By Graeme Rodden, Executive Editor, Mark Rushton, Editor and Felicia Willis, Associate Editor, RISI
BOSTON, MA,
Feb. 1, 2009
(Viewpoint) -
As the world’s economic situation seems to become more dire with each passing day, it’s obvious that the global pulp and paper industry is not escaping unscathed. In some respects, this makes our annual look at the five companies to watch in the coming year, easier and harder. We say both easier and harder because as times become tougher virtually any company is the one to be watched but harder because how can the cast of hundreds be narrowed down to five?
It should come as no surprise that four of the CEOs of the companies listed here also made the RISI Top 50 Power List (PPI July 2008). (Note: there are actually six companies in the Top Five because there is a joint entry.)
It should also come as no surprise when companies located in countries that make up the ever more influential BRIC (Brazil, Russia, India and China) dominate the choices.
As noted, winnowing the list down to five required many “deserving” companies to be left out. Among the Honorable Mentions: Finch, Favini, UPM, Sodra, SCA, AbitibiBowater, IP and Klabin.
The Ilim Group
Russia’s Ilim Group was also featured as one of ‘Five Companies to Watch’ in PPI two years ago, and has since been through some major and dynamic changes continuing to make it one of the most interesting companies in the global industry. The group now comprises of a 50:50 joint venture with International Paper and is embarking on a major expansion program which will see it invest in the region of $2 billion over the next five to seven years. The program - which has recently been delayed due to the global financial crisis but which is expected to start in mid 2009 - will see a vast array of improvements to existing facilities as well as the introduction of some of the latest technology seen in the industry.
The group makes around 2.5 million tonnes/yr of pulp, paper and board, and produces 65% of Russia’s total pulp production. It has high ambitions in the country as a whole which is experiencing around double the average growth rate, and the group’s aim is to supply “one in every four container boxes and one in every four sheets of office paper in Russia by 2012”. The group has a number of large operations including the Kotlas pulp and paper mill, Bratsk pulp and containerboard mill and Ust-Ilimsk pulp mill. The investment plans, named Ilim-2014, include a new pulp line at Bratsk, which will increase the total kraft pulp capacity to 650,000 tonnes/yr. The Bratsk mill is geographically ideally suited to export pulp to China, which the Ilim Group sees as a major growth area.
Powerflute
The Finland-based company specialist paperboard producer Powerflute is another of our “companies to watch” as it continues to grow despite the ups and downs of both global business and the paper and board industry. This could be down to the fact that it has a strong niche, with a very focused management team. The company concentrates on higher value products and produces specialized high quality semi-chem fluting at its subsidiary Savon Sellu’s mill near Kuopio in Finland. The fluting is then used for the manufacture of boxes for fresh and frozen foods as well as for the packaging of electrical goods and heavy-duty packaging for automotive products.
Powerflute has been in the news recently regarding its recent acquisition of Papierfabrik Scheufelen, the Germany-based woodfree coated producer that became insolvent in the middle of last year. The planned acquisition was given formal approval from Papierfabrik Scheufelen’s lenders, and was approved by PowerFlute’s own board in mid-December. This means that the company enters into the high quality fine papers market, and acquires two machines that produce a combined 290,000 tonnes/yr. The firm says that it is confident that the performance of the acquired company can be significantly improved as a result of some restructuring.
BILT
Ballarpur Industries Ltd (BILT), India’s largest paper manufacturer, took delivery of a new uncoated woodfree paper machine in November 2007. Historically, the country’s papermakers have made do with other country’s hand me downs. This is an important step for the industry in a country where literacy is prized but per capita consumption of paper and board has been very low.
The new machine will produce 185,000 tonnes/yr of woodfree paper in a basis weight range of 54-90 g/m². Startup is scheduled for mid-2009. It will be located in the company’s Ballarsha facility, one of six mills BILT operates in India.
Chairman and CEO Gautam Thapar came in at number 31 on RISI’s Top 50 Power List. Under his guidance, BILT has scaled up and modernized and has been consistently ranked in PPI’s Top 100 companies in the past few years. In 2007, BILT bought over Sabah Forest Industries, Malaysia’s largest pulp and paper producer. This was the first overseas acquisition by an Indian papermaker.
Domestically, the company already produces more than 50% of India’s coated woodfree grades. BILT has an 85% market share of the country’s bond paper market. However, BILT’s ambitions extend far beyond national borders. It wants to establish a sustainable presence in key overseas markets. And, it is looking to be one of the world’s top 50 producers within a few years.
Nine Dragons
This Chinese company skyrocketed to dominance in the packaging sector despite being formed just 14 years ago (1995). It is now China’s largest paperboard producer. In 2008, it jumped to Number 54 in PPI’s Top 100 listing and its founder and chairlady Cheung Yan, was listed Number 4 in the Top 50 Power List.
But recently, speculation has swirled around this company. With the Chinese paper and board industry facing its worst downturn in a decade, Nine Dragons had to postpone four recycled containerboard machines it had planned for startup in 2009 at two of its mills in China. Total capacity would have been 1.6 million tonnes/yr.
Originally, the company announced the startup had been delayed until 2010 or 2011 but recently, it said startup could be pushed back beyond 2011 if economic conditions did not improve.
Rumors about this relatively secret company abound. Share prices fell below $1 in November. Following some action on the stock, and at the request of the Hong Kong stock market, the company had to issue a number of press releases denying rumors of acquisitions or other agreements. It also denied rumors that its Chinese mills had taken market-related downtime. Finally, a spokesman said the company had no “liquidity” problems.
Still, despite the postponement of the four machines, Nine Dragons says it is pushing ahead with the construction of two recycled containerboard machines at a greenfield mill in Tianjin municipality. The two machines are scheduled to be on line at the end of 2009 and produce 800,000 tonnes/yr of linerboard and lightweight fluting.
Aracruz/VCP
A joint entry is being included in the companies to watch. This was to be a merger of giants. However, recent events have seen a possible unravelling of the merger as well as the resignation of a CFO and the possibility of his being sued by his former employer.
Known as a pioneer in the production of bleached eucalyptus kraft (BEK) pulp, Aracruz helped put Brazilian pulp production on the world map. It is now responsible for 24% of the global supply of the product. It produces 2.78 million tonnes/yr of BEK. It also owns 50% of the Veracel joint venture (with Stora Enso), which produces 900,000 tonnes/yr. The company is led by the well-known and influential Carlos Augusto Lira Aguiar, who has been with the company for more than 25 years, president and CEO since 1998.
Fellow Brazilian pulp giant Votorantim Celulose e Papel (VCP) recently planned to increase its stake in Aracruz for $1.7 billion as part of a plan to merge the two companies. VCP already holds 28% of Aracruz. It produces 1.08 million tonnes/yr at its Jacarei mill. However, its new 1.3-million tonne/yr BEK mill at Tres Lagoas is due to start up in May and VCP plans to build another 1.3-million tonne/yr giant in Rio Grande do Sul state, with startup expected for 2011.
However, Aracruz recently disclosed that it suffered losses of almost $1 billion due to derivative trading. The CFO, Isac Zagury, was dismissed and Aracruz may sue him.
VCP, led by RISI Latin American CEO of the Year for 2007 and 2008, Jose Luciano Penido, announced that the steps to conclude the acquisition of Aracruz shares are still being implemented, but the closing date of the transaction would be postponed. The deal would create the world’s largest hardwood pulp producer, for that reason alone, an important reason why these are companies to watch; the financial intrigue makes them more so.
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