Pulp-Paperworld.com / European News

2017 12 19 063552Pöyry is ramping up its investment in digitalisation with the establishment of its #PoyryDigital transformation team. The international management consulting and engineering company earlier this year announced #PoyryDigital, the umbrella name for its digital solutions, which has already resulted in 17 new digital services, ranging from 'Smart Water' to 'Pöyry Innovation Link': www.poyry.com/digital.

Leading the team, Stephen Woodhouse, Director, Management Consulting Business Group and global energy markets expert and has been appointed as Chief Digital Officer. Stephen, together with the #PoyryDigital team, will help deliver added value to our clients by stimulating, incubating and connecting the many exciting digital developments taking place across Pöyry.

"Digitalisation is a hugely disruptive force and is transforming our clients' businesses across the energy, industry and infrastructure sectors," says Martin à Porta, President and CEO, Pöyry PLC. I want Pöyry to offer its clients the most digitally advanced solutions on the market and this is why we are putting digital at the heart of what we do. Stephen and the #PoyryDigital team will help accelerate the many innovative digital developments being pioneered by our team of 5500 talented intrapreneurs."

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"Pöyry is transforming its business culture to become one of the most digitally-advanced consulting and engineering companies in the world," says Stephen Woodhouse. In my experience clients are increasingly looking for digital expertise integrated with deep insight and engineering know-how. Our experts are helping clients to transform their operations by taking advantage of IOT, Industry 4.0, big data and AI to increase efficiency, safety and performance. We are engaging our own intrapreneurs, our partners and clients in a digital dialogue to help solve our clients' needs."

Additional information:

Martin à Porta
President & CEO, Pöyry PLC
+41 44 355 5525

Stephen Woodhouse
Chief Digital Officer, Pöyry
+44 7970 572444

Did You Know? Pöyry announced 17 new #PoyryDigital services in 2017: www.poyry.com/digital.

About Pöyry

Pöyry is an international consulting and engineering company.  We deliver smart solutions across power generation, transmission & distribution, forest industry, chemicals & biorefining, mining & metals, transportation and water. Pöyry's net sales in 2016 were EUR 530 million. The company's shares are quoted on Nasdaq Helsinki (POY1V). Approximately 5500 experts. 40 countries. 130 offices.

www.poyry.com

Published in European News

The hidden value on operation execution for the pulp and paper industry – How big is it and why does it matter?

Pulp and paper companies are facing continuous pressure on their profitability as the markets get more competitive. Our experience tells us that there is a lot of money left on the table that is related solely to the intrinsic operational capability. Capturing this hidden value can make the difference between success and failure.

The main pillars for business success

There are plenty of business management theories that describe why some businesses are successful and others aren’t, but from our point of view, the success of any business relies on three main pillars: strategy, assets and execution.

Clearly, getting the business strategy right is paramount, as it will define the organisation’s direction and development. The basis of this strategy should be defining which products and services provide the most added value, and which geographies offer the best opportunities. This can then be supported by M&A, organic growth or other decisions.

The second pillar of any strategy is the organisation’s assets; in other words the physical equipment in which the products are manufactured. The type of technology, its technical age (new investments versus upgrades) and the level of automation will define the potential competitive edge that the company will have within the industry.

The final element of success is the way the people and organisation execute its strategy with the available assets. For this, adequate operational capability is needed to achieve target profitability in the prevailing market context.

The “asset quality” myth in the pulp and paper industry

In a capital intensive industry like pulp and paper, there is a tendency to believe that asset quality (technology, age and maintenance) is the main determinant factor of operational performance. If everything else is constant, then asset quality determines the competitiveness potential, but assets are just the hardware in an industry that has historically overlooked operational execution. Many pulp and paper mills have old assets but strong operating performance, while others have newer assets but trail on overall efficiency.

In a highly competitive industry, it is the companies that learn how to maximise the value of their assets, regardless of their age, that will achieve a competitive advantage. This can only be achieved with excellent operating practices that focus on process stability, optimisation and continuous improvement. Our experience shows that, by failing to optimise their processes, many organisations are effectively leaving money on the table. Capturing this hidden value is ever more important for the pulp and paper industry due to challenging market conditions, and can be the difference between success and failure.

The pulp and paper sector - a mature and maturing industry

The pulp and paper sector is a mature industry that has very different segments and geographic realities. On the paper side, sales of industrial and hygienic grade papers are still growing globally, but graphic paper sales are declining due to the developed markets sunset. On the pulp side, emergent markets in Latin America have gained the upper hand due to several competitive advantages, related to lower cost base. In fact, this geographic shift from mature, fibre-rich western markets towards emergent markets has been the industry’s guiding force in the 2 decades. In turn, this has led to a gradual shift away from vertically integrated pulp and paper operations, towards a market pulp and recovered paper-driven industry. Also, the decline of non-wood supply in China and the tissue move into virgin fibre have supported virgin pulp markets.

The main result of this shift is that the developed markets will continue to mature, with some segments declining as a result. This will put additional pressure on existing pulp and paper players in Europe and North America, where improving the overall operating performance is now essential.

The tides are more favourable in emerging markets, but investment cycles prove that these markets are also maturing. With this, more focus needs to be given to the operational efficiency of current assets, rather than looking at new investments. The issues are common regardless of geography and the position on the investment cycle.

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Pulp and Paper Industry has become a global competitive arena with ever tighter margins

Key market drivers are putting pressure on overall industry profitability

In recent years, pulp and paper producers have endured challenging conditions, resulting in unsatisfactory profitability. Although profitability varies from segment to segment, generally speaking this poor performance has been driven by poor capacity utilisation, declining demand, a low level of supplier concentration, poor sales prices and unfavourable exchange rates. The markets are complex, and the drivers vary from one industry sector to another and over time.

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Profit margins are influenced by a number of factors but typically market forces cannot be controlled by companies. This means improving sales and reducing overall costs is necessary in a highly competitive environment.

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The pulp and paper industry has evolved into a highly competitive global arena where producers have positioned themselves on the lowest cost position possible while capturing relevant market shares.

To illustrate this, the recent additional BHKP capacity responding to higher demand has positioned the new producers at the lower cost end. Production costs have declined as a result of highly-competitive raw material prices