World dissolving pulp demand continued on a strong growth track in the latter part of 2012, according to RISI. The latest data indicate that global apparent consumption grew 9% last year, reaching 5.8 million tonnes. The vast majority of this increase was in viscose pulp. China accounted for three-quarters of the growth in world dissolving pulp usage and will continue to register the majority of the expansion in upcoming years. The RISI forecast shows world dissolving pulp demand to remain on a 9% annual growth pace over the next two years, also, reaching 6.9 million tonnes in 2014. Viscose pulp is expected to represent nearly 90% of the gain in total dissolving pulp consumption over this period.

The supply side of the viscose pulp market continues to overwhelm demand side, despite the big increase in demand. Capacity expansion did post a relatively modest performance in the fourth quarter of 2012, with 160,000 tonnes per year being added. However, this was still sufficient to offset the annual rate of demand growth during this period, leaving the market extremely oversupplied. RISI data indicates that world operating rates would be below 70% if all of the new wood pulp swing and cotton linter dissolving pulp capacity were completely in the market.

Therefore, viscose pulp prices have to remain sufficiently low to keep out this excess capacity.

Another burst of capacity expansion is set for the current year, which will maintain downward pressure on viscose pulp operating rates. In addition, new capacity will start to undermine the hi-alpha market, too.

Table 1 - Announced world viscose staple fiber capacity expansions (thousand tonnes)
Mill	Country	Type	Capacity	Year
Lenzing (Lyocell)	USA	Upgrade	10,000	2012
Lenzing	China	Upgrade	30,000	2012
TangShan Sanyou	China	New line	160,000	2012
Lenzing	Indonesia	New line	80,000	2012
Birla (Grasim)	India	New mill	120,000	2013
Jiangxi Longda	China	New line	200,000	2013
Sateri Fujian	China	New mill	200,000	2013
Birla	Turkey	New mill	90,000	2013
Lenzing (Tencel)	Austria	New line	60,000	2014
Shandong Yamei	China	New line	80,000	2014
Lee & Man	China	New mill	100,000	2014
Lenzing	India	New mill	80,000	2015
Lenzing	China	New line	80,000	2015
Lenzing	USA	New line	60,000	2015
Birla	Turkey	New line	90,000	2016
Total			1,440,000

Demand

Viscose staple fiber (VSF) will continue to be the primary engine for dissolving pulp demand growth over the next two years. Global production of viscose staple is predicted to expand 11% annually in 2013-2014, which will boost the total to 5.3 million tonnes. Despite this stellar performance, VSF will represent just over 5% of the world textile fiber market in 2014. Cotton will remain five times bigger than VSF, with the potential for larger share gains against this competitor being the most important upside risk to our demand forecast. Share gains by VSF relative to synthetics could also be faster than we are currently projecting due to the potential for large increases in raw material costs for synthetics and the better environmental footprint of VSF.

China will remain at the epicenter of VSF production in the upcoming two years. Textiles will continue to be a growth sector for the Chinese economy, largely due to increasing domestic demand.

World usage of hi-alpha pulps is projected to rise 4%-5% per year in 2013-2014, reaching 1.66 million tonnes at the end of this period. The ethers sector will represent the fastest-growing area, with 6%-7% annual gains predicted over the next two years.

Combining forecasts of viscose and hi-alpha pulps, the total dissolving pulp demand maintains the strong annual growth of 9% registered last year over the 2013-2014 period.

Announced world dissoving pulp capacity expansions (thousand tonnes)
Mill	Country	Type		Capacity	Startup
Cambara	Brazil	Conversion		-25,000	Q1/2012
Sodra	Sweden	Conversion		170,000	Q1/2012
Lenzing	Czech Rep	Conversion		50,000	Q1/2012
Stora Enso	Finland	Conversion		150,000	Q1/2012
Anqing Huatai	China	New mill		120,000	Q3/2012
Schweighofer	Austria	Conversion		130,000	Q3/2012
Nippon Paper	Japan	Conversion		30,000	Q4/2012
Domsjo Fabrikker	Sweden	Upgrade		25,000	Q1/2013
Buckeye	USA	Upgrade		45,000	Q1/2013
Lenzing	Austria	Upgrade		15,000	Q1/2013
Lenzing	Czech Rep	Conversion		85,000	Q1/2013
Sappi	USA	Conversion		330,000	Q2/2013
Sappi	South Africa	Conversion		210,000	Q2/2013
Rayonier	USA	Conversion		190,000	Q3/2013
Sun Paper	Laos	New Mill		200,000	Q3/2013
Paper Excellence	Canada	Conversion		250,000	Q3/2013
Phoenix P&P	Thailand	Conversion		95,000	Q4/2013
Lee & Man	China	New mill		100,000	2014
Lenzing	Czech Rep	Conversion		40,000	2014
Sichuan Yibin	China	Upgrade		75,000	2014
Tembec	Canada	Upgrade		30,000	2014
Fortress Specialty	Canada	Conversion		250,000	2015
AV Terrace Bay	Canada	Conversion		280,000	2016
Birla	Laos	New mill		200,000	2016
Total			3,045,000

