage.
But SCA strand does not limit its
innovation work to products. It is equally
important to be innovative in process
development.
We pursue both product and process
development and we focus on developing
efcient processes as well as good products.
Energy efciency enhancement is also part
of the process work, i.e. consuming as little
energy as possible and selling the energy we
do not use.
BRIGHT FUTURE
Ingela Ekebro believes in a bright future for
SCA strand.
We have high level of competence,
a well-invested mill with dynamic plans
for the future and demand for wood-fbre
based pulp is only getting stronger. It is a
market where we should be competing in
earnest, says Ekebro.
E
U
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The wind farms will contribute to around 3,000 GWh of energy per year.
SCA
HEAVY INVESTMENTS
IN WIND POWER
SCA Energy develops renewable energy and produces refned and unre-
fned forest-based biofuels, in addition to managing SCAs wind-power
assets. SCA is one of Europes largest suppliers of forest-based biofuels.
SCA Energy also includes SCAs ventures regarding wind power,
whether they are set up as land leases, joint ventures or own
development projects.
HEAVILY INVESTMENTS
Statkraf and SCA are jointly planning the construction of 360 wind
turbines in northern Sweden. Planning has also begun on a further 300
wind turbines together with Norwegian company Fred Olsen Renewab-
le and 270 turbines are being planned presently in collaboration with
E.ON. In total the investments may amount to around SEK 30 billion
for more than 900 wind turbines.
With all our projects we can achieve close to 5 percent of
Swedens electricity consumption today. In the wind park areas, only
a few per cent of the land is actually used for roads and wind turbine
foundations. Te rest of the land in the area is managed for forestry
as elsewhere. We are thrilled about being able to combine two lines of
business energy production and forest management, where we among
other things get access to good roads for timber transports. Tis increases
the value of our forest, says Head of SCA Energy ke Westberg.
14
BRI GHT MARKET I NSI GHT
WE ARE IN THE
MIDDLE OF A SEVERE
STORM BUT THE END
IS IN SIGHT
In these difcult economic times,
SCA Forest Products continues with
unwavering commitment to innova-
tion work.
Were not seeing any growth in
demand for publication paper, so to
keep production moving forward,
we need to put all the major invest-
ments weve already made at our
plants into use for developing the
next generation of products,says
Ulf Larsson, President of SCA Forest
Products, in this interview.
WHAT KIND OF SHAPE IS TODAYS
FOREST INDUSTRY IN?
Were going through tough times and this
is afecting every business that is export-led.
Te Western forest industry is currently in
the middle of a severe storm caused by low
economic activity, combined with a struc-
tural downturn, particularly in publication
paper. In Sweden, were also sufering the
consequences of a very strong domestic
currency, which has a negative impact on all
the Swedish exporting industries. Although
there are strong indications that the end is
in sight, its going to take a long time before
we see any signifcant recovery.
HOW ARE YOU DEALING WITH THIS?
Were working on it constantly. We
want to avoid the big gestures. A healthy
organisation has a constantly ongoing de-
velopment process. We always try to work
consistently on our rationalisation and
improvement work.
HOW ROBUST ARE SCA FOREST PRODUCTS
INDUSTRIAL PLANTS?
We have large and robust production
plants and access to fresh fbre raw material
of fantastic quality. Tanks to our forward-
thinking energy investments, weve been
able to build up a cost-efcient internal
energy supply, which has given a huge boost
to the competitiveness of the factories. Te
mills in Sweden are located close to the
supply of raw material, but they have toug-
her conditions to contend with in terms of
long distribution routes to their customers.
YOU HAVE CHOSEN TO FOCUS STRONGLY
ON INNOVATIONS...
Yes. Whatever our circumstances, and ir-
respective of any other decisions, we need to
come up with the products of tomorrow in
order to maintain production and put the
major investments weve already made at
our plants to best use. Since were not seeing
any growth in demand for publication pa-
per, weve launched an innovation process
aimed at developing the next generation of
products.
Te important thing is for us to take a
clearly innovative approach to our business,
constantly reviewing it in a drive to improve
efciency and proftability. Innovation
always involves hard work with a long-term
focus. Successful innovation work leads to
diferentiation and added value for SCAs
customers and consumers, which in turn
establishes strong, market-leading and
value-creating products and brands.
HOW ARE YOU HANDLING THE STRUCTURAL
DOWNTURN IN PUBLICATION PAPER?
For one thing, weve sold of our Laakir-
chen paper mill in Austria and our Ayles-
ford paper mill in the UK, which has re-
duced our exposure to standard newsprint.
At the same time, were working intensively
at Ortviken to gradually reposition our
product portfolio.
We have several exciting projects in
the pipeline, where were working with a
number of strategic customers. In some
cases, were even at the point of test runs
with customers.
In parallel with this, weve invested
a massive SEK 350 million in PM5 to
increase its capacity and manufacture
brand new grades of publication paper with
higher grammages.
HOW IS THE INNOVATION PROCESS
GOING FOR SCAS PUBLICATION PAPER
FACILITIES?
Te large industrial sites have previously
enjoyed fantastic margins and stable market
trends. However, we can no longer take
continued market growth for granted, so
Ive asked the organisation to review the
core processes and look into the possibility
of generating revenue from supplemen-
tary product fows. Alongside this, weve
established an organisation and a process
for developing products that may come
to replace the existing ones. Te aim is to
ensure that our plants remain robust in the
future.
Ulf Larsson, President of SCA Forest Products:
Author: Carl Johard, Sundsvall
SCA
15
BRI GHT MARKET I NSI GHT
Were taking a short, medium and long-
term approach to our development work.
We have skilled and committed
people who know our business inside out
and its important to draw on all the great
ideas and resources that we have internally.
WILL WE SEE CONTINUED INVESTMENT
IN ENERGY?
Absolutely. Were currently sharpening
our strategic focus on energy. Demand for
renewable energy is bound to rise, and the
desire to switch to greener technology is
expected to remain strong. Weve set up the
new business unit SCA Energy to run and
develop our business in renewable energy.
Were planning a large number of wind tur-
bines. On top of this, well be looking at a
range of other processes through the prism
of our strong position as a major European
owner of production facilities with surplus
heat, forests and watercourses.
WHAT OTHER AREAS ARE IN THE
SPOTLIGHT?
Were taking a very open-minded ap-
proach to identifying new products for
the future, based on our relative strengths
compared with our competitors. Packaging
is, of course, an area of interest. We have
a competitive raw material structure, we
have existing production processes and we
have an in-house organisation and expertise
in research and marketing with a focus on
packaging. As a group, SCA has a long-term
focus on developing its leading positions
in advanced packaging in segments with a
high degree of refnement. Tese segments
have a more stable rate of growth and ofer
us future expansion prospects with good
growth. Were also reviewing the potential
in complementary product fows.
WHAT IS THE TIME HORIZON HERE
WHEN WILL ORTVIKEN CHANGE ITS
PRODUCTION STRATEGY?
Publication paper will remain at Ortviken
for a good while yet. In terms of higher
quality publication paper, weve been
successful in developing popular products
even in a weak market and that work will
continue. Well also be continuing our move
towards more value-added products.
Tese things tend not to involve abrupt
switch-overs. SCA Ortviken will see a
cautious and gradual change and transition
to other products.
E
U
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P
E
We will continue our move towards more value-added products, says Ulf Larssson,
President of SCA Forest Products.
SCA
SCA ORTVIKEN
WILL SEE A
CAUTIOUS AND
GRADUAL
CHANGE AND
TRANSITION
TO OTHER
PRODUCTS
P
H
O
T
O
:

S
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16
BRI GHT MARKET I NSI GHT
ADITYA BIRLA HAS BIG
PLANS FOR THE DOMSJ
BIOREFINERY
Aditya Birla Group has big plans for the Domsj Fabriker Biorenery in
rnskldsvik in Sweden. The Birla group has acquired Domsj to develop
the company and its products, opening up new possibilities for the future.
Since 2011, Domsj Fabriker has been a
part of the Aditya Birla Group, which is
one of Indias leading commercial spheres.
Te group is also the worlds largest manu-
facturers of viscose staple fbre. In addition
to Domsj Fabriker, the Pulp and Fiber
business area runs three plants in Canada
of which the latest addition, Terrace Bay,
was acquired this year and one in China
with similar manufacturing of viscose staple
fbres and viscose flaments.
SIGNIFICANT INVESTMENTS
In the last ten years Domsj Fabriker has
invested more than EUR 180 million in the
expansion of one of Swedens frst bio-ref-
neries which produces specialty cellulose,
lignin, bioethanol, biogas, bioresins and
carbon dioxide.
Te latest expansion programme
includes investments in a new wood room,
a second lignin dryer and a capacity increase
in the manufacturing process of specialty
cellulose. says Lars Winter, CEO of
Domsj Fabriker. He adds: We are now
continuing an investment plan that was
begun by the previous owners.
LEADING MANUFACTURER OF
SPECIALTY CELLULOSE
Te development programme will increase
Domsj Fabrikers cellulose annual capacity
from todays fgure of around 200,000 to
255,000 tonnes.
Tis means we can grow alongside our
customers in the expanding textile market.
We will also be able to increase our
products refnement value, Winter says.
Specialty cellulose is today Domsj
Author: Carl Johard, Sundsvall
Specialty cellulose is today Domsj Fabrikers main product.
ADITYA BI RLA
17
BRI GHT MARKET I NSI GHT
ADITYA BIRLA HAS BIG
PLANS FOR THE DOMSJ
BIOREFINERY
Fabrikers main product.
We are one of the worlds leading ma-
nufacturers of viscose, with a seven percent
share of the world market, he says.
Specialty cellulose is used mainly in
viscose fabrics and in hygiene products,
where it serves as an alternative to cotton.
But it can also be found in pharmaceuticals,
as a binding agent in food products and
has long been used in the heat shields of
NASAs space capsules.
INCREASED MARKET PRESENCE
With Aditya Birla, the companys market
presence has increased.
We now have access to market chan-
nels that beneft us greatly, and also a
competent organisation that is enormously
strong on resources.
As well as being a strategic supplier
of specialty cellulose to the Aditya Birla
groups globally expanding viscose fbre
production, Domsj also supplies the open
and growing global viscose market.
Cotton production is reported to have
reached its ceiling and will have difculty
keeping up with rising demand. Viscose is
the natural alternative, says Winter.
RANKED NUMBER TWO GLOBALLY IN
DRIED LIGNIN
Domsj Fabrikers other main product is
lignin, which is primarily used as an additi-
ve for concrete. Lignin improves the liquid
properties of concrete and thereby reduces
the need for cement. Tis is benefcial for
the environment since the manufacture of
cement causes considerable emissions of
carbon dioxide.
A single kilo of lignin added to a
mixture of concrete is calculated to reduce
carbon emissions caused by the manufactu-
re of cement by 20 kg. Te manufacturing
capacity of dried lignin will double to some
120,000 tonnes with the investment in a
second lignin dryer.
Consequently, we will have a 10% share
of the world market and become the second
largest supplier in the world for dried lig-
nin, says Lars Winter. During the autumn
of 2012 we launched a new product on the
market. It is the frst lignin product to be
based on a proprietary and patent-pending
technology and it provides Domsj with
access to a new market segment.
PROGRESS AT THE ETHANOL PANT
Bioethanol is the Domsj biorefnerys
third business area and it is currently being
produced at unprecedented levels in the
ethanol plant.
In past years, the process has been fne-
tuned, which has led to capacity increases.
Te goal is to increase annual production to
14,000 tonnes. With the planned increase
in the manufacture of specialty cellulose,
a continued positive trend is expected for
the ethanol plant, which has an absolute
maximum annual capacity of 20,000 tonnes
of ethanol.
SWEDENS LARGEST PRODUCER OF BIOGAS
In addition to the three products, Domsj
also produces methane gas from the bio-
treatment of efuents and smaller volumes
of bioresin and carbon dioxide. Biogas from
the biological treatment plant fuels the
two own lignin dryers and supplies heating
which covers 20 percent of the plants
energy needs.
Domsj is also planning to manufacture
cellulose nanofbre from the plants cellulose
sludge.
Te proportion of recovered sludge
from the manufacturing of cellulose nano-
fbre is 95 percent. Specialty cellulose from
Domsj is very pure, which means that
the fbre does not need be treated before
manufacturing. Te goal is to create new
material made from residual products, the-
reby increasing the value across the whole
production chain.
All combined, these factors give us
good cause for our motto, We make more
from the tree, says Lars Winter.
E
U
R
O
P
E
The India-based Aditya Birla Group is a leading multinational
conglomerate, comprising some 50 companies and 120 produc-
tion units on six continents and in 36 countries. It is also the
worlds largest manufacturer of viscose bre. Group sales total
USD 35 billion and the Group has 133,000 employees.
Aditya Birla manufactures viscose staple bre in India, China,
Laos, Domsj Fabriker in Sweden and at three plants in Ca-
nada: Nackawic, AV Cell in New Brunswick and Terrace Bay.
Domsj Fabriker occupies an unique position among Adi-
tya Birlas pulp mills, being the only mill to have an advanced
research operation.
The Group plans to expand capacity by the equivalent of
120,000 annual tonnes in India and 142,000 annual tonnes in
South-East Asia.
NUMBER ONE IN THE WORLD
Domsj Fabriker occupies an unique
position among Aditya Birlas pulp mills,
being the only mill to have an advanced
research operation.
ADITYA BI RLA
18
BRI GHT MARKET I NSI GHT
STEADY INCREASE
IN WOOD GROWING
COSTS IN SOUTHERN
CHINA
China has temporarily lost its
appetite for Western logs due to the
economic slowdown. But there are
signs that a recovery is on its way.
Te slowdown of the Chinese economy,
combined with worries about a bubble in
the big cities housing markets, led to a cont-
raction in construction activities in China
during 2012. Tis caused reduced demand
for lumber, and a sharp decline in imports
of sofwood logs and lumber to the country.
