Stora Enso to build EUR 1.6 billion pulp mill in China

Stora Enso to build world-class EUR 1.6 billion consumer board and pulp mill in China. Stora Enso plans to build plantation-based integrated board and pulp mills at Beihai city in Guangxi, southern China. The mill site will initially include a 450 000 tonnes per year state-of-the-art paperboard machine and pulp capacity of 900 000 tonnes per year, including necessary energy plant and auxiliary facilities. In a unique set-up, the board and pulp mills will be self-sufficiently integrated with wood supply from 120 000 hectares of self-managed eucalyptus plantations. The ultimate target is to expand the paperboard capacity to 900 000 tonnes at a later stage.

“Today we are taking another significant step in transforming Stora Enso into a global renewable materials company. We already have a globally leading position in renewable fibre-based packaging boards. We will now invest in a world-class integrated mill based on locally grown renewable materials for the benefit of local Chinese consumers in the fastest-growing market. Everything we do will be based on best-in-class technologies, environmental standards and sustainability practices – together with the local partners and communities” says Stora Enso CEO Jouko Karvinen.

The operations will be managed by an equity joint-venture company established by Stora Enso (85%) and the Guangxi Forestry Group (15%), a state-owned company under the Guangxi provincial government. The joint venture will serve the fast-growing market for liquid packaging board and other premium consumer board grades.

The project investment will be approximately EUR 1.6 billion. Construction at the industrial site will commence when specific preconditions have been fulfilled, which is expected to be in the second half of 2012. Production is scheduled to start in the fourth quarter of 2014. The investment will significantly support Stora Enso moving towards company’s 13% ROCE target.

The project will be financed through a combination of debt and equity on an approximately 60/40 basis. The debt financing is expected to be a mix of export credit agency, multilateral and commercial bank debt.

“Generating sustainable returns from any business requires a unique offering to the customers, be it product or process benefits, in a cost-efficient way – or something that is very difficult for the competitors to copy, like integrating the operation from the plantations to the technically advanced product. This is exactly why we have chosen to differentiate ourselves through a range of specialised world-class board products and end-to-end integration – with the most cost-efficient solution for the Chinese market and at a globally competitive total cost,” says Stora Enso EVP for Renewable Packaging Mats Nordlander.

The investment is subject to regulatory approvals, the signing of final documentation and other customary conditions precedent.

Growth together with customers – strong growth forecast in fibre-based packaging in China

The fibre-based liquid packaging board segment is one of Stora Enso’s strategic focus areas and this investment is consistent with the Group’s announced strategic guidelines. Through this investment, Stora Enso seeks to benefit from the forecast future growth in demand for fibre-based packaging solutions for food in China, which is forecast by several researchers to grow at a compound annual rate of over 10% during the next ten years. This investment will also enable Stora Enso to provide excellent service with cost-competitive, locally produced high quality liquid packaging boards on a regional basis for its global key customers that are already well established in China.

Impact study supports the project

The United Nations Development Programme (UNDP) conducted an Environmental and Social Impact Assessment (ESIA) of the project for Stora Enso in 2006, and at Stora Enso’s request made an additional, integrated ESIA summary report which will be independently reviewed and published in 2012. The studies give a supporting view for the board and pulp mill project. When the project began, Stora Enso established a Community Development Fund to provide financial support for development of education and infrastructure in local villages, and in 2011 the Group revised its stakeholder engagement and community development plans. Stora Enso will co-operate with local authorities, universities, organisations and villagers to find long-term sustainable solutions for development.

Stora Enso’s present operations in China

Stora Enso has been establishing plantations in Guangxi since 2002. The Group currently holds approximately 90 000 hectares, and is to establish sustainable eucalyptus plantations with an effective fibre base of 120 000 hectares to support the new pulp mill in Guangxi. The Group’s other operations in China include a 245 000 tonnes per year coated fine paper mill in Suzhou, a 170 000 tonnes per year uncoated magazine paper mill at Dawang, two core factories, five sales offices and the newly acquired majority shareholding in Inpac International, a packaging company with production operations in China and India, and service operations in Korea. The total number of employees in China is currently about 4 500.