Supply

Capacity expansion in the viscose pulp sector continued in the fourth quarter, with converted paper grade lines starting at two mills in Austria and Japan. The combined addition of these two lines was relatively modest compared to the rate of expansion in the second half of 2011 and first half of 2012, but still sufficient to keep up with the annual rate of growth in global viscose pulp demand. The most interesting development on the supply side of the dissolving pulp market over the past several months has been the share losses of domestic suppliers in China. Recent data indicate that the vast majority of the new wood pulp swing lines have remained in paper grade pulp and cotton linter lines are having difficulty competing at existing price levels. Of course, this capacity is still potentially available but is not viable at current prices.

The rate of dissolving pulp capacity expansion is set to accelerate again in 2013. RISI is showing 1.25 million tonnes of new capacity scheduled to start this year.

Two of the largest traditional suppliers to the dissolving pulp market will be adding substantial capacity in 2013 for the first time since the price explosion of 2010-2011 and sharp acceleration in world demand growth for viscose pulp. Sappi is looking to not only maintain its position as the largest supplier of dissolving pulp, but to even distance themselves further from the pack. The company is set to start producing viscose pulp after the conversion of two paper grade pulp lines in South Africa and the US. The two lines will have a combined capacity of 540,000 tonnes/yr and will be firmly in the bottom half of the world cost spectrum. Thus, Sappi is looking to secure one full year of viscose pulp demand growth on its own.

The other major player investing in new capacity this year is Rayonier at one of its two mills in the southeastern part of the US. It is converting a 260,000-tonne/yr fluff pulp line to 190,000 tonnes/yr of hi-alpha pulp. Some of the output of the converted line will be viscose pulp initially, but will be shifted to hi-alpha in a relatively short time. This will be the first significant expansion of hi-alpha pulp capacity on a worldwide basis since 2008 and will account for three years of average demand growth in this sector. In addition, Buckeye is incrementally expanding the hi-alpha capacity at its wood pulp mill in the US South, which will represent nearly another year of average hi-alpha demand growth.

COMPANY NEWS

Akzonobel Chemical Island Starts Supply to World’s Biggest Single Line Pulp Mill

AkzoNobel’s new €90 million Jupiá Chemical Island in Brazil is now operational and has started supplying the Eldorado Brasil Celulose pulp mill, which is the biggest in the world.

Operated by the company’s Pulp and Performance Chemicals business, the state-of-the-art Jupiá facility represents one of AkzoNobel’s largest investments in Latin America. It will supply, store and handle all chemicals for the 1.5 million tons per year Eldorado mill under an agreement which runs for the next 15 years.

“We are very proud to be involved in such a prestigious project which marks a significant step in AkzoNobel accelerating growth in one of its core markets,” said Werner Fuhrmann, member of AkzoNobel’s Executive Committee, responsible for Specialty Chemicals. “The plant’s official opening also emphasizes our commitment to expanding our activities in one of the world’s most rapidly growing regions”, added Ruud Joosten, Managing Director of Pulp and Performance Chemicals.

As well as providing long-term employment for around 60 people, the Jupiá plant will play an important role in ensuring a sustainable eucalyptus pulp supply to the global marketplace.

Jose Carlos Grubisich, CEO of Eldorado Brasil Celulose commented: “We are pleased to be working with AkzoNobel and we look forward to further developing our strategic partnership. I am sure that our cooperation will be mutually beneficial.”

AkzoNobel has a well-established pulp and paper chemicals operation in Brazil, where the company already operates the Chemical Island concept at several pulp mills, as well as running production units in Jacareí, Eunápolis, Três Lagoas, Rio de Janeiro and Jundiaí.

International Paper Completes Acquisition of Sabanci JV in Turkish Olmuksa Company

International Paper recently announced it has completed the acquisition of the shares of its joint venture partner Sabanci Holding in the Turkish corrugated packaging company Olmuksa, for a purchase price of $56 million. International Paper had obtained regulatory approval for the deal in the fourth quarter of 2012. The deal sees International Paper become the majority shareholder, owning approximately 87.5 percent of Olmuksa's outstanding shares. The change of control triggers a mandatory call for tender of the remaining public shares (approximately 12.5 percent float) of Olmuksa, which will be conducted in line with the regulations of the Turkish Capital Markets Board.

"Packaging is a core business for International Paper and this deal follows our commitment to expand profitably our strong global platform and regional presence," said Maximo Pacheco, President of International Paper Europe, Middle East & Africa. He added "It is an exciting opportunity to grow and serve our customers in a strategically important geography."