TIME FOR RECOVERY
With reduced demand for logs in the
lumber industry in China, log prices fell
throughout most of 2012. According
to Wood Resources Quarterly (WRQ),
Author: Jan Hkerberg, Shanghai
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CHINESE FIBRE USAGE WASTE PAPER NON-WOOD PULP WOOD PULP
China will continue to see rising wood pulp production along with rising imports of
wood chips to make that pulp.
LUMBER DEMAND
SOURCE: CHINA PAPER ASSOCIATION, MIIT
19
BRI GHT MARKET I NSI GHT
Steelmakers, cement producers and con-
struction machinery manufacturers saw
their sales soar as the stimulus plan opened
the spigots on funding for roads, railways,
ports, airports and power plants, among
other things.
In the spring of 2009, the collapse of
the US housing market forced log prices in
the states of Oregon and Washington to
their lowest levels since the early 1980s.
When Chinese traders discovered
that US logs were a bargain, they started
to aggressively buy them to support the
construction boom in China. Prices went
up for 18 months and peaked in May 2011,
afer more than a 100 per cent increase.
In 2011, China used almost 10 per cent
of the sofwood lumber produced globally.
Canada and Russia are the two dominant
suppliers of sofwood lumber to China,
together accounting for 84 per cent of
total imports, with the US, Chile and New
Zealand comprise most of the remaining
import volume.
RISING PULP PRODUCTION
China will continue to see rising wood
pulp production along with rising imports
average import sofwood log prices in the
third quarter of 2012 were down 13 per
cent from a year ago, and domestic Chine-
se-fr log prices have fallen about 6 per cent
in 12 months.
WRQ also reported that Chinas im-
ports of logs and lumber fell by 19 per cent
in the frst eight months in 2012 compared
to the same period a year earlier. By volume,
log imports were down 17 per cent and
lumber imports down 5 per cent.
However, the Wood Markets China
Bulletin has reported that Chinas wood
product sector is expanding again, afer
hitting bottom in the frst quarter of 2012,
and predicts that China is working its way
out of its housing construction slowdown.
TEN PERCENT OF THE GLOBAL SOFTWOOD
LUMBER
When the global fnancial crisis hit both
the US and Europes economies in the
fourth quarter of 2008, Chinas central
government launched an enormous stimu-
lus package of RMB4 trillion (US$586
billion) to boost domestic demand in both
infrastructure investment and consumption
during 2009 and 2010.
of wood chips to make that pulp. A new
study released by RISI concludes that,
large-scale papergrade market pulp produc-
tion in China is not a sustainable business
over time.
A steady upward trend in wood growing
costs in southern China will keep China's
pulp producers purchasing ever-increasing
volumes of wood chips from greater distan-
ces, including North and South America, at
very high costs.
Wood costs in China are already almost
the highest in the world, and account for
as much as 70% of cash costs for bleached
hardwood kraf (BHK) market pulp produ-
cers in China. Market BHK producers in
China have some of the newest and largest
pulp lines in the world, and yet are still
the high cost producers, even in their own
market.
Te RISI report indicates that wood
growing costs in southern China will pro-
bably outpace growing costs in Brazil by a
wide margin over the next decade, and this
suggests that large-scale papergrade market
pulp production in China is not a sustaina-
ble business over time.
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LUMBER DEMAND
Wood costs in China are already almost the highest in the world.
P
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BRI GHT MARKET I NSI GHT
NEW EMISSION
STANDARDS SET FOR
CHINAS PAPERMAKERS
Chinas pulp and paper industry is
one of the governments ve tar-
geted sectors for stricter policies to
save energy and cut emissions.
Historically, Chinas pulp and paper
industry has been plagued by environmen-
tal problems, traditionally caused by the
widespread use of outdated technology and
lack of environmental awareness.
However, in recent years, China has
worked hard to modernise the industry
in an efort to achieve its overall environ-
mental goals. Te country has launched
campaigns to close old machines nation-
wide to reduce pollution and realise cleaner
production.
20 MILLION TONNES TO BE PHASED OUT
From 2006 to 2010, China shut down
altogether more than 2,000 pulp and paper
enterprises, and eliminated outdated pro-
duction capacity of over 10 million tonnes.
In the 12th Five-Year Plan, for 2011-2015,
China plans to phase out another 10 mil-
lion tonnes of backward capacity.
Te most modern machines are instal-
led here in China. Actually, you have two
kinds of pulp and paper companies. You
have the old ones that might be challenging
regarding energy efciency and pollution.
But you have also got the ones that have
been installed with facilities that are state-
of-the-art. Tey are more modern than the
ones in Europe or North America, Pasi
Laine, Metso's President of Pulp, Paper and
Power, told the China Daily recently.
KEY COMPONENT OF THE CHINESE
ECONOMY
Chinas paper industrys total output in
2010 stood at nearly RMB600 billion (US$
95 billion) in value. Even if the market has
slowed down since then, the industry is
clearly one of the key components of the
Chinese national economy.
Tis was refected in the fact that the
papermaking industry was one of fve
targeted sectors when Chinas State Council
issued specifc energy-saving and emission-
cutting policies in conjunction with the
12th Five-Year Plan in early August 2012.
Local media said that it was the frst
time the government had set such detailed
goals for an individual industry.
HAND-IN-HAND WITH ENVIRONMENTAL
PROTECTION
For pulp and paper producers, con-
sumption of standard coal for making a
tonne of paper and board will be slashed to
0.53 tonnes in 2015, compared with 0.68
tonnes in 2010, according to the plan.
Similarly for the production of a tonne
of pulp, the plan is for 0.37 tonnes of stan-
dard coal to be used in 2015, down from
0.45 tonnes in 2010.
Regarding pollutants in waste water,
the pulp and paper sector will have to cut
rates of both chemical oxygen demand
(COD), a water emission factor describing
the amount of oxygen consumed when dis-
solved matter in efuent water oxidises, and
ammonia nitrogen emissions by 10 per cent.
Te industry-wide discharge of COD
emissions will be lowered from 720,000
tonnes in 2010 to 648,000 tonnes in 2015.
For ammonia nitrogen, emissions will
be reduced from 21,400 tonnes in 2010 to
19,300 tonnes in 2015.
"We should always bear in mind that
economic growth should go hand-in-hand
with environmental protection. Envi-
ronmental protection policies should be
Author: Jan Hkerberg, Shanghai
SEVEN FOCUSED AREAS IN CHINAS FIVE-YEAR PLAN
Chinas 12th Five-Year Plan (FYP) for the pulp and paper industry was released on 30 December, 2011. The ambitious plan
targets balanced growth of total paper and board consumption and production, putting an emphasis on rebalancing demand and
supply. The FYP identies seven focused areas for the industry:
Improve the raw material supply.
Increase indigenous innovation, improve technological structure.
Optimize regional development, allocate resources properly.
Conduct clean production, protect environment.
Optimise enterprise structure, promote mergers and acquisitions and implement efforts to improve industrial consolidation.
Improve product structure and product quality. Develop new and environment-friendly products,
speed up the upgrading of low-end products.
Establish saving mechanisms, promote appropriate consumption.
In addition, the FYP also identies three key projects and nine support policies.
NEW EMI SSI ON STANDARDS
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MERGER BETWEEN
TAIWANESE PULP AND
PAPERMAKERS
YFY Paper spins of its printing paper business to Chung Hwa Pulp.
Te merger of the fne-paper business
unit of Yuen Foong Yu Paper Manufac-
turing Company (YFY Paper), the largest
papermaker in Taiwan by revenue, into the
Chung Hwa Pulp Corporation came into
efect in the end of 2012.
Te merger was announced in March
2012, with Yuen Foong Yu spinning of
its printing paper business unit to Chung
Hwa Pulp in exchange for 640 million new
shares worth TND 6.68 billion (USD 230
million) to boost its ownership of Chung
Hwa to 55 per cent.
SAFEGUARD AGAINST PRICE
FLUCTUATIONS
Te deal will help to fuel revenue growth of
both companies, according to analysts.
Institutional investors told the Taiwan-
based China Economic News Service
(CENS) that acquiring the fne-paper
business unit would enable Chung Hwa
Pulp to enhance self-efciency in supply
of the material as a safeguard against price
fuctuations, while heavily utilising wet pulp
in papermaking to cut energy costs used in
evaporating of secondary condensates. Te
company could see its sales revenue increase
to TND 20 billion in 2013 and its profts
double.
A LEADING POSITION
YFY Paper was founded in 1950 and rose
to a leading position in the domestic paper
manufacturing industry. Te company has
introduced a number of diferent products
to the market, including fne paper, indust-
rial paper, paper container and household
paper products.
Besides being the owner of many mills
in Taiwan, YFY Paper has also invested
in pulp and paper mills abroad in China
and Vietnam. YFY Paper also exports its
products to other parts of Asia as well as
to the Middle East and Central and South
America.
A RENEWED ATTEMPT
Chung Hwa Pulp engages in the manufac-
ture and sale of paper products for cultural,
sanitation, and industrial uses in Taiwan.
It provides picking pulp, bulky pulp, and
high-opacity pulp products. Te company
was founded in 1968 and is headquartered
in Hualien, Taiwan.
YFY Paper and Chung Hwa Pulp origi-
nally tried to merge operations in 2001, but
had to cancel the plan. In a statement at the
time, the two companies attributed inapp-
ropriate political interference and disagre-
ements over labour issues as the reasons for
the decision to end the planned merger.
Author: Jan Hkerberg, Hongkong
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implemented in the context of promoting
consumption, investment and exports,"
said Environmental Protection Minister
Zhou Shengxian.
A COMPLETE TRANSFORMATION
It is not only government initiatives that
are helping to consolidate and modernise
the Chinese paper industry. Te companies
themselves are also upgrading their facilities.
In a China report by Asia Pulp & Paper
(APP), one of the worlds leading pulp and
paper producers, the company concludes:
Todays paper industry has undertaken a
complete transformation. Amid techno-
logical advances, as well as rising national
standards and increased awareness of
corporate responsibility, Chinas modern
paper enterprises are taking active measures
to modernise the industry by employing
renewable resources within a cleaner
production process.
Chan Hwa Pulp engages in the manufacture and sale of paper products for cultural,
sanitation and industrial uses in Taiwan.
CHANG HWA PULP
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Today 700 people work at the Stora Ensos plantation schools and eucalyptus forests in China.
STORA ENSO
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Countdown to Stora Ensos Investment in
Stora Enso will be investing around
EUR 1,6 billion in a greeneld pulp
mill for the production of pulp and
paperboard in the city of Beihai in
Guangxi province in southern China.
Further expansions are in the pipe-
line and China is well on the way to
becoming one of the groups largest
and most important markets.
Stora Enso began operations in Guangxi in
2002 and, since then has invested EUR 200
million in building up its 120,000 hectares
of eucalyptus plantations in the province.
Today 700 people work at the plantation
schools and in the Chinese eucalyptus
forests.
Tis is land ideally suited for growing
eucalyptus, says Mats Nordlander, Executi-
ve Vice President of Stora Ensos Renewable
Packaging business area.
PAPERBOARD PRODUCTION AND CAPACITY
Te forests are now ready for harvesting.
Stora Ensos management and board
recently continued the Chinese initiative
by investing EUR 1.6 billion in a new
greenfeld mill in Beihai in Guangxi. Te
mill will produce 900,000 annual tonnes of
pulp, and will include a new, state-of-the-
art paperboard machine with a capacity of
450,000 annual tonnes. Te mill is expected
to deliver liquid packaging board and va-
rious types of consumer product packaging
to the whole of China.
In 2007 we signed a letter of intent to
build the mill, and we have spent the last
fve years planning the project and nego-
tiating the terms. Its a gigantic investment
one of the largest that a Nordic company
has ever made outside the Nordic region,
says Mats Nordlander.
Te operation will be conducted in the
form of a joint-venture company, of which
85 percent will be owned by Stora Enso
and 15 percent by the state-owned Guangxi
Forestry Group.
CHINA GROWING IN IMPORTANCE
With the current investment, Chinas
importance for the group will increase
signifcantly. China including Hong Kong
accounted for around fve percent of Stora
Ensos total turnover of around EUR 11
billion in 2011.
We are already one of the market-
leading forest industry players in the count-
ry and we have ambitious growth plans in
China. If the Chinese market continues to
grow until 2020 at the rate that we expect,
there will be opportunities for further
expansion, says Mats Nordlander.
In the future, when the market allows,
the ultimate objective is to increase capacity
at the new mill to 900,000 annual tonnes.
STRONG GROWTH
Te global packaging market is currently
growing by 3 to 8 percent a year. Te fastest
growth is being recorded in countries such
as China, India and Pakistan.
All these countries, which are emerging
from poverty, need packaging. We antici-
pate that 50 percent of the global growth
in our key paperboard segment by 2020
will be in China. Te number of families in
China that are eating hygienically packaged
food is rising by 25 percent per year. Tis
is the driving force behind our operation
here. With this project we will signifcantly
increase our sales in the Chinese market,
says Mats Nordlander.
RECRUITMENT CAMPAIGN UNDER WAY
Today, Stora Enso has 4,500 employees
in China. When the mill in Guangxi is
completed, the number of employees in
the country will rise to 6,500. Tis can be
compared with the groups total workforce
of 30,000, of which 6,000 are in Sweden.
We anticipate that in fve years time,
China will be one of the countries where
we have the most employees. And thats
not including the 10,000 people who will
be working there during the construction
phase. In all, we expect that the investment
in Guanxi, with contractors, suppliers and
auxiliary operations, will create 30,000 new
job opportunities in the province, says
Mats Nordlander.
Te frst recruitment drive for the mill is
under way, with vacancies for 300 university
graduates to be flled, and 500 more to join
them in the spring of 2013.
Te great majority of them will be
learning the ropes from scratch and will
start of as operators, he says.
ALL SYSTEMS GO IN 2014
Construction work on the plant will begin
as soon as the formalities are complete.
All the preliminary decisions have been
made but we have yet to receive the fnal
framework decision. Work will commence
as soon as the permit arrives. Te construc-
tion phase is expected to take two years and
the company plans to start production at
the end of 2014, he concludes.
