Stora Enso plans massive new pulp mill investment - in Uruguay
Production of short-fibre pulp declining in Finland
The Finnish-Swedish forest industry giant Stora Enso is planning a massive investment in pulp production in Uruguay. The company, together with the Chilean Arauco, has bought large tracts of cultivated forest from the Spanish company ENCE, as well as two sites for factory construction, at a cost of EUR 253 million.
The plans are for the construction of a new pulp mill in Uruguay capable of an output of at least a million tonnes a year. A mill of that size would cost at least a billion euros to build.
Stora Enso CEO Jouko Karvinen motes, however, that studies preceding the construction will take at least a year, and the construction will take a year and a half. No new pulp output capacity is being added in the current depressed market situation.
The decision means that the latest investments by Stora Enso are not targeting Finland.
“Investments in Brazil and Uruguay are based on their overwhelming cost-effectiveness. Pulp produced in South America costs less when shipped to Amsterdam than the wood needed for producing the equivalent amount of pulp would cost in Finland”, Karvinen observes.
This equation portends bleak prospects for pulp production in Finland - especially short-fibre pulp.
The main raw material for Finnish short-fibre pulp is birch, which is in relatively short supply in Finland. Most of the birch used at Finnish pulp mills has been imported from Russia, but the dispute over wood tariffs has sharply reduced the trade. Birch is grown in Finnish forests as well, but it is fairly expensive.
Karvinen says that Stora Enso has cut back on pulp production in Finland. Some short-fibre pulp is still being produced in Imatra for the needs of the packaging industry, but all in all, it is an endangered product in Finland.
After the ENCE deal Stora Enso and its Chilean partner Arauco will have 256,000 hectares of land in central and western parts of Uruguay. Cultivated leafy and coniferous trees are already growing on 123,00 hectares. After the deal, the Finnish-Chilean joint venture will be the largest private owner of land in Uruguay.
ENCE was starting up its own pulp mill project at about the same time as the Finnish Metsä-Botnia started to build its Uruguay pulp mill in Fray Bentos. Metsä-Botnia has 190,000 hectares of forest in Uruguay. Eucalyptus is grown on more than half of the land.
Botnia’s project sparked angry opposition mainly in neighbouring Argentina. The protests continue, but on a smaller scale than before, even though the mill has been in operation since November 2007.
ENCE gave up its own pulp mill project, at least partly as a result of the Argentine protests. The Spanish company left behind it two unbuilt factory areas in Uruguay.
The plots of industrial land were sold to Stora Enso and Arauco, but Karvinen says that this does not mean that the new mill will necessarily be built in either of the locations.
Karvinen also does not expect the same kinds of protests that led to the cancellation of the ENCE project. He says that Uruguay has a “fantastic operating environment, which is welcoming to new entrepreneurs”.
Land ownership conditions are clear, as well as the environmental legislation. The tree fields and the mill provide work for areas where the economy is largely based on the raising of cattle.
“However, we need to do our homework well”, Karvinen says.
After the deal, ENCE was left with 30,000 hectares of forest near Uruguay’s Atlantic coast. Karvinen feels that it is unlikely that the Spanish company would use it to compete with Stora Enso and Arauco.
While the South American production is mainly aimed at the world market, Stora Enso is also investing in production in China, with a view to the country’s own growing domestic market.
Previously in HS International Edition:
Metsä Botnia pulp mill running at full capacity (7.5.2009)
Stora Enso to investigate land use dispute over tree plantations in China (28.4.2009)
Putin: Russia to postpone implementation of wood tariffs (13.11.2008)
Stora Enso press release: Stora Enso and Arauco join forces to create a leadership position in low-cost pulp through the acquisition of the majority of Grupo ENCE´s operations in Uruguay for USD 344 million