The Turkish corrugated market is currently the 7th largest in Europe with expected continued average growth rates of greater than 5% annually. The country is also strategically positioned to serve as potential growth platform to the Middle-East.

International Paper Finalizes Transaction with Grupo Orsa in Brazil

International Paper (NYSE: IP) and Brazilian corrugated packaging producer Jari Celulose, Embalagens e Papel S.A., a Grupo Orsa company, have finalized the formation of Orsa International Paper Embalagens S.A. The new entity, in which IP will hold a 75 percent stake, includes three containerboard mills and four box plants, which make up Jari's former industrial packaging assets. Today's closing completes the transaction announced in October of 2012.

"International Paper has been in Brazil for over 50 years and we are excited about this partnership as a platform to enter the corrugated packaging business in this strategic region," said John Faraci, Chairman and Chief Executive Officer. "This investment fits our strategy to grow our packaging business globally and allocate capital to opportunities that deliver returns well above our cost of capital."

The value of IP's investment is approximately $470 million at today's exchange rate.

International Paper (NYSE: IP) is a global paper and packaging company with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include uncoated papers and industrial and consumer packaging, complemented by xpedx, the company's North American distribution company. Headquartered in Memphis, Tenn., the company employs approximately 70,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2011 were $26 billion. Temple-Inland Inc., which was acquired in February 2012, had 2011 net sales of $4 billion. internationalpaper.com.

Eldorado Exports First 2,500 Tonnes of Pulp

Brazil’s Eldorado shipped its first pulp batches through Santos port, in São Paulo state, located around 800 km from its Três Lagoas 1.5-million tonne/yr pulp mill. The company stated that 2,500 tonnes of bleached eucalyptus kraft (BEK) pulp will be delivered to Mobile, AL, in the US.

“We will produce 1.4 million tonnes of pulp in 2013 and 90% of that volume will be exported through Santos,” Eldorado said in a statement. Santos port authorities believe that Eldorado’s operation will boost the pulp and paper share at the port. In 2013, 1.815 million tonnes of pulp and paper were exported from Santos, and this number may be almost doubled with Eldorado’s shipments this year.

China's Orient Paper Prepares For Environmental Inspection, Finalizes Renovation Plan

Orient Paper, Inc., a manufacturer and distributor of diversified paper products in North China, announced recently that it is preparing for the upcoming comprehensive environmental protection inspection, which is part of a large-scale special pollution inspection conducted by the local Xushui County government, in response to a series of environmental pollution incidents and public health crises in North China in recent months.

An executive order was issued by the County government on February 26, 2013 to all manufacturers in a wide range of industries which operations have potential environmental impact. Regarding this inspection, the multi-government agency inspection will examine all aspects of environmental protection practice, especially waste water discharge.

Separately, Orient Paper has begun the process of finalizing the renovation plan on its 150,000 tonnes per year corrugating medium production line, as earlier announced. The width of the machine will be expanded from 3.2 meters to 5.6 meters with a new production capacity of 250,000 tonnes per year. Orient Paper is preparing for the construction site for demolition of certain facilities and anticipates to sign the paper machine construction contract with an equipment supplier when the layout design is finalized later this month.

Orient Paper, Inc. is a leading paper manufacturer in North China. Using recycled paper as its primary raw material, Orient Paper produces and distributes three types of paper products namely, packaging paper (corrugating medium paper), offset printing paper, and other paper products, including digital photo paper, and household/tissue paper that the company is currently expanding into.

With production operations based in Baoding in North China's Hebei Province, Orient Paper is located strategically close to the Beijing and Tianjin region, home to a growing base of industrial and manufacturing activities and one of the largest markets for paper products consumption in the country.

Orient Paper's production facilities are controlled and operated by its wholly owned subsidiary Shengde Holdings, Inc., which in turn controls and operates Baoding Shengde Paper Co., Ltd., and Hebei Baoding Orient Paper Milling Co., Ltd for manufacturing digital photo, printing and packaging paper.

EXPANSIONS/ MERGERS/ ACQUISITIONS

CMPC to Invest $47.5 Million in Cogeneration Plant for Containerboard Facility in Chile

Empresas CMPC has submitted to the Chilean environmental authorities a project to build a new gas cogeneration plant at its 330,000-tonne/yr containerboard and kraft paper Papeles Cordillera mill, located in Puente Alto, Santiago. CMPC plans to disburse $47.5 million in this project.

The idea is to install two gas turbines with respective electrical generators of 25 MW each. The system also comprises two recovery boilers with a capacity of 35 tonnes/hour of steam each. RISI learned that this system will mostly replace the electricity currently supplied by the country’s international grid to the Papeles Cordillera mill.