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Author: Carl Johard
STORA ENSO
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WHAT IS YOUR VIEW OF THE FOREST INDUSTRYS FUTURE,
GIVEN THE STRONG PRESSURE FOR CHANGE THAT
CHARACTERISES THE INDUSTRY?
Tere is undoubtedly a lot of pressure for change, and it is being
driven by two strong trends. Firstly, some of our products, parti-
cularly newsprint, have passed their sell-by date and have reached
the end of their product lifecycles. Sooner or later all products
eventually reach maturity in their respective lifecycles. Te time has
come for some of ours. Despite this, I believe were still fairly fortu-
nate in having slow, relatively lengthy lifecycles compared with, say,
the electronics and mobile phone industries.
Te second trend is the rising global population and growing
middle class, which is shifing the focus of consumption away from
North America and Europe to the emerging countries.
SCANDINAVIAN FORESTS TAKE BETWEEN 50 TO 60 YEARS TO
GROW. ISNT THE FOREST INDUSTRY BY TRADITION A SLOW-
MOVING AND CONSERVATIVE PLAYER AMONG MORE LIGHT-FOOTED
MARKETS, WITH LONG PLANNING HORIZONS AND LONG
INVESTMENTS DECISIONS?
Not really. For one thing, the forest industrys investment deci-
sions are not dictated by the pace of tree growth. Te forest is a base
of raw materials. When our industry invests were talking about
huge investments and long lifecycles. Te forest industrys specially
targeted capital investments have a very long maturity time. Flexi-
bility is low and capital sizeable, so you need to be very careful and
the investments are only made possible by a relatively slow product
lifecycle. Tis means big machines, where the capital cost per unit
gets high priority. With a faster cycle, investments as large as these
would not be possible, and instead the investments would be in
much smaller, more numerous machines.
Globally I also believe that company size is signifcant. In a
changing world, bigger companies are more competitive and have
a better survival rate than smaller ones. Tis is because they can
operate on several continents, have a large assortment of machinery
and can therefore add fexibility to the structure. Our newsprint
operation has been good at creating a network of paper machines,
THE FOREST IS OUR
All players should agree on a common view and
conviction that the forest industry is vitally important
to worlds prosperity, economy and development. It is
our green oil, says Mats Nordlander, Executive Vice
President of Stora Ensos most important business area,
Renewable Packaging.
where it is possible to shif production to the unit which at the time
is most cost-efcient or is otherwise more fexible in its production.
LARGE COMPANIES ALSO HAVE THE RESOURCES TO BE MORE
EFFICIENT IN THEIR PRODUCTION.
Yes, this is the logical outcome of a more fexible organisation.
Generally in our industry, production is calibrated on a plant-by-
plant basis. Stora Enso is trying to build a network of machines and
plants instead, where we create fexibility between plants and try to
take advantage of a brutal benchmarking between individual units.
IN EUROPE, STORA ENSO HAS DIFFERENT MAINTENANCE
STRATEGIES. WHICH STRATEGY IS BEST?
Maintenance is an area that we have chosen to develop on the basis
of geography. Were constantly striving to expose all our external
and internal processes to competition not just maintenance.
Were convinced that exposure to competition is healthy. We conti-
nuously benchmark and monitor our systems, on the maintenance
side too. Its a question of fexibility and we cannot rule anything
out in the future. Its important to have a philosophy of continuous
Author: Carl Johard
GREEN OIL
Stora Enso is trying to build a network of machines and plants and
take advantage of a brutal benchmark, says Mats Nordlander,
Executive Vice President Stora Enso Renewable Packaging.
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improvement. Getting bogged down in philosophical discussions
and principle-based deadlock on certain decisions would be fatal.
Tis is not a religion and in this respect we are strict non-believers
in all political currents. Our philosophy is total fexibility.
Were constantly striving to expose all our external and internal
processes to competition not just maintenance. Were convinced
that exposure to competition is healthy.
HOW HIGH IS SAFETY ON STORA ENSOS LIST OF PRIORITIES
TODAY?
Protection, safety and the work environment are all top of our list
of priorities and our agenda. It is discussed frst at all our meetings,
and it is our most important KPI that we use to measure our own
performance. We implement the same approach all over the world
and we have produced a toolbox with ten tools that we are currently
implementing across the group.
IN OTHER WORDS, YOU HAVE THE SAME APPROACH TO
SAFETY AT ALL YOUR PLANTS AROUND THE WORLD?
Yes. We emphasise it in all situations. Our policy is that this is
not a cultural issue: a Chinese, Pakistani, or Finnish worker is no
diferent to a Brazilian worker in our safety culture. Protection and
safety is one area where we are slightly fundamentalist in our ap-
proach here, we make no compromises. Our employees must feel
confdent that they will come home unharmed.
DOES SUSTAINABILITY HAVE THE SAME PRIORITY ON
THE AGENDA?
Yes I think so. We are a company that is shifing towards the
emerging countries and high-risk markets. Tis makes sustainability
work increasingly important. It always did have high priority, but
the current shif has brought new dimensions and is moving new
items up the agenda.
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GREEN OIL
"We continuously
benchmark and
monitor our systems.
Our philosophy is
total exibility.
STORA ENSOS NEW STRATEGY
Stora Enso is one of the worlds leading manufacturers of
paperboard and paper.
The group has 30,000 employees in 35 countries all
over the world, and annually produces 4.9 million tonnes of
chemical pulp, 11.8 million tonnes of paper and paper-
board, 1.3 billion square metres of corrugated board and
6 billion cubic metres of sawn wood products. Sales
totalled EUR 11 billion in 2011.
Stora Ensos operations are now divided into four
business areas:
Printing and Reading newsprint, magazine and
book paper and ne paper.
Biomaterials production of bre-based pulp and
bi-products from pulp production.
Stora Enso Building and Living wood products for
construction and interiors, and bio-fuels.
Stora Enso Renewable Packaging bre-based
packaging and innovative packaging solutions for
consumer products and industrial applications.
In its new strategy, Stora Enso has decided to invest in
bre-based packaging and plantation-based pulp produc-
tion in emerging markets such as China and Latin America.
By offering sustainable new solutions for customers,
bre-based packaging ensures steady, long-term growth in
most segments and has considerable innovation potential.
Plantation-based pulp is based on bres that grow ten
times faster than trees in the northern hemisphere. Planta-
tions will allow Stora Enso to secure costs and efciency
in order to meet future needs for paper and paperboard
production.
The Printing and Reading business area will remain
part of Stora Enso, even if the group will become more
concentrated with fewer production lines. Focus will be
oriented towards manufacturing top grades with the
help of investments and initiatives to promote cost and
energy efciency.
Our overarching strategy is to continue growing in
growth areas. Packaging and bio-materials are two such
areas we are investing in. Business areas such as Printing
& Reading and Building & Living generate sufcient cash
ow to allow us to generate growth in other areas, says
Mats Nordlander, Executive Vice President of Stora Ensos
Renewable Packaging business area.
Given that we ofen tend to act quickly and have earned the
reputation of being a pathfnder in new markets, we also break new
ground and face new challenges. Its always easier to be second or
third in a new market, leaving someone else to plough the furrows,
make the mistakes and go through the learning curve. Our strategy
is to be frst.
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AFTER THE
MARUBENI
AGREEMENT
Russia is strengthening its commercial ties with
Asia in the forestry industry. Recently, Japans
Marubeni Corporation signed an agreement to build
the gigantic Angara Paper pulp mill in Siberia and
a Chinese wealth fund has invested in a Siberian
timber company. With this new deal the initial
partner Sodra leaves the project.
Angara Paper, a massive Russian pulp mill project in Siberia,
got a much-needed welcomed boost in September 2012,
when the Japanese trading company Marubeni Corporation
signed an agreement with the Russians, taking responsibility
for machinery, procurement as well as overseeing the construc-
tion of a production facility in Lesnosibirsk in the region of
Krasnoyarsk, Sibiria.
Te contract was signed in conjunction with the summit
meeting of the Asia-Pacifc Economic Cooperation (APEC)
in Vladivostok, where the leaders of the 21 member econo-
mies met to discuss future trade and cooperation issues.
ONE OF THE WORLD'S LARGEST PULP MILLS
Angara Paper is intended to become one of the worlds largest
pulp mills. Angara Paper was founded in 2006 to implement
the pulp mill project. In 2008, Russias Industry and Trade
Ministry included the project in the list of priority investment
projects but construction was halted because of the global
fnancial crisis.
According to initial plans, the mill will produce 1.2
million tonnes pulp per year, comprising 900,000 tonnes of
northern bleached sofwood kraf pulp (NBSK) based on
birch and aspen and 300,000 tonnes of dissolving pulp (textile
pulp), in addition to 380,000 cubic metres of sawn timber.
About 80 per cent of the output is earmarked for export
to China, Japan, and other Asian regions. Te partners put the
cost of the investment project at JPY 280 billion (USD 3.5
billion).
Japan currently imports most of its sofwood pulp from
North America and northern Europe. Japanese and other
Asian paper companies will be able to cut transportation costs
by switching to supplies from Russia.
Author: Jan Hkerberg, Hongkong
IF YOU WERE TO START UP THE SAME GREENFIELD PLANT IN
EUROPE AS YOU ARE DOING TODAY IN CHINA AND PREVIOUSLY
IN BRAZIL, WOULD IT BE DIFFICULT TO RECRUIT THE SAME
EXPERTISE FROM THE UNIVERSITIES? WHAT DOES THE FOREST
INDUSTRY NEED TO DO IN ORDER TO ATTRACT YOUNG PEOPLE?
Tis is what makes China the successful and fast-growing country
it is today. We cant compete on the same pitch, let alone in the
same sport. Our challenge is to make our industry appealing enough
to attract the very best university graduates. Tis is a big issue for
the future. How can we get the sharpest minds at the universities to
continue developing in our industry? In this regard weve observed
an unsettling trend. In general terms we need to learn to present our
industry in terms of its opportunities. Ours is an industry with a
bright future.
Te economic realities will work to our advantage. Industry and
governments share the same platform and have a common vision and
conviction that this industry is absolutely vital to worlds prosperity,
economy and development. Tis is our green oil.
WHERE DO YOU PICTURE STORA ENSO IN 20 YEARS?
Globally, Stora Enso in 20 years will have a presence in many emer-
ging markets and have an even bigger presence than today in Asia
and Latin America and in the global packaging market.
WHAT IS THE BIGGEST CHALLENGE FACING THE FORESTRY
INDUSTRY TODAY?
Te strongest motivation is that the resources on our planet are
limited. Te world population will be nine billion in 2050. We
therefore need to be smarter in the way we use both fnite oil-based
resources and renewable resources, to make them last longer. One
way is to maximise the productivity of each square metre and every
tree. Tat trend will be very strong. Tis is an area we also focus on.
SDRA LEAVES ANGARA PAPER PROJECT
Stora Enso has decided to invest in bre-based packaging and
plantation-based pulp production in emerging markets such as China.
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Construction work on the pulp mill is
scheduled to start in 2013 and the mill
is supposed to be fully functional in late
2017. Te Angara project has cutting rights
to 6 million cubic metres of sofwood per
year in the Krasnoyarsk area.
SDRA DECIDES TO PULL OUT OF THE
PROJECT
Marubeni is a global trading company
operating in numerous industries such as
food, energy and metals as well as paper
and pulp. In May 2012, Marubeni sealed a
USD 5.6 billion deal to buy the US grain
merchant Gavilon. In the pulp sector, the
company has a capacity of approximately
1 million tonnes of market pulp, which is
manufactured at two facilities in Canada
and Indonesia. It also owns majority
shares in several Japanese paper and
board producers.
In 2011 Sdra Cell of Sweden became
the frst foreign partner to sign a letter of
intent with Angara Paper and the Russian
bank Vnesheconombank (VEB). Sdra's
role in the project was to be an industrial
partner with responsibilities for sales,
marketing and distribution of future
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pulp production.
Under the terms of the agreement, Sdra
could hold up to a 10 per cent stake in the
company or be paid in cash for its services.
Sdra Cell is the worlds third largest
market pulp supplier with a total annual
production of more than 2 million tonnes.
In January 2013, Sdra decided to pull
out of the collaborative project for the new
planned pulp mill.
Te scope of the project has changed
compared with the original plan. From our
perspective, the project no longer fts in
with our future strategy and we have
there-fore decided to withdraw, says
Gunilla Saltin, Acting CEO and President
of Sdra Cell.
THE RFP PROJECT
Another recent Russian-Asian forest indust-
ry deal was announced in 2012. In June,
the Chinese state-owned sovereign wealth
fund, China Investment Corporation,
established a joint private-equity fund with
its Russian counterpart, the Russian Direct
Investment Fund. In September 2012, they
made it public that their frst investment
was a minority stake in the Russian Forest
Products (RFP) Group, an investment of
USD 200 million.
Te RFP Group is Russias second-
biggest forestry company. It has operations
in Siberia and focuses on the export of raw
timber and sawn goods, but also plans to
construct a large pulp mill in Russias
Far East.
If realised, the RFP and Angara pulp
mill projects will represent the frst major
greenfeld investments in the Russian pulp
and paper industry in decades, according
to Bank of Finlands newsletter BOFIT
Weekly.
In September 2012 the Japanese trading company Marubeni Corporation signed an
agreement with the Russians in Vladivostok.
Will be one
of the worlds
largest pulp
mills
A MODERNISED AND EXPANDED FOREST
INDUSTRY
Pulp and paper production accounts for less
than 1 per cent of Russian GDP. Two-thirds
of Russias current pulp production comes
from the Ilim Groups facilities in Irkutsk
and Arkhangelsk. Paper, containerboard
and corrugated paper production is concen-
trated in north-western Russia.
About a ffh of the paper and contai-
nerboard used in Russia is imported, but
the aim is to replace imports with domesti-
cally produced paper and containerboard.
