Some Thoughts on the Future of Pulp

PaperMoney asked me to write a bimonthly column on the industry in “my” area, which is Canada. As the deadline rolls around I find myself in Uruguay, working on a permit application for a new 4000 tons/day mill, and realize that the situation here has much to do with North America.

Some of the current, and impending, closures of pulp mills in Canada and the United States are of course due to the expansion of low-cost, high quality pulp producers in South America.

The decline in demand for communication grades of paper in our region is also a serious issue. I cannot imagine demand for newsprint, office paper, etc., ever rising in the developed world, and even packaging and the “use once” grades like tissue are probably at peak usage. However, the rest of the world has a long way to go before demand is saturated, as living standards rise. This means that world fiber demand will continue to grow for the foreseeable future.

One major question is whether North American mills will be able to capitalize on this demand. The South American and Indonesian mills have the advantage of fast-growing forests, which pessimists in North America see as insurmountable. However, having worked on one Asian and three South American mill projects, and visited several South American mills, I think the North still has a chance.

The success of the South American kraft mills is not due only to fast-growing wood, but to superbly engineered and operated mills, of very large scale. These mills have surmounted difficulties that do not exist in North America. For example, when we want a skilled welder, we hire one. The South American mills usually have to train him pretty much from scratch, and might well see him then quit. We can purchase any chemical required fairly close to the mill, whereas many mills in less developed parts of the world have to import chemicals from overseas, resulting in high freight and inventory costs.

These mills are engineered for minimal operating cost, and a new North American mill could be too. For example, the UPM mill at Fray Bentos in Uruguay that I visited this week has no power boiler, burns black liquor only, and sells about 15 megawatts to the local utility. No North American mill approaches this level of energy efficiency, although a few Scandinavian mills do so. Chemical consumption at Fray Bentos is exceptionally low.

These modern mills use the same basic technology as our older mills, but benefit from a host of evolutionary improvements that could just as well be used in a new mill in the North. They are much simpler than many of our older mills. They are pretty much single-line, saving capital cost, operating labor and allowing management to focus on optimizing one process. The only major area of the 3600 tons/day Fray Bentos mill that is double-line is the pulp dryer and baling line.

I cannot see any possibility of modernizing any North American mills to the level of efficiency of a new South American one. The only possibility would be to take the wood basket for a few mills and build one large mill, probably on the site of one old mill. This would provide some economies. For example the 3600 tons/day Fray Bentos mill uses about 80,000 m3/day of water. This is about the same as a typical 1000 tons/day U.S. mill, so an old water supply system could feed a new, large mill. Some parts of the old mill would be useful, such as the large modern chlorine dioxide plants that some mills have, the maintenance shops, etc.

Environmental permitting for a large new mill would be relatively easy on an old mill site, because of the low discharges. Environmental regulations in Brazil, Chile, and Uruguay are more stringent than those of the U.S. Environmental Protection Agency or Environment Canada. Using the Fray Bentos mill as an example, its effluent discharges and atmospheric emissions are lower than most 1000 tons/day North American mills. You can find a detailed report by going to www.ifc.org and searching “Uruguay pulp” on that site.

In my experience, most of the South American mills operate to comparable environmental levels.

If you locate the mill online at Google Earth, you can see that at Fray Bentos, the effluent treatment plant is as large as the mill process area. (Search for “Fray Bentos,” and scroll a few miles to the East to see the mill.) A more modest treatment system would probably suffice in North America.

The investment in new kraft mills for North America would be substantial, in the order of a billion dollars each, but such projects are probably the only long-term hope for the industry in North America. We have secure, long-fiber wood supplies, with the advantage over many countries of being able to run the mill on sawmill chips to minimize wood costs. We have relatively local markets and sources of supply of equipment, services, and spare parts.

In the end, as well as detailed feasibility studies and cost estimates, decisions on large, long-term projects depend on a vision and faith in the future that is rare amongst accountants. The Chinese and Scandinavian pulp companies have this faith. Does any pulp company in North America have such faith? Even embarking on a serious feasibility study will require optimism, because of the cost involved.

As more old mills close, and energy costs rise, the feasibility of building a few modern large-scale mills in North America will improve. I hope I will see a few.