MONTEVIDEO, Uruguay (From news reports) -- UPM moved forward on Wednesday with a plan to build a new 2 billion euro ($2.32 billion) pulp mill in Uruguay as it signed an infrastructure investment deal with the Latin American country.
UPM's plans in the region -- home to several wood pulp mills thanks to a beneficial climate for eucalyptus trees -- are part of its shift in focus from print paper production in Europe to pulp.
While paper demand in the West is declining, pulp is needed to make not only paper but also tissue and packaging board, which are expected to be in increasing demand, particularly in China.
UPM said it would not make its final investment decision until 2019 and when progress has been made with the infrastrucure development. Uruguay is expected to invest $1 billion in its rail and road network as well as a port terminal.
"The Government of Uruguay is stating their serious intent with this agreement and timeline ... Achieving significant progress in the implementation of the infrastructure initiatives is critically important," UPM's senior vice president for Uruguay development, Jaakko Sarantola, said in a statement.
The mill is to be built close to the city of Paso de los Toros and is expected to provide a significant boost to employment and the regional economy, UPM said.
UPM already has one pulp mill in Uruguay and three in Finland.
"This plant would probably start around 2021 ... Looking at the market at the moment, there are no confirmed large projects in the pipeline," said Markku Jarvinen, an analyst at broker Evli, suggesting that a tightening market could boost prices for hardwood pulp in the future. He has a "hold" rating on the stock.
Other hardwood pulp makers in the region include Brazil's Fibria Celulose SA and Eldorado, Chile's Arauco and Finland's Stora Enso.
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