In recent years, some of the existing
pulp and paper facilities in Russia have been
modernised and expanded. For example,
US-based International Paper and the
European Mondi Group have modernised
their production facilities in Svetogorsk
and Syktyvkar. Te Ilim Group, which has
International Paper as a strategic owner, has
announced that it is completing a fve-year
investment programme valued at nearly
USD 2 billion. Te companys most recent
projects included construction of a pulp
line in Siberia and starting production of
ofce and printing paper at its Arkhangelsk
pulp and paper mill.
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CHINA AND
HURRICANE SANDY
GIVE RESOLUTE
A BOOST
Resolute is counting on China, Hurricane Sandy and
increased diversication to give the company a much-
needed boost in 2013. The Canadian forest giant has
struggled to meet its prot targets and protability
has been put under even greater pressure by the
drawn-out dispute over pulp manufacturer Fibrek.
Author: Lennart Pehrson, New York
When Resolute Forest Products formerly AbitibiBowater
announced a hostile takeover bid at the end of 2011, it turned out
to be the start of a long, drawn-out legal battle. Its rival Mercer,
which had initially outbid the company, tried to take the dispute
to Canadas Supreme Court before Resolute was fnally able to
take full control of Fibrek.
However, at least in the short term, this would weigh down on
the companys proft. Upgrading and modernising Fibreks main
asset the Saint-Flicien pulp mill in Quebec has been a costly
afair. Te plant needed both environmental investments and
measures to improve production efciency, and production had
to be shut down completely for a period.
BITTER CONFLICT
To some extent, Fibrek, now a wholly-owned subsidiary, has
returned home. AbitibiBowater built and initially owned Saint-
Flicien but divested the mill some ten years ago. Later, in 2010,
Saint-Flicien became the base of pulp manufacturer Fibrek,
while AbitibiBowater changed its name to
Resolute in a new start-up, afer requesting
protection from its creditors.
Te bitter nature of the dispute is
surprising considering the earlier close ties
between the two companies. Fibreks mana-
gement did what it could to attract another
buyer. When a settlement was fnally
reached, Resolute replaced all the members
of Fibreks board of directors and manage-
ment team. Given the introduction of new
tree-felling regulations, there was also an
underlying threat that Resolute would no
longer be able to deliver fbre to Saint-
Flicien and Fibreks other pulp plants.
MANAGEMENT LOOKS TO CHINA
Resolute operates more than twenty
pulp and paper mills and as many wood
processing plants in Canada, USA and
South Korea. Te company now hopes
that Fibreks pulp manufacturing will help
strengthen its proftability prospects and
HURRICANE
SANDY
Resolutes own forecsts suggest that
timber prices will strengthen in 2013
because of hurricane Sandys devastation
of the New York region.
$ 50 BILLION
COST MORE THAN
THE COSTS OF RECONSTRUCTION
WILL BE SUBSTANTIAL AND WOOD
PRODUCTS WILL BE IN GREAT
DEMAND
RESOLUTE
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thereby help boost its share price, which
has been in a constant state of decline. Se-
veral industry analysts consider the shares
to be undervalued despite a clear risk that
the price will continue to be exposed to
downward pressure.
Even if all the forecasts about the
growth of the global economy are tainted
by considerable uncertainty, Resolutes ma-
nagement is confdent that pulp prices will
rise in the latter part of 2013. In that case,
the driving force would be rising demand
from China. It is the prospect of increased
sales to China that is the main motivation
behind Resolutes interest in Fibrek.
A stronger paper pulp market is of crucial
signifcance as Resolute needs to compensate
for the inevitable decline in demand for
newsprint. Tere is currently overcapacity in
the North American market and all indi-
cations suggest that demand will continue
to fall newspaper readers are expected to
abandon physical newspapers when the
increased use of surf tablets and other mobile
devices digitalise the dissemination of news.
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DIVERSIFICATION AWAY FROM NEWSPRINT
Possible silver linings include increased
demand from Brazil and other Latin
American countries, and markets in Asia.
But it has long been evident that a diversif-
cation away from newsprint, which was the
companys core business, is necessary.
Dependence on the weakening
newsprint market was the main reason for
AbitibiBowater previously having defaulted
on its payments.
Diversifcation away from newsprint is
not just based on the acquired pulp mills,
which have increased capacity to 1.8 million
tonnes per year. Resolute also has strong
faith in the wood processing market.
SANDY LIFTS HOUSING CONSTRUCTION
Te new acquisitions also include several
sawmills. Te companys own forecasts
suggest that timber prices will strengthen
in 2013 due partly to the increase in
construction in the recovering housing
market in the USA and also because of
hurricane Sandys devastation of the
Resolute has strong faith in the wood processing market.
New York region on the US east coast.
When the storm subsided at the end of
October, the cost of damage was estimated
to be more than USD 50 billion. Regard-
less of the fnal damage tab, the costs of
reconstruction will be substantial and wood
products will be in great demand. Resolutes
CEO, Richard Garneau, has said that the
efects of Sandy on the wood processing
industry are unlikely to manifest themselves
in increased demand and higher timber
prices until the second and third quarters
of 2013.
If pulp and paper prices go up, this
should improve proftability afer several
tough years marked by fnancial crisis,
deep recession and structural problems
for newsprint. Te problems have neces-
sitated cost savings programmes and other
measures that may now have improved the
industrys prospects.
RESOLUTE
30
BRI GHT MARKET I NSI GHT
FORD AND WEYERHAEUSER TEAM
UP TO DEVELOP NEW MATERIALS
The quest for greener and recyclab-
le products has now brought previ-
ously improbable partners together.
Cellulose gains new applications
as Weyerhaeuser, one of the worlds
largest pulp and paper manufactur-
ers, teams up with the Ford car giant
to develop new materials.
Te deep crisis that has hit the US auto
industry has roused Detroit. Former oppo-
nents to investments in economical and
eco-friendly cars have been silenced. Te
reason is not only the success of Japanese
competitors such as Nissan and Toyota;
Fords own customers are demanding cars
that are manufactured with greener techno-
logy. In simple terms, consumer demand is
taking over the drivers seat.
GREEN ATTITUDE SHIFT
According to Ford, a green attitude shif
among car buyers has made it necessary for
the company to change the production pro-
cess in order to compete for market shares.
Eco-friendlier bio-plastic in manufacturing
therefore has the potential to be a successful
competitive weapon.
Te 2013 Ford Fusion is due to be
launched in the USA. In its marketing, the
company is emphasising that the new car
has more components made from recyclab-
le materials. Recycled plastic bottles, for
instance, have gone into the seats, old car-
pets have been turned into cylinder guards,
while the soya bean continues to be used, as
material for seat cushions.
UNLIMITED CREATIVITY
Te creativity involved seems to be unlimi-
ted. Some of the more unconventional raw
materials used in car components include
old bank notes and used jeans (which make
excellent soundproofng).
Using a greater amount of recyclable
materials means that more of the compo-
nents for the cars interior which until
now have mostly been made of fbreglass or
mineral- or petroleum-based material can
be replaced. In the longer term this will
help reduce greenhouse gases, as depen-
dence on fossil fuels and resource-intensive
disposable materials can be reduced.
CHANGES IN DRIVING BEHAVIOUR
It is now not only the debate on climate
and increased eco-awareness that is driving
development. Rising petrol prices have
given consumers purely fnancial motives
for demanding more economical cars.
However, it is a combination that is telling
car manufacturers which direction they
need to go.
A study commissioned by Ford shows
that its customers are voluntarily changing
their driving behaviour in order to save
energy and money, both out of considera-
tion to the environment and to their own
wallets. Tey are using their cars less and
driving more slowly.
And with petroleum-based components
becoming more expensive to produce,
rising oil prices are also impacting on car
production costs.
ADVANTAGE CELLULOSE FIBRES
Tis is one of the reasons why Ford has tur-
ned to the forest industry to come up with
new economical and recyclable component
materials. Weyerhaeuser has previously used
wood fbre to develop plastic composites,
but had failed to satisfy Fords exacting
demands.
However, afer conducting with
Weyerhaeuser a series of joint rigorous
laboratory tests on prototypes, the bioche-
mical experts at Fords research department
have found that cellulose fbres are, in fact,
an excellent base for making new com-
posite materials. Te plastic composites
now being developed satisfy the extremely
tough requirements on rigidity, durability
and extreme temperatures. It also quickly
became apparent that cellulose fbre had
several other obvious advantages. Compa-
red with fbreglass, components containing
cellulose fbre as a raw material are lighter
and quicker to manufacture and the process
consumes less energy.
Author: Lennart Pehrson, New York
WEYERHAEUSER
MILLION
ACRES OF FOREST
IS OWNED AND CONTROLLED BY
WEYERHEAUSER ALL OVER
THE WORLD
20
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BRI GHT MARKET I NSI GHT
1. ORIGIN 2. STRUCTURE
Cellulose is extracted from sustainably grown
and harvested trees and related forestry
by-products such as chips.
Cellulose is found in
plants and trees,
making it one of the
most common organic
components of cell
walls the very thing
that gives wood its
remarkable strength
and resilience.
Ford has tested cellulose-based plastic composite materials
supplied by forest product leader Wayerhaeuser for stifness,
durability and temperature resistance. Armrests are among the
first prototypes that were tested; they met current materials
specifications.
3. FUTURE APPLICATIONS
1. ORIGIN
Cellulose is extracted from sutainably grown
and harvested trees and related forestry
byproducts, such as chips.
2. STRUCTURE
Cellulose is found in plants and trees, making
it one of the most common organic component
of cell walls the very thing that gives wood its
remarkable strength and resilience.
3. FUTURE USE
Ford has tested cellulose-based plastic
composite materials supplied by forest product
leader Wayerhaeuser for stifness, durability
and temperature resistance. Armrests are among
some of the first prototypes that were tested; they
met current materials specifications.
And Ford has no need to worry about future supplies of cellulose
fbres. Weyerhaeuser alone owns or controls more than 20 million
acres of forest, not just in North America but all over the world.
Wood fbres status as a renewable resource is underlined by the fact
that the company announced that it planted more than 66 million
new trees in 2011.
WIDER RANGE OF APPLICATIONS
For Weyerhaeuser, whose head ofce is just outside Seattle, the auto
industry could be a new, much-needed source of revenue. Cellulose
fbres can also be extracted from tree waste. If the partnership with
Ford is a success, other potential customers should not be long in
showing an interest, and not just in the car industry.
With the collaboration with Weyerhaeuser now being
strengthened in order to jointly develop car components, Ford is
also anticipating a widening range of applications. Initially, the ob-
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WEYERHAEUSER
jective was to produce composites with cellulose fbres as a base for
making components for interior fttings. One of the frst prototy-
pes to be produced was an armrest. However, during the course of
the work, it was discovered that wood fbres could also be used for
exterior components and even in the cars engine.
It may take time for industrial companies to change the ing-
rained ways of their supplier chains, but continued development
should open the door for more applications for bio-plastic made
from cellulose fbres. In the not unlikely event that the price of
raw materials oil in particular continues to grow in the global
market, there is no shortage of incentives for discovering
alternative materials.
Tis trend may be accelerated by the continuing and
intensifed debate on the looming climate crisis. Ford is hardly
the only company that wants to market its products as being
increasingly recyclable.
CELLULOSE IN AUTOMOTIVE APPLICATIONS
The Ford blomaterials research team is investigating the use of a plastic composite material that incorporates cellulose bres from trees in
place of berglass or mineral reinforcements. The new plastic material meets Ford's requirements for stiffness, durabillity and temperature
resistance while offering numerous other benets. Here is how cellulose bers could end up in future Ford vehicles:
32
BRI GHT MARKET I NSI GHT
BUT FUTURE STILL BRIGHT
FOR FOREST INDUSTRY IN
BRAZIL
Author: Henrik Bando Jnsson, Rio de Janeiro
Despite rising land prices and pay-
roll expenses, the future looks bright
for the forest industry in Brazil.
Yes, everything is more expensive
but I still see some major competi-
tive advantages, says Andr Barros
de Hora, head of the pulp industry
department of the major Brazilian
bank BNDES.
Ten years ago the Brazilian government
commissioned the development bank
BNDES to stimulate competitive Brazilian
companies that could hold their own in the
world market. Te most successful outcome
is the Batista family who, with a loan from
BNDES, have quickly turned the small
slaughterhouse JBS into the worlds largest
beef producing company.
Te next success story could be how the
bank develops the Brazilian pulp industry.
Over the course of a decade, the bank has
ploughed USD 6.6 billion into the industry,
most of which went towards the formation
of Fibria. To stimulate domestic competi-
tion, BNDES was also involved in the
formation of market challenger Eldorado,
providing USD 1.3 billion dollars in fun-
ding for its plants in Trs Lagoas.
INDUSTRY REMAINS COMPETITIVE
Andr Barros de Hora is head of the banks
department for the pulp industry, and has
a staf of fourteen people that help him
analyse the market. Despite higher land
prices and payroll expenses, the future for
the industry in Brazil looks bright.
Tings may have looked a bit rosier
fve years ago before the fnancial boom
in Brazil; land was incredibly cheap and
payroll expenses were low. Now everyth-
ing is more expensive, but I still see some
major competitive advantages for Brazil,
says Andr Barros. Where in the northern
hemisphere, is it cheaper to run a pulp mill
than here in Brazil? Tats right... nowhere.
We still have many advantages down here.
BACK IN BUSINESS
When Lula da Silva was elected President
of Brazil, the average price of land in Brazil
was USD 1,300 per hectare. Ten years later
it is USD 3,600. So land prices have almost
tripled, and payroll expenses have followed
suit. In 2002 the government set the mini-
mum wage at USD 96 a month. Ten years
on, it is USD 300 a month. And as workers
salaries at the paper mills are based on the
government minimum wage, the efects
WOOD PRODUCTIVITY
COUNTRY HARVEST
(YRS)
YIELD
(m3/ha/yr)
Brazil 7 45-50
Uruguay 7-8 30
Chile 10-12 20-50
Indonesia 7 20.35
Australia 7 20-25
Iberia 12-15 10-12
Sweden 35-40 5.5
Finland 35-40 4
USA 25 10
Canada 45 7
SOURCE: VOTORANTIM CELULOSE E
PAPEL, CA CHEUVREUX, STORA ENSO
We still have many advantages down here,
says Andr Barros de Hora, BNDES.
have been felt across the whole industry.