APP China to Start Up 1.2-million tonne/yr Cartonboard PM

APP China looks set to start up a 1.2 million tonne/yr cartonboard PM at its mill in Qinzhou city, Guangxi autonomous region later this month. The PM will produce mainly coated ivory board. Supplied by Voith Paper, it is 8.7 m wide and has a design speed of 1,400 m/min.

The firm is also building a 1-million tonne/yr cartonboard PM at its Xiaogang plant in Ningbo city, Zhejiang province. It is slated to kick off production in early 2014. Such fast-growing capacity has put great pressure on the coated ivory board sector, which is now in a state of oversupply.

Sappi Fine Paper North America Approves Coater Rebuild Project at Westbrook

Sappi Fine Paper North America announced the approval for its $2.5-million capital project to rebuild a specialty paper coater at its Westbrook Mill in Westbrook, ME. The investment is comprised of an upgrade in the web handling, coating and drying capabilities of #20 coater.

“This is tremendous news for Westbrook Mill,” said Donna Cassese, Managing Director, Westbrook Mill, SFPNA. “Over the past few years, we have made significant gains in safety, yield, equipment reliability, and productivity; all of which have strengthened our market position globally. These accomplishments helped set the stage for the decision to invest in our Classics line.”

The Westbrook Mill makes specialized release papers. The Classics line is used to provide the textures and patterns for synthetic fabrics used in automobiles, fashionable footwear and apparel as well as decorative laminate surfaces found in flooring, kitchens, and baths. This project will also contribute to Sappi’s commitment to sustainability as the improvements will allow for use of a wider range of raw materials and improve energy efficiency. The rebuild is anticipated to be completed by May of 2013.

Nippon Paper Expands Cellulose Nanofibers Business

Nippon Paper Industries Co., Ltd. has decided to build new verification and production facilities for cellulose nanofibers at Iwakuni Mill, part of its of chemical division, to develop the cellulose nanofiber business using pulp as materials.

Cellulose nanofibers are materials obtained by breaking plant fibers (pulp) down to the nano-order level, several orders of magnitude smaller than a micron. They provide excellent features, says the company. For instance, the elasticity is as high as that of aramid fibers known for high intense fiber. They stretch well just like glass as temperature changes. And they provide high barrier performance to gas, including oxygen. Also, as they come from plant fibers, they are characterized by a low environmental footprint in production and disposal, as well as light weight. Cellulose nanofibers are expected to find many applications, such as reinforcements, thickener and gas barrier materials.

The new verification and production facilities for cellulose nanofibers will have an annual production capacity of 30 or more tons, and will start production in October 2013. The facilities will make it easy to disintegrate pulp by implementing prior treatment chemically says the company. The basic development for this has already been conducted in a project called “Research and Development of Nanodevices for Practical Utilization of Nanotechnology” at the New Energy and Industrial Technology Development Organization (NEDO).

The new facilities will be Japan’s first full-fledged facilities producing cellulose nanofibers by chemical treatment. This project plan has been selected for the Ministry of Economy, Trade and Industry’s innovation site support business, “Subsidies for Maintenance, etc. of Advanced Technology Verification and Assessment Facilities.”

The establishment of the facilities enables the full-scale supply of samples to facilitate the cellulose nanofiber business, and accelerates the development of applications. As a comprehensive biomass company, the Nippon Paper Group plans to enhance its technology to promote the overall use of forest resources, which are recyclable resources, and expand its business domains.

Grigiškes to Increase Tissue Capacity

Grigiškes has already secured LTL35m (€10m) in financing from Skandinaviska Enskilda Bankens (SEB). New tissue machine is expected to come online by the end of 2014.

Lithuanian tissue, hygiene paper products and corrugated packaging manufacturer Grigiškes AB plans to increase its tissue capacities. Grigiškes announced it has secured a LTL35m (€10m) loan from Skandinaviska Enskilda Bankens (SEB) and would invest the money in purchasing a new tissue machine. The company was currently negotiating with major European machine suppliers on the delivery of the new 25,000 tpy machine, but had not made final choice yet, Gintautas Pangonis managing director of Grigiškes explained.

Grigiškes employs 270 people and runs three machines with a maximum installed capacity of approximately 25,000 tpy of tissue. The new tissue machine is expected to come online by the end of next year and will reportedly replace the two smaller machines TM 2 and TM 3 with a total maximum capacity of 9,000 tpy.

Investing in additional tissue capacities should allow Grigiškes to keep pace with the growth in tissue and hygiene products demand in the region. Growth potential in the Baltic countries and in adjacent regions is big given that the annual per capita consumption is up to five times lower than in mature European markets, the company said. Apart from Lithuania, the main sales markets for Grigiškes’s tissue products are Latvia, Estonia and Denmark.

McIlvaine Company

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