As has been mentioned previously in this column, and by many other authors in the industry, there have been over 20 announcements of new capacity in dissolving pulp in the past few years, for start-up dates ranging from 2012 to 2016. Three projects have been announced in Canada (in addition to a couple already running) and three in the US. All five of the projects in Canada were particularly welcome since they involved restarting papergrade kraft mills that had been shut down.
This expanded capacity has been a welcomed boost to confidence in the pulp industry, which has seen precious little capacity expansion in North America since the early 1990s.
However, recent developments at the former Weyerhaeuser (then Domtar mill) at Prince Albert are disconcerting. When the mill was purchased by Paper Excellence (effectively Asia Pulp & Paper, or APP) in 2011, it was announced that it would be converted to produce dissolving pulp, and be in production by 2012. That has been put back several times. On 29th March, it was announced that dissolving pulp production was still 18 months or so away.
I found the widely ranging reasons given by APP for the delay rather disconcerting although I do not have the necessary information to assess any one of them technically or economically. However, I have been involved with all too many projects where delays for obscure and varied reasons end up with cancellation or other project catastrophes. APP is in a special situation at Prince Albert, since there are legal impediments to their producing paper grade pulp at the mill, apparently tied into the purchase agreement. Thus the mill has a special incentive to produce dissolving pulp, but does not seem to be moving forward effectively.
Richard Bassett, one of the key people in resurrecting the former Weyerhaeuser, Cosmopolis and Neucel, Port Alice, dissolving pulp mills commented to the media last week that “Paper Excellence don’t know what they are doing”. Hopefully he is wrong, but the statements by APP have tended to support his assessment.
According to Rod Young’s presentation at last October’s North American Forest products conference, the ratio of selling price to mill variable costs has dropped from a peak of 2.7 in 2011 to around 1.3 today. The latter number is in the normal range for the first ten years of this century, so seems likely to continue.
The rising energy costs and steep rise in the price of cotton both helped fuel the enthusiasm for dissolving pulp in 2009/2011 time frame, when major investment decisions were made. However, both these trends have reversed.
Other dissolving pulp projects are generally doing better than Prince Albert, although most have been slower than initially planned. Rayonier’s large scale conversion of their C-mill from papergrade pulp to dissolving grade is reportedly moving along with only minor delays.
The pulp industry has always been cyclical, making excellent profits in the boom years that come along very roughly once every 7 years, but a dismal return on invested capital in all too many of the low-pulp-price years. Although major capital decisions such as new or modernised production lines, impact a company irrevocably for at least ten years, I have noticed that the majority have been taken when the prices of paper grade pulp were close to peaks. It seems that perhaps the dissolving pulp sector has done the same, with all that announcement activity in 2011.
Fortunately, all is not gloom. The demand for rayon, the end product for about 80% of dissolving pulp, is growing at about 7% a year, due to increasing prosperity in the developing world and China. This will hopefully continue, so that while the dissolving pulp manufacturers may not see the sky high prices of 2011 for a long while, pulp demand should grow enough to support many of the current projects.
There is no long term shortage of raw fiber in Canada and the US, while cotton worldwide is in a difficult position. Also, the areas where demand for fabrics is increasing, lack raw fiber, which augurs well for the longer haul in dissolving pulp. Of course as the market grows, it will become more interesting to the South American giants.
The next few years will be much more interesting for dissolving pulp than the past 50. Perhaps industry associations should divert some of the money being used to encourage the use of paper instead of electronics, to promoting clothing made from wood. The sustainability story of rayon is quite good, as is the quality of the finished product, particularly with current technology.
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