Rising costs have made things more
difcult, but it is still highly proftable
to run a pulp and paper mill here, where
capacity is high. Just look at all the invest-
ments being made. Investments tapered of
afer the fnancial crisis, but now were back
in business, says Andr Barros, who has
written several reports on the pulp industry
in Brazil.
KLABIN FOCUSES ON HYGIENE
Examples of prominent new investments
include Eldorados new mill in Trs Lagoas
and Klabin, Brazils largest paperboard
manufacturer, which is investing USD 3.2
billion in a new pulp mill in the state of
Paran.
Eldorados new mill is one of the worlds
largest and has a capacity of 1.3 billion
tonnes of pulp per year. Klabins new mill is
scheduled for completion in 2014 and will
have a capacity of up to 1.5 million tonnes
of pulp per year. According to the plan, the
mill will be the frst in Brazil to produce
both short-fbre pulp for ofce and toilet
paper, and long-fbre pulp used for making
paperboard and diapers.
Pressure From Rising Costs
BNDES
33
BRI GHT MARKET I NSI GHT
BUT FUTURE STILL BRIGHT
FOR FOREST INDUSTRY IN
BRAZIL
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FIVE COMPANIES
FIVE GROWTH STRATEGIES
The pulp industry in Brazil needs
to reduce its production costs to
ensure long-term growth. The in-
dustry is also very fragmented and
there is scope for more integration
and consolidations. The ve leading
companies in Latin America have
very diferent growth strategies.
Klabin:
RAW MATERIALS, PULP AND ENERGY
Klabin focuses mainly on Brazil and the
production of energy and wood mate-
rials alongside its pulp production. Te
companys new pulp mill for producing
Bleached Eucalyptus Kraf (BEK), cur-
rently being built in the state of Paran,
will also allow Klabin to become a more
important energy producer.
Fibria:
INTEGRATED AND REFINED PRODUCTION
Fibria is not looking to strengthen its
market position by investing in a new
pulp-producing greenfeld mill. Instead,
it views the whole forest as a potential and
could consider investing in production
refnement and biotechnology.
Brownfeld investments are more in line
with Fibrias strategy. Te goal is to reduce
the wood raw materials by 33 percent. Tis
would reduce the risks regarding land costs
and acquisitions, which in turn means
Fibria could produce more by using fewer
raw materials.
Suzano:
EXPANSION THROUGH ORGANIC
GROWTH AND ACQUISITIONS
Suzanos strategy is to expand both via
organic growth and acquisitions.
Suzano enjoys a high growth rate. From
2004 to 2008 the production rose by 100
percent on the back of the acquisition of
Conpacel. Tis growth is being repeated
during the period 2008-2013.
To reduce its exposure, Suzano has
initiated a close partnership with the large
Brazilian mining company Vale, which is
investing in the plantation of new produc-
tion forests and the production of wood
raw materials.
Tis move will hopefully help Suzano
improve capital efciency, as Vale invests in
the raw materials side.
Stora Enso:
URUGUAY AND CHINA
Stora Enso is preparing to invest in plants in
China and Uruguay (see also page 24-26).
Smurt Kappa:
INVEST IN INNOVATION AND REFINED
PRODUCTION
For Smurft Kappa, Eastern Europe and
Latin America are regions where there is
scope for investing in increased capacity.
In line with the business model, Smurft
Kappa is on the lookout for a more sophis-
ticated consumer market. Smurft Kappa
also invest in innovations, given that the
company needs to be number one or two in
the markets where they operate.
DI FFERENT STRATEGI ES
Te region where the mill is being built
is the least-developed part of the state of
Paran, so the state government is contri-
buting some of the funding. Te third of
BNDESs fagship investments is Chiles
CMPC which, afer the crisis in 2008,
acquired the Aracruz pulp plant in Guaiba
in the state of Rio Grande do Sul for USD
1.43 billion. CMPC is now to invest USD
1 billion to increase the plants capacity
from 450,000 tonnes to 1.3 million tonnes
of paper pulp per year.
SUZANO STRUGGLING
Suzano, Brazils second-largest pulp
manufacturer is the worst performer. Te
reason is reported to be a general decline in
the wake of falling demand in China, but
the development bank is still concerned, as
Fibrias decline has only been ten percent in
the last two years while Suzanos has been
no less than 63 percent in the same period.
BNDES has therefore increased its
stake in the company and today owns 18
percent of Suzano. In the third quarter of
2012, the loss was USD 11 million, which is
94.4 percent less than the loss for the same
period in 2011, according to Brazilian news
agency Estado.
How the Veracel paper mill, a joint
venture between Stora Enso and Fibria in
the state of Bahia, will perform remains
uncertain. Te owners have been planning
to extend the factory since 2009, but no
decision has yet been taken.


BRAZIL
IS EXPECTED TO PRODUCE
20 MILLION
TONNES
OF PULP BY 2020
34
BRI GHT MARKET I NSI GHT
BRAZIL
IS STILL CHEAPER THAN
OTHER COUNTRIES
Fibria workforce totals approcimately
18,900 professionals.
Fibria
APRIL
Aracuco
APP
Georgia Pacic
CMPC
Sodra
Stora Enso
Weyerhaeuser
Suzano
Botnia/M-real
JPM-Kymmene
Domtar
Ilim
Mercer
IP
ENCE
West Fraser
Canfor
Cenibra
0 1000 2000 3000 4000 5000 6000
5,250
CHINESE FIBRE USAGE
BLEACHED SOFTWOOD KRAFT PULP (BSKP)
BLEACHED HARDWOOD KRAFT PULP (BHKP)
UNBLEACHED KRAFT PULP (UKP)
MECHANICAL
Brazilian producers at the top. Today's top 4 world producers are all focusing on lowcost
pulp production using eucalyptus plantations as the main raw material.
SOURCE: FIBRIA
FIBRIA AND ENSYN TEAM
UP TO PRODUCE BIOFUELS
Ensyn and Fibria have established a strategic alliance that includes an
equally-owned joint venture for the production of cellulosic liquid fuels
and chemicals in Brazil, as well as a USD 20 million equity investment in
Ensyn Corporation by Fibria.
Ensyn and Fibria have established an
equally-owned joint venture for the deve-
lopment of facilities to produce cellulose-
rich liquid fuels and chemicals in Brazil.
Te goal of the joint venture is to combine
the strengths of each party to create a major
supplier of renwable liquid fuels supplier.
Fibria, one of the worlds leading pulp
producers, brings its industry-leading
expertise in fber production as well as a
signifcant Brazilian fber resource to the
joint venture. Te joint venture will also
have access to Ensyns rights and experience
related to its RTP technology for conver-
sion of cellulosic feedstocks to renewable
liquid fuels.
THE JOINT VENTURE
Te strategic relationship includes a USD
20 million equity investment by Fibria in
Ensyn Corporation, the Ensyn parent com-
pany. Tis investment will provide Fibria
with ownership of approximately 6% of
Ensyn and also provides Fibria with certain
rights, which, if exercised, would allow Fib-
ria to invest additional capital and increase
its holdings to as much as 9% of Ensyn. In
addition, Fibria will be granted one seat on
Ensyns Board of Directors.
Fibria will be joining a group of blue-
chip entities working with Ensyn in the
development of a global renewable fuels
business based on Ensyns RTP technology
including UOP, a Honeywell company,
the worlds leading supplier of petroleum
refnery technology. Te UOP strategic alli-
ance, which takes place through jointly held
Envergent Technologies LLC, is related to
the engineering and supply of RTP equip-
ment and RFO upgrading solutions on a
worldwide basis.
THIS IS FIBRIA CELLULOSE S.A.
Fibria Celulose S.A., a Brazilian company,
is the worlds leading producer of pulp, with
a production capacity of over fve million
tonnes of pulp per year. Fibrias production
is supported by a forest base covering over
one million hectares, spread across seven
states in Brazil. Te company owns and
operates three pulp mills in Brazil and also
owns 50% of Veracel, a joint venture with
Stora Enso, also in Brazil. Fibria has specifc
expertise in growing and producing wood
fbre based on fast-growth eucalyptus.
Fibrias workforce totals approximately
18,900 professionals. Fibria invests in the
cultivation of forests as a renewable and
sustainable source of life, in order to gene-
rate wealth and economic growth, promote
human social development and ensure that
the environment is protected.
THIS IS ENSYN
Ensyn Corporation, a US company, is a
producer of liquid fuels and chemicals
from non-food biomass. Ensyn bases its
production on its Rapid Termal Proces-
sing (RTP) technology and has a historical
production of over 30 million gallons. Te
RTP technology converts wood and other
non-food biomass into renewable liquid
fuels and chemicals. Ensyns key renewable
liquid fuel, Renewable Fuel Oil (RFO), is
a multi-purpose petroleum replacement fuel
with uses in many applications, including
heating, conversion to transportation fuels
and power generation in diesel engines.
Ensyn is currently executing a signif-
cant expansion of RTP capacity in North
America and internationally for the produc-
tion of Renewable Fuel Oil (RFO), its
principal renewable liquid fuel product.
FI BRIA
Author: Henrik Bando Jnsson, Rio de Janeiro
35
BRI GHT MARKET I NSI GHT
BRAZIL
IS STILL CHEAPER THAN
OTHER COUNTRIES
Fibria and US company Ensyn have joined forces to
produce biofuels. Brazil has the best biomass and
capacity and is still cheaper than other countries, says
Vinicius Nonino, Senior Strategist and M&A Manager
at Fibria, in this interview.
HOW DID THIS COLLABORATION COME ABOUT?
Weve been talking about diversifying beyond paper pulp ever
since Fibria was frst founded in 2009. As biofuel is part of our
agenda, we began looking around for a possible partner. We made
overtures to Ensyn at the beginning of 2011 and tied the knot in
2012. Tis is our honeymoon.
IN CONCRETE TERMS, THE COLLABORATION MEANS THAT FIBRIA
HAS BOUGHT INTO ENSYN FOR USD 20 MILLION. WHAT DO
YOU GET OUT OF IT?
Technology. Tis investment alone gives us access to all Ensyns
technology, which is invaluable to us. In return, Ensyn gets capital
to invest in its biofuel refneries in the USA. Te company is expan-
ding aggressively and plans to start up ffy plants across the USA.
WILL THE COMPANY BE INVESTING IN BRAZIL TOO?
Not at this juncture. Our frst step is to produce biofuel from the
biomass lef over from our paper mills, thereby allowing the plants
to become self-sufcient in energy. We will produce biofuel for
export or domestic consumption as the second step.
Author: Henrik Bando Jnsson, Rio de Janeiro
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The forest we own in Bahia is one of the worlds largest eucalyptus forests, says Vinicius Nonino, M&A Manager at Fibria.
FI BRIA
36
BRI GHT MARKET I NSI GHT
THE BRAZILIAN GOVERNMENT AND THE BNDES DEVELOPMENT
BANK HAVE LONG-TERM PLANS TO MAKE BRAZIL A WORLD PLAYER
IN BIOFUEL. WOULDNT IT HAVE BEEN SIMPLER TO ASK BNDES
FOR A LOAN AND ACQUIRE ENSYN?
No, we dont need to do that. We already have access to everything
we need. Its not in our interest to own companies. Our core opera-
tion is pulp and we intend to continue focusing on it.
YOU WERE THE FIRST COMPANY TO BUILD A PAPER MILL IN TRS
LAGOAS. YOUR COMPETITOR ELDORADO HAS NOW BUILT AN EVEN
BIGGER PLANT. WHEN WILL YOU ADD A SECOND LINE?
Weve already made the decision to add a second line, with a
capacity of 1.5 million tonnes of pulp per year. Tis will allow us to
produce 2.8 million tonnes at the plant in Trs Lagoas. But we have
yet to decide when to extend the plant. Tat decision will probably be
made within the next twelve months.
WHATS THE STORY WITH YOUR OTHER COLLABORATION PROJECT,
VERACEL, WHICH YOURE RUNNING WITH STORA ENSO. THERES
BEEN TALK ABOUT A SECOND LINE SINCE 2009 BUT NOTHING
HAS HAPPENED.
I cant speak for Stora Enso. Its true, the project has been delayed
but the plans remain in place. Te forest we own in Bahia is one of
the worlds largest eucalyptus forests. Tings will happen for sure;
we just dont know when.
Our core operation is pulp and we intend to continue focusing on
it, says Vinicius Nonino, M&A Manager at Fibria.
IN JUST A SHORT TIME, FIBRIA HAS BECOME THE WORLDS
LEADING PULP MANUFACTURER. DO YOU INTEND TO EXPAND AND
START UP PAPER MILLS IN OTHER PARTS OF THE WORLD,
SUCH AS LATIN AMERICA OR AFRICA?
Were already in the right place for business. Brazil has the best
biomass and capacity and is still cheaper than other countries. Sure,
there is a new frontier in Africa to be discovered, but its not the
right time; there is still too much instability and too many social
problems.
THIS WILL ALLOW US TO
PRODUCE

FI BRIA
ABOUT VINICIUS NONINO
Vinicius Nonino has worked for the Brazilian industrial
group Votorantim for ten years. From 2007 he was the
man behind the merger of VCP (Votorantim Celulose e
Papel) and Aracruz, which resulted in Fibria, the worlds
largest paper pulp company. He has a seat on the board of
Veracel, in which Stora Enso is a co-owner, and is the new
board member of US company Ensyn. He was educated at
the Brazilian School of Economics (FGV, Fundao Getlio
Vargas), and also has a degree from New York University.
2.8
MILLION
TONNES
AT THE PLANT IN
TRS LAGOAS
37
BRI GHT MARKET I NSI GHT
ELDORADOS INVESTMENTS TURN TRS
LAGOAS INTO THE WORLDS FOREST
INDUSTRY METROPOLIS
With Eldorado Brasil commission-
ing a new pulp mill, which has
a capacity of 1.5 million annual
tonnes, and its plans to commission
a second line with a capacity of 3.5
million annual tonnes, Trs Lagoas
in the state of Mato Grosso do Sul in
Brazil is set to become the world's
forest industry metropolis.
Trs Lagoas, in the state of Mato Grosso do
Sul, used to be Brazils cattle capital. Te
large slaughterhouses that made Brazil the
worlds largest beef producing country were
located here. However, when an outbreak
of foot-and-mouth disease hit the region in
2005, and the citys largest slaughterhouse
was closed due to serious tax violations, the
beef industry collapsed. Trs Lagoas, with
a population of 100,000, lost its livelihood,
but the solution was paper pulp.
WORLDS LEADING PULP METROPOLIS
Today Trs Lagoas is Brazils cellulose
capital. In the course of just three years,
three new pulp mills have been built by
three diferent companies. Te frst was
Fibria, whose mill has a capacity of 1.3 mil-
lion tonnes of pulp per year and came into
operation at the beginning of 2009.
Second was International Paper, which
invested USD 300 million in a pulp mill
with capacity of 200,000 tonnes per year.
Te third company to open a mill in
Trs Lagoas was the market challenger,
Eldorado Brasil. Te company, founded in
2010 by holding company J&F and mana-
ged by the worlds largest meat producer
JBS, opened in December 2012 a plant
with a capacity of 1.5 million tonnes of
pulp per year. Te plan is to open a second
line in 2017 with a capacity of 1.5 million
tonnes per year, and a third line is expected
to be completed in 2021. Eldorado estima-
tes that its combined annual production
will reach 5.4 million tonnes of pulp per
year in ten years, making Trs Lagoas the
world's forest industry metropolis.
INVESTMENT IN TRANSPORT
Te new Eldorado company is headed
by the successful director Jos Carlos
Grubisich, former CEO of Braskem, Latin
Americas largest petrochemical company,
and former CEO of the ethanol company,
ETH Bioenergia. He has been at the helm
of Eldorado since February 2012.
Grubisich has capitalised on Lagoass
strategic location and has initiated an
investment programme of nearly USD 400
million into building an alternative means
of transport for pulp. He wants Eldorado
to use rivers, waterways and a railway to
transport the pulp to the port of Santos.
With more than 90 percent of our pro-
duction going to the international market,
weve been forced to invest in competitive
means of transportation, says Jos Carlos
Grubisich.
L
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Author: Henrik Bando Jnsson, Rio de Janeiro
In just three years three new pulp mills have been built in the city by different companies.
FOCUS ON ASIA
Grubisich feels that the reason why Eldo-
rado could gain a foothold so quickly was
that the company was able to capitalise on
the fnancial crisis of 2008, which efectively
stopped many new plants from being built.
Tese projects were put on hold, but
the market continued to grow, he explains.
Te crisis in Europe is no cause for
concern, either.
We will be focusing on Asia, where
the consumption of toilet paper is still low,
he says.
STRATEGIC LOCATION
One of the contributing factors to Trs
Lagoas becoming Brazils pulp metropolis is
its location. Te city lies at the edge of the
state of Mato Grosso do Sul, where land is
still fairly cheap, yet still close to the state
of So Paulo, Brazils economic engine. Tis
gives Trs Lagoas access to Latin Americas
best infrastructure, including motorways,
railways and the port city of Santos, Latin
Americas largest port.
ELDORADO
38
BRI GHT MARKET I NSI GHT
Fibre Science and Communication Network
The Centre For World-Leading Research
With only 13 years on the clock, Mid Sweden Universitys research centre FSCN in Sundsvall
has in a number of areas evolved into a world leader in forest industry research and
specically in the elds of paper physics and mechanical bre technology.
Fibre Science and Communication
Network (FSCN) is a multi-disciplinary
research centre at Mid Sweden University.
We work on improving the proftabili-
ty of todays paper industry, and on fnding
new ways to use the forest as a resource.
We engineer materials that are extracted
from the forest industry material fows, and
then further refned to provide sustainable
alternatives to for example plastics. We also
develop new ways to use wood fbres, paper
and board, for example in three-dimensi-
onal packaging structures, says Professor
Kaarlo Niskanen, Head of FSCN.
Today FSCN employs over 80 resear-
chers, including many with broad expe-
rience from international research institu-
tions and the forest industry. Nearly half
of the research is specialised in mechanical
fbre and energy efciency.
CROSS-FRONTIER COLLABORATION
In addition to its own personnel, FSCN
cooperates with the research centres at Mid
Sweden University. FSCN also brings to-
gether other colleagues in chemistry, elect-
ronics, materials science, media technology
and graphic design.
FSCN is frst and foremost a network,
where we endeavour to work in a multi-
disciplinary manner. Many of the problems
are complex and require us to attack them
from various sides. We have taken a strong
system view and we encourage researchers
from a variety of felds to work together,
engage in useful research and solve relevant
problems. When we succeed, we do it ex-
tremely well. Already at the start of FSCN,
the forest industry also required us to have
a multi-disciplinary approach. Terefore,
right from the beginning this has been a
conscious strategy on the part of FSCN,
says University Lecturer Olof Bjrkqvist at
FSCN, who is backed by Professor Mag-
nus Norgren, who says, Today, FSCN is
a virtual centre formation in which researchers can participate in
varying degrees. Tere is a core, but also a large number of collabo-
rative partners.
TWO FOCUS AREAS
Te Institute has two focus areas: Resource-Efcient Production
and Advanced Paper Materials.
Within FSCNs FORE (Forest as a Resource) research project,
FSCN researchers are endeavouring to broaden the product portfo-
lio in the mechanical pulp industry.
Here we have taken a unique holistic approach to an entire
mill. Much of the research is in line with the biorefnery ideas to
be found in the industry. We are searching for synergies between
traditional production and new products, which can be used
internally by the industry to add value to existing products or sold
as complete new products. Research is based on there being a main
fow which one can tap into, refne and exploit, says Olof Bjrk-
qvist, who adds:
Te concept can assist the industry in converting existing
plants, thereby providing greater fexibility and a good survival
and development strategy with considerably less capital and fewer
market risks.
INCREASED REFINEMENT VALUE ADDED
FSCNs researchers are attempting to fnd the right way for the
forest industry to increase its refnement value.
FACTS
This is Mid Sweden University
16,000 students.
600 independent courses.
50 Educational programs.
30 masters programs.
235 graduate students.
1,000 employees.
57% teachers with a postgraduate
education.
SEK 909 million in turnover.
Very successful in Distance Learning.
This is FSCN
Founded 1999.
80 researchers.
SEK 80 million in turnover.
Focus areas:
Resource-Effcient Production
(Mechanical Fibre Technology, Eco
Chemistry, Water Chemistry,
Gasication and Industrial Symbiosis).
Advanced Paper Materials
(Paper Physics, Print and Packaging
Appearance, Digital Printing Centre,
Material Physics, Organic Chemistry
and Live Paper).
FSCN
Author: Carl Johard, Sundsvall
39
BRI GHT MARKET I NSI GHT
Bonanza for the mills:
NEW TECHNOLOGY PURIFIES
THE PROCESS WATER AND EXTRACTS
VALUABLE METALS AND CHEMICALS
Using a new technology, FSCN has
successfully managed to purify
process water and extract a large
quantity of valuable metals and
chemicals. The results for the mill
industry are fewer process disrup-
tions and protable by-products.
Clean water is a prerequisite of problem-
free production. Pulp and paper mills use
large quantities of water in their produc-
tion. And today we know that half of all
the disruptions and paper breaks that occur
in production are due to contaminants in
the water. Moreover, contaminants require
increased chemical and fresh water con-
sumption, says Magnus Norgren, Professor
of water chemistry at FSCN.
Terefore, one of the important areas of
research within FSCN has been attempts to
purify process water and extract many of the
valuable interfering substances contained
in it.
Major values must be dealt with. It is
important both from the sustainability
and the fnancial points of view, says
Professor Norgren.
PROMISING RESULTS
Tis research work has now yielded promi-
sing results.
We believe we can reduce costly
production disruptions and at the same
time, prior to bleaching, harvest chemicals
and metals from the water process, thereby
creating new value, says Professor Norgren.
A whole new technology has been deve-
loped at FSCN for this, which has also
resulted in a new development company,
Chemseq, which has hived of from the
university.
We solved the problem by using a
separation technique. At the moment, we
are scaling up the purifcation process in a
pilot test at the Ortviken paper mill, says
Professor Norgren, who is also CEO of
the newly started Chemseq company.
MAJOR VALUE TO BE EXTRACTED
Besides metals, there are many valuable che-
micals to be extracted from the waste water.
We see the possibilities for recovering
as much as 1000 tonnes of lignans per year
at a value of EUR 4,000 - 5,000 per tonne,
says Professor Norgren.
Other products are fatty acids, resin
acids, di and triglycerides, steryl esters, ste-
rols and hemicelluloses (galactoglucoman-
nan), which is perhaps the most accessible
substance to be extracted in the process.
At present, work is being done to make a
biofoam of the hemicellulose, which can
then be used as an intermediate layer or as
absorbent in a hygiene product.
R
&
D
&
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We are looking for opportunities for
interplay and symbiosis with previously
established mill installations and perhaps
companies whose material fows are today
not the most favourable and optimum. We
conduct research into packaging and have
many projects aimed at reducing energy
consumption, and making paper more ri-
gid, says Professor Per Engstrand and adds:
Within FSCN weve shown that were
very successful at co-production with in-
dustry. Te methods we use are important
for ensuring that research results are also
implemented in practical applications, says
Professor Per Engstrand.
NEW APPROACH RESEARCH
Professor Magnus Norgen explains that the
successes are based on FSCN being part of
a relatively young university unencumbered
by traditions and academic demarcations.
Perhaps we also have a more modern
way of looking at the role of the academic.
Our role is and should be greater utility. In
this region where we are so close to manu-
facturing, it comes naturally to us to work
closely with the forest industry and ensure
that the results we produce can also be
applied out in the real world.
We work on improving the protability and
on nding new ways to use the Forest as a
Resource, says Professor Kaarlo Niskanen.
A whole new technology has been
developed by Chemseq.
FSCN
Author: Carl Johard, Sundsvall
40
BRI GHT MARKET I NSI GHT
SUBSTANTIAL RESOURCES
INVESTED TO BOOST ENERGY
EFFICIENCY
Mechanical pulp accounts for 40
percent of FSCNs turnover and today
remains the Institutes largest eld
of research. Substantial resources
are being invested to help the indus-
try to boost energy efciency.
Mechanical pulp production is vital to the
worlds pulp and paper industry.
Mechanical pulp fbres retain their
strength over several recycling cycles and are
a necessary part of the recycling system, par-
ticularly for print paper in Europe. Without
mechanical pulp fbres, the established fbre
balance where new fbre is manufactured
mainly in northern Europe while recycled
paper is used in print paper across the whole
of Europe would be disrupted, says Pro-
fessor Per Engstrand, FSCN.
Tis is simply because the maximum
collection rate is 80 percent and that the
return pulp process is 70-80 percent.
More than 40 percent of the paper and
board manufactured today is partly based
on virgin natural wood fbre from mecha-
nical pulp, quite simply because the desired
end-product properties would otherwise
not be achieved.
Mechanical pulp processes also have the
advantage that the yield from wood to fnis-
hed pulp is high. Normally the yield from
the wood material is more than 95 percent
compared with only 45-50 percent in most
chemical processes.
WORLD-LEADING RESEARCH
Today FSCN is a world leader in research
into mechanical pulp. FSCN has long been
generating a close collaboration between
academia and several forest industry com-
panies in order to create better conditions
by improving the level of knowledge and
by enhancing the technical solutions at the
companies.
Te biggest research programme today
is E2MP - rp (Energy Efcient Mechanical
Pulping Research Profle) with a total fun-
ding of SEK 84 million between 2011
2017, of which SEK 36 million comes from
the KK-foundation, SEK 12 million from
Mid Sweden University and at least SEK 36
million from participating industry com-
panies such as SCA, Stora Enso, Holmen,
Metso and Andritz.
FSCN, SCA, Stora Enso and Hol-
men are also conducting a joint research
programme (E2MP-i), with industry
companies contributing at least SEK 45
million and the Swedish Energy Agency
contributing SEK 30 million (20112016).
Research funding is being invested in
projects run by universities and businesses
all over Sweden. Te collaboration even
includes a strong Norwegian investment of
around SEK 30 million, where PFI (Trond-
heim) is conducting an extensive project,
E2MP-ox, with Norske Skog and Andritz
(20102014).
Te common goal of this extensive
research is to increase energy efciency by
50 percent when manufacturing mechanical
pulps, both thermo-mechanical pulp which
is used for print paper, and chemo-mecha-
nical pulp which is used for fbreboard. We
started this research programme in response
to the surging electricity costs which have
afected the paper industry. We and all the
participating companies and other research
partners are doing all we can to help the
industry cut its current electricity costs by at
least half, says Professor Per Engstrand who
is in charge of the E2MP-rp programme and
is taking part in two other parallel initiatives.
MORE INITIATIVES
In another project, FSCN is pursuing
gasifcation activities and conversion to
synthetic gas.
At our pilot plant in Hrnsand, we
are converting biomass into a synthetic gas
which consists of hydrogen and carbon mo-
noxide. Ten we can further process it into
various fuels such as DME, or lead the gas
through a gas turbine to form the same type
of combined power station used for natural
gas. Once the process is optimised, we can
extract 50 percent of the energy value from
electricity and the rest as steam and hot
water, concludes Professor Engstrand.
We are doing all we can to help the
industry cut its current electricity costs by at
least half, says Professor Per Engstrand.
FSCN
Author: Carl Johard, Sundsvall
THE COMMON GOAL
IS TO INCREASE
ENERGY EFFICIENCY
BY 50 PERCENT
WHEN MANUFAC-
TURING MECHANI-
CAL PULPS
50%
41
BRI GHT MARKET I NSI GHT
NEWBORN: FOURTH
GENERATION PAPER
While printing paper constituted
the rst generation, corrugated
board the second, and hygiene
products the third, Professor Tetsu
Uesaka and his research team at
FSCN are now working on develop-
ing of the fourth generation paper.
Whilst all the previous generations have
now become mature products, there is a
great need for developing a new product
platform for the industry.
In our research work, we are now in
the process of adding an extra dimension
to paper, literally. In ordinary paper- and
board-making, the fbres are laid on a plane,
creating a 2D fbre network. However,
there are many ways of forming a three di-
mensional fbre network, so you can create
new functionalities and thus new products
based on such structure, says Professor
Tetsu Uesaka.
FORMABLE PAPER
For example, by creating special orienta-
tion of fbres within the network, we can
make a very stretchable paper. Such paper
can be thermo-formed (deep-drawn) into
a 3D object, such as tray and cup, similarly
to thermo plastics. Typical applications
include food, consumer and industrial
packaging markets that are currently oc-
cupied by fossil-fuel based materials. Te
new formable paper is an alternative to
plastics for the future green society, says
Tetsu Uesaka.
R
&
D
&
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We are trying to utilise the nature-inspired
design principle to develop the 4th genera-
tion of paper, says Tetsu Uesaka.
A Cross-Industry and Cross-
Disciplinary Sustainable Initiative
Mid Sweden University has in close col-
laboration with other universities, institutes
and industry companies taken an initiative
to set up a cross-industry and cross-disci-
plinary research project for the paper and
textile industries.
Te purpose of this national initia-
tive to create a new research agenda is to
strengthen Swedens attractiveness and
competitiveness for sustainable growth and
social beneft through the parallel renewal
of two value chains, both of which are based
on the forest industry and which have many
raw materials, processes and actors
in common.
Te frst one is dedicated to fnding
new ways to create products and generate
more value-added through advanced and
functionalised paper surfaces.
Applications can be found in areas in-
cluding energy storage, catalysing surfaces,
advanced packaging and changes in appea-
rance and surface from external stimuli.
Te other one concerns processes rela-
ting to the production of wood cellulose-
based fbre for textile purposes, the new
value streams and products it can generate,
but also the advanced and functional textile
products that can be developed. Tere are
applications to be found in outdoor sports
and work wear and medical engineering.
By meeting, the paper and textile
industries could develop both the skills
and technology for structurally similar
processes, but above all, they could
collaborate on developing a strategy for
the renewal and extension of the above
mentioned value chains.
FSCN
FUNCTIONAL FILTER
Another example is air fltering. Maintain-
ing air quality is increasingly important in
ofces, industrial plants, public transporta-
tion, hospital and home environments. Cur-
rently the majority of high performance air
flters are made of non-renewable materials.
We can provide a green solution for
the functional flters as well. Natural wood
fbre has another network structure within
its own structure. We can utilise much
smaller pore structures to capture airborne
hazardous materials of even nano-scales.
Te fbre network with a wide spectrum of
pore sizes can provide an extremely efective
and environmentally-friendly flter for
improving air quality, says Tetsu Uesaka.
Te existing market is large and growing
larger still.
NATURE-INSPIRED DESIGN
What drives all these ideas?
Our ideas are very much inspired by
how nature designs functionality. Na-
ture always starts with simple, ubiquitous
materials, but afer that, it creates a layer
of complex structures according to the
required functionality. We recently found
that natures design principle is seen also in
origami, the ancient Japanese art of paper-
folding. We extract a lot of ideas from
origami in designing 3D structures of fbre
networks. It is always fascinating to see plain
paper being transformed into a comp-lex 3D
object by origami, says Tetsu Uesaka.
Author: Carl Johard, Sundsvall
42
BRI GHT MARKET I NSI GHT
CHINAS IMPORTS
BOOST THE PRICE OF PULP
Market analysis:
Market analysts can currently be
divided into two camps. One ar-
gues that new capacity volumes
are excessive and will push prices
down for the rest of the year, while
the other sees the international
business cycle as the key factor. In
my view, the key indicators and
therefore also the price of pulp
bottomed out in the second half
of 2012. Despite general concerns
about the economic outlook, I antici-
pate that pulp prices will continue
to increase during the current year,
writes Mikael Jfs, Research Coor-
dinator at Credit Agricole Chevreux
Nordic in this article.
Te major forest industry companies have
chosen diferent strategies to meet the chal-
lenges of the future. However, one thing
they all have in common is that they are
trying to distance themselves from products
that have fallen in demand and are instead
focusing on areas where the outlook is
brighter.
Production lines for newsprint are
being shut down while substantial invest-
ments are being made in new capacity for
pulp, board, viscose and bio-energy.
Tis is why the stock market currently
has a favourable view of listed European
companies that produce packaging; a
fact that is refected in the share prices of
Smurft Kappa, Mondi and Billerud Kors-
ns compared with companies that focus
strongly on printing paper such as Holmen
and Norske Skog.
FOREST HOLDINGS INCREASINGLY
IMPORTANT
Meanwhile competition over wood
materials is intensifying, both from energy
and industry companies. Te balance
between supply and demand is expected to
become strained, which will increase the
signifcance of plantations in the southern
hemisphere. Control of raw materials is
growing in importance and tomorrows
winners are companies such as Holmen,
SCA, Stora Enso and UPM that have access
to their own base of raw materials.
Investments in new pulp capacity will
mean that companies must have access to
their own forests in the northern hemisphe-
re or fast-growing eucalyptus plantations in
the southern hemisphere.
In the light of these circumstances, we
can look forward to the following trends:
1. Increased demand from emerging mar-
kets particularly China, where imports
of pulp and return fbre are also expected
to rise.
2. Rising demand for fresh fbre. Return
fbre can only satisfy part of Chinas gro-
wing needs, while cellulose fbre can only
be recycled 6-7 times before it becomes
unusable. Tis requires a constant infow of
fresh fbre to the global production of paper
and packaging.
3. More focus on sustainable energy. Forests
have been classed as a CO2-free renewable
energy source in Europe, a political decision
that has fuelled demand for wood materials,
particularly in Europe.
PULP PRICE VS LEADING INDICATOR
NBSK (EUR) EA COMPOSITE LEADING INDICATOR (RHS)
Mikael Jfs is Research Coordinator at Credit
Agricole Cehfreux Nordic in Stockholm.
MARKET ANALYSI S
Author: Mikael Jfs, Stockholm
180
160
140
120
100
80
60
40
20
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SOURCE: DATASTREAM
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.
43
BRI GHT MARKET I NSI GHT
C
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C
I
L
E
European companies with their own pulp mills in Latin America are the big winners,
having low nancial costs and being well placed to win new market shares by expanding
their existing pulp production.
4. Rising price of raw materials. Te forests
in the northern hemisphere are currently
fully utilised as a source of raw materials,
and growing demand is expected to lead to
higher prices. Te large tracts of forest in
Russia will remain unutilised for the fore-
seeable future due to inadequate infrastruc-
ture and excessively high risks.
5. Greater focus on companies controlling
their own supply of wood materials.
6. Increased use of forest plantations in the
southern hemisphere.
Te industrys plantations account for just
under three percent, or 110,000 million
hectares, of all existing forests, but 35
percent of all industrial wood material
production in the world. Industry experts
forecast that this portion will increase to 45
percent by 2030. Ownership, control and
legal and political security determine where
investments in fast-growing plantations
will be made. Countries such as Brazil and
Uruguay are therefore highly ranked. In
many other places, land may only be leased
for certain periods. Consequently, most
of the new plantations are expected to be
established in the southern hemisphere,
in regions such as Latin America, New
Zealand and Australia.
Pulp is a bulk product and low manu-
facturing costs are therefore particularly
important for manufacturers. Producers
that have access to fast-growing forest
plantations have lower raw materials costs.
However, many of these companies with
new production lines are struggling with
weak balance sheets and low net profts. As
a result of the decline of pulp prices since
summer 2011, several global pulp manufac-
turers have actually been running at a loss.
Tis is why European companies with their
own pulp mills in Latin America are the big
winners, having low fnancial costs and be-
ing well placed to win new market shares by
expanding their existing pulp production.
CHINA STOKES THE PULP MARKET
At the same time, global demand for pulp
is expected to continue to rise, despite the
continuing slump in the printing paper
market in Europe and North America. Tis
is caused by an equal acceleration in de-
mand for tissue, paper and packaging in the
emerging markets. Tissue manufacturing in
particular requires large quantities of pulp.
China and Europe are today the worlds
two biggest pulp importing regions. Annual
pulp consumption in China has increased
from six million tonnes in 2000 to todays
fgure of 19 million tonnes. With new tissue
and packaging lines starting up in the coun-
try, this is a development that is unlikely to
lose momentum.
Last year Chinas pulp imports rose by
20 percent compared with the previous
year. Tis will probably help to increase the
price of return fbre 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 develo-
ped economies, the equation will lead to
gradually rising waste paper costs. Further-
more, 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 mate-
rial, which carries less pricing volatility.
RISING PULP PRICES
Market analysts can currently be divided
into two camps. One argues that new
capacity volumes are excessive and will push
prices down for the rest of the year, while
the other sees the international business
cycle as the key factor. If it improves, the
new capacity volumes will be absorbed
more optimally.
In my view the key indicators and
therefore also the price of pulp bottomed
out in the second half of 2012. Tere 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
imports to China, and the latest signals sug-
gest that they will continue to increase. De-
spite general concerns about the economic
situation, we therefore expect that the price
of pulp will continue to increase during the
current year.
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
SUSPICION OF FOREST INDUSTRY SHARES
Even though the economic climate remains
MARKET ANALYSI S
P
H
O
T
O
:

V
E
R
A
C
E
L
,

S
T
O
R
A

E
N
S
O
44
BRI GHT MARKET I NSI GHT
25
WESTERN EUROPE
CHINA
20
15
10
5
0
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
STRONG PULP DEMAND INCREASE IN CHINA
China and Europe are today the worlds two biggest pulp importing regions. Annual pulp consumption in China has increased from six
million tonnes in 2000 to todays gure of 19 million tonnes.
rather uncertain, the level of doubt and
concern about listed companies in the
forest industry such as Stora Enso, UPM,
Mets Board, Holmen, SCA and Billerud
Korsns has been signifcantly reduced.
Tis does not mean it has disappeared alto-
gether, 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.
Tere is still doubt on the stock market
about companies in the forest industry.
Tis is why their shares are being traded far
below their book equity value. At the same
time, many of them are virtually prin-
ting money. UPM, for example, recently
reported a cash fow equivalent to EUR 1
billion per year. Tis high return in no way
refects the stock markets valuation of these
companies.
Another interesting aspect is that share
prices and pulp prices also show a remarka-
bly similar trajectory.
I have looked at the share price perfor-
mance 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. Te
result is fairly conclusive. In periods of fal-
ling 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 indi-
cate that Stora Enso and UPM will outper-
form 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, post 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 lif on the back of increasing stock
market optimism.
MARKET ANALYSI S
Deviation
THE UPWARD
TREND
WILL CONTINUE
FOR THE REST OF
THE YEAR
SOURCE: UPM, PPPC
30 MONTH
FORECAST
Market Trends
CURRENT MARKET RISING PRICES DECLINING STOCKS INCREASED DELIVERIES CHINA ON THE MOVE GREATER MARKET STABILITY
FORECAST BRIGHT MARKET INDEX HIGHER SPRING PRICES ACCELATING PRICES LATE 2013 NEW STABILITY 2014
SEPTEMBER
2014
Deviation
AUGUST
2015
Still falling
I
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BRI GHT MARKET I NDEX
Editor : Leonard Johard , Pisa
BRI GHT MARKET I NSI GHT
45
46
A STRONG MARKET IN
2013 AND 2014 WITH
PRICE LEVELS ABOVE
USD 1,000 DOLLARS
A better balance between supply and demand continued
to drive the dollar-based prices in the market, both for
NBSK and for Bleached Eucalyptus Kraft (BEK).
According to Bright Market Indexs latest forecast
from 28 February 2013, the last months increase will
continue throughout 2013 and approach new levels
above 1000 dollars in 2014.
BRI GHT MARKET I NDEX
BRI GHT MARKET I NSI GHT
I
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RISING PRICES
A better balance between supply and
demand continued to drive the dollar-
based prices in the market, both for NBSK
and for Bleached Eucalyptus Kraf (BEK),
at the end of 2012 and in January and
February 2013. On February 28, the prices
were USD 810-820/tonne for NBSK and
USD 770-780/tonne for BEK. Te price
increase was not as strong in euro, as a
result of the euro strengthening slightly
against the US dollar.
PULP DELIVERIES AND STOCKS
In January, global pulp deliveries fell by
12.8% to 3.454.000 tonnes, a decrease from
3.960 million tonnes the previous month,
according to data from the Pulp and Paper
Products Council (PPPC).
Deliveries were 2.3% down on the same
period the previous year, a reduction from
3,536,000 tonnes in January 2012.
Transports of BSK fell from 1,831,000
tonnes in December to 1,796,000 tonnes in
January, 1.9% down on the previous quarter.
Global producer stocks totalled 36 days
delivery in January, BSK was 32 days (up
three days) and BHK was 41 days.
World-20 producer stocks rose by four days
to a total of 36 days from December to January.
CURRENT
PULP MARKET
PIX NBSK EUROPE INDEX HISTORY
A better balance between supply and demand continues to drive the dollar-based prices in the market for NBSK.
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1200 $
0 $
200 $
400 $
600 $
800 $
1000 $
BRI GHT MARKET I NDEX
SOURCE: FOEX
47
BRI GHT MARKET I NSI GHT
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7000,00
0, 00
1000,00
2000,00
3000,00
4000,00
5000,00
6000,00
tonnes
BLEACHED SOFTWOOD PULP IMPORTS TO CHINA
Chinas pulp imports for the full year 2012 increased.
PULP IMPORTS TO CHINA ON THE RISE
From November to December, Chinas
total pulp imports fell by 1.3% to nearly
1,394,000 tonnes, according to the Chinese
customs authorities. Te temporary decline
in December, which followed an increase of
3.8% in November, was mainly attributable
to a reduction in BSK pulp.
Chinas pulp imports for the full-year
2012 totalled around 16,462 thousand
tonnes, an increase of 14.8% compared
with 2011.
PRICE INCREASES IN CHINA
In February, several NBSK producers
announced that the demand for their
products is normal and, given current stock
levels, have announced price increases of
USD 20-30 per tonne to USD 930 per
tonne in North America, USD 860 per
tonne in Europe, and USD 720 per tonne
in China. Further increases are expected. In
North America, Europe and in China, se-
veral manufacturers of Bleached Sofwood
Kraf (BSK), i.e. Canfor Pulp, Arauco, Ilim
Group, Mercer International, Mets Fiber,
Sdra, Resolute, Domtar, Tembec and
West Fraser, announced price increases in
February.
A number of manufacturers have pus-
hed forward their price increases for March
until 1 April.
Prices of BEK will increase by around
USD 20 per tonne in the corresponding
period, an increase initiated by Fibria,
Cenibra and Suzano.
MARKET ANTICIPATES PERIOD OF
GREATER STABILITY
As a result of the customary seasonal
increase at the beginning of the year, many
sellers expected prices to continue climbing.
Many manufacturers of NBSK have also
announced a phase goal of USD 860
per tonne in Europe.
However, several other market experts
expect a period of greater price stability in
the short and medium term. Producers are
expected to continue their attempts to con-
solidate their price increases in February. Te
anticipated new capacity increase in Latin
America, fnancially strained buyers and sel-
lers, and the continuing uncertainties about
the economic situation, are expected to put a
temporary lid on further price increases.
BRI GHT MARKET I NDEX
SOURCE: FOEX
48
BRI GHT MARKET I NSI GHT
I
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5000
0
500
1000
2000
3500
1500
3000
2500
4000
4500
tonnes
PULP INVENTORIES
After declining for three consecutive months, stocks of pulp are on the rise again.
In January, Brazil exported 635,000 tonnes
of pulp mostly BHK, which is 10.8%
down on the corresponding month in
2011.
Chinas total pulp imports declined by
2.2% in January to about 1,364,000 tonnes
compared with the previous month.
Tis decline was caused mainly by a 15.7
percent decline in imports of BHK while
instead imports of BSK climbed 3.0% to
543,048 tonnes.
ELDORADO GOING STRONG
Te period saw an infux of new pulp capa-
city while outdated capacity disappeared
from the market. In its latest survey, RISI
expects global capacity to increase by 2.7%
in 2013, 3.7% in 2014 and 3.6% in 2015.
At the end of December, Eldorado com-
missioned its new production plant for
BEK pulp in Tres Lagoas. Te frst volumes,
which were transported to the USA in mid-
January, have not yet caused a discernible
efect in the market. However, the situation
will change during the year when the new
plant reaches full capacity of 1,500,000 ton-
nes per year. Transports from Eldorado are
expected to begin arriving in Europe at the
end of February and in March.
Te Ilim Groups new production line
in Bratsk in Siberia in Eastern Russia, which
has a capacity of 720,000 annual tonnes of
bleached sulphate market pulp, has been
hit by severe delays. Production, originally
scheduled to begin in the second quarter of
2012, now appears to be starting gradually.
BRI GHT MARKET I NDEX
BRI GHT MARKET I NSI GHT
49
In 2012, the Ilim Groups other production
lines produced some 2.6 million tonnes of
pulp and paper products, around 1.6 mil-
lion tonnes of which was market pulp, an
increase of two percent compared with the
previous year.
SUBSTANTIAL WIND-UP OF CAPACITY
VOLUMES
In 2012, pulp and paper capacity in Europe,
Middle East and Africa equivalent to some
2.5 million tonnes was shut down. As in
previous years, newsprint accounted for
the lions share, almost half of the capacity
cut-backs.
Te largest closure during the year was
UPMs Albbruck plant in Germany, which
produced 320,000 annual tonnes of coated
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2500
0
500
1000
1500
2000
tonnes
Transports of BSK fell from 1.831.000 tonnes in December to 1.796.000 tonnes in
January, 1.9% down on the previous quarter.
The price increase is not as strong in euro, as a result of the euro strengthening
slightly against the dollar.
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0,9
0,8
0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
EUR/USD
EXCHANGE RATES EUR/USD
BLEACHED SOFTWOOD KRAFT (BSK) PULP SHIPMENTS
BRI GHT MARKET I NDEX
50
BRI GHT MARKET I NSI GHT
LWC paper. In March, the Norwegian
company Skogs closed its Follum plant,
which produced 145,000 annual tonnes
of refned newsprint and book paper and
145,000 tonnes of machine-fnished coated
paper.
On the packaging front, the market
players reduced production capacity by
around 750,000 tonnes last year, mainly by
shutting down small machines. Te only
exception was the closure of the Peterson
plant in Moss, and the closure of Mondis
corrugated board plant in the Czech
Republic.
Te Chinese authorities announced
that they have permanently closed outdated
pulp and paper capacity equivalent to 8.3
million annual tonnes, which is slightly
higher than the announced domestic target
fgure of 8.2 million annual tonnes.
Te extensive programme of wind-ups
of outdated industrial capacity is being
carried out this year to encourage invest-
ments in newer, cleaner production. Most
of the machines that are being shut down
are small and obsolete and are considered
to be a major source of pollution from the
industry.
I
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According to the Bright Market Index latest forecast from 28 February, the increase in the past months is likely to continue.
BRI GHT MARKET I NDEX
BRI GHT MARKET I NSI GHT
51
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1200,00 $
500,00 $
600,00 $
700,00 $
800,00 $
900,00 $
1000,00 $
1100,00 $
NBSK ANALYSIS, FEBRUARY 2012
FORECAST BRIGHT
MARKET INDEX
2013 BMI forecast
Feb 828
Mar 835
Apr 840
May 843
Jun 848
Jul 857
Aug 868
Sep 879
Oct 893
Nov 909
Dec 925
2014 BMI forecast
Jan 942
Feb 959
Mar 980
Apr 1005
May 1026
Jun 1043
Jul 1060
Aug 1063
Sep 1061
Oct 1051
Nov 1042
Dec 1040
2015 BMI forecast
Jan 1034
Feb 1024
Mar 1016
Apr 1008
May 996
Jun 983
Jul 967
HIGHER SPRING PRICES
According to the Bright Market Index latest
forecast from 28 February, the increase in
the past months is likely to continue in
early 2013, although the market is un-
certain due to concerns about economic
growth and exchange rates.
ACCELERATING PRICES LATE 2013
Strong demand will lead to higher prices
towards the end of the year. Since our
previous forecast, we have seen weakening
Chinese imports, so the forecast is slightly
lower this time around.
NEW STABILITY 2014
In 2014, the price will approach a new level
above USD 1000. It will then probably
drop back to lower levels.
BRI GHT MARKET I NDEX
52
BRI GHT MARKET I NSI GHT
2
1. Price history
6. Rate of exchange
5. Chinese imports
4. Pulp shipments
3. Pulp inventories
2. Price
4 6 8 12 10
6 MONTHS FORECAST
12 MONTHS FORECAST
2
1. Price history
6. Rate of exchange
5. Chinese imports
4. Pulp shipments
3. Pulp inventories
2. Price
4 6 8 12 10
24 MONTHS FORECAST
2
1. Price history
6. Rate of exchange
5. Chinese imports
4. Pulp shipments
3. Pulp inventories
2. Price
4 6 8 12 10
In the color scheme red means strong positive effect and blue means strong negative effect.
INFLUENCING FACTORS
6 months 12 months 24 months
Price change 15.1 67.3 73.7
Price -44.7 -71.3 -110.7
Stocks 30.8 61.6 85.1
Deliveries -6.5 -15.5 40.2
Chinese import 13.3 22.3 51.1
EUR/USD 17.7 34.3 24.6
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 1998.
Positive values indicate where current levels contribute to a higher price trend.
The table clearly shows that decreasing stocks and Chinas 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.
I
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BMI MODEL
Predictions are based on using machine
learning to automatically develop an opti-
mal model for the market. Machine lear-
ning is a modern trend in statistics where
the formal a priori assumptions of classic
statistics theory are replaced by empirical
equivalents. Its development was inspired
by how the brain works, and is derived
through 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 feld of
research has consistently been a top perfor-
mer when it comes to comparing statistical
models in fnance, medicine, image recog-
nition, text classifcation and other areas.
In the majority of comparative studies they
have even outperformed human experts.
Te models can generally be categorised
into sub-groups: support vector machines,
neural networks and nearest neighbour
methods, which are all closely interrelated.
Tey are based on a system of independent
units or neurons, all of which take care
of their own small part of the calculation
process.
While this is a structure with a capa-
city for complexity it has been shown that
mathematically-speaking, the best models
are ofen the simplest. Te main object of
machine learning is therefore to generate
simple, strong prediction rules from data.
Te next step is a series of hard statistical
tests to show that the underlying principle
behind these rules remain unchanged over
time and do not only provide an accurtae
historical description.
BRI GHT MARKET I NDEX
BRI GHT MARKET I NSI GHT
53
400,00 $
300,00 $
200,00 $
100,00 $
0,00 $
-100,00 $
-200,00 $
-300,00 $
-400,00 $
2002 2003 2004 2005 2006 2007 2008 2009 2010
BRIGHT MARKET INDEX BMI forecast Price trend
Historical overview of Bright Market Index 24-month forecasts compared with actual price uctuations.
BRIGHT MARKET INDEX, ALWAYS GETS IT RIGHT
PRICE TREND BMI FORECAST
54
BRI GHT MARKET I NSI GHT
EDITOR-IN-CHIEF
Carl Johard is an entrepreneur,
fnancial journalist and
communications expert. He
has previously been a mar-
keting and communications
manager at SSG Standard
Solutions Group AB, which
is owned by the seven largest
forest industry companies in
Scandinavia, executive editor
and US correspondent for the
Swedish business magazine
Veckans Afrer, director of
Ruder Finn, editor-in-chief
of Nordisk Papper & Massa,
editor-in-chief for Global-
NetFinancials three ofces in
Scandinavia and stock market
editor for Privata Afrer,
as well as a number of news
agencies.
CARL
JOHARD
ANN EXPERT, HEAD OF
BRIGHT MARKET INDEX
Leonard Johard gained an
engineering degree from the
Department Institute of
Applied Physics at the Royal
Swedish Institute of Technology
(KTH) and studies perception
robotics as a postgraduate at
the Scuola Superiore Sant
Anna in Pisa. Leonard Johard
is an expert in Artifcial Neural
Networks. In 2008/2009, he
was also employed as a market
analyst with responsibility for
monitoring the international
electricity markets at Telge
Energi. He is the architect
behind Calejos unique fore-
casting model.
LEONARD
JOHARD
EDITOR CHINA/ASIA
Journalist, author and
businessman in Hong Kong
and Shanghai. He spent some
25 years as a journalist in
Sweden at the national
Swedish news agency TT
and the business magazine
Veckans Afrer. He moved
to Asia in 2002, where he runs
his partly owned company
Bamboo Business Communi-
cations Ltd which helps
companies to communicate
with their Chinese customers
and employees.
JAN
HKERBERG
SALES DIRECTOR
Marketing consultant, product
developer/entrepreneur and
business leader with profes-
sional experience of working in
Sweden, Europe and Asia.
His career has focused primarily
on the international forest
industry, in both B2B and
consumer goods. He has
previously been an adviser to
Taren Company Limited,
Borneo Malaysia, Vice
President Paper Division at
Handelshuset Ekman & Co,
Marketing Director Riau
Paper, Indonesia, Business Area
Manager for SCA Wifstavarfs
Paper Mill and SVP of SCAs
Strategy and Business
Development staf function.
HKAN
FREUDENTHAL
EXPERTS AND EDITORIAL STAFF
55
BRI GHT MARKET I NSI GHT
EDITOR LATIN AMERICA
Multi-award winning journalist
and author who has lived in
Rio de Janeiro since 2002.
He covers Brazil and Latin
America for leading Swedish
and Danish newspapers and
magazines, including the
Swedish daily newspapers
Sydsvenskan and GP, plus
Denmarks Politiken.
HENRIK
BRANDO
JNSSON
EDITOR NORTH AMERICA
Economics journalist and
author who lives in New York.
For 30 years, he has been the
US correspondent for Swedish
newspapers such as Dagens
Nyheter, Sydsvenskan and
Dagens Industri plus the
business weekly Veckans
Afrer. He has also published
a number of books.
LENNART
PEHRSON
EDITOR EUROPE
Political and business journalist
with long experience from
several leading Swedish news-
papers and magazines.
PER
ARONSSON
MARKET ANALYST
European Research
Coordinator, Pulp&Paper at
Credit Agricole Cheuvreux
Nordic AB in Stockholm.
MIKAEL
JFS
EDITOR R&D&I
Science journalist with a focus
on research and technical
development. He previously
worked for several specialist
journals, including Svensk
Papperstidning (paper indu-
stry) and Skog & Forskning
(forest industry), and was
media coordinator at the
research institute Innventia.
NILS
LINDSTRAND
FUTURE MANAGEMENT
A development coach and a
training contractor with long
experience of coaching and
management development for
organisations and large, listed
Swedish companies, among
them SCA. He is also guest
lecturer in coaching and
management development at the
Gothenburg Business School.
ERIK
HGGSTRM
ART DIRECTOR
Art Director and partner at
Sweet Williams and Pop in
Sundsvall and Stockholm.
JOAKIM
KARLSSON
ART DIRECTOR ASSISTENT
Art Director Assistant at
Sweet Williams and Pop in
Sundsvall.
TERSE
LIND
E
X
P
E
R
T
S

S
U
B
S
C
R
I
P
T
I
O
N

O
F
F
E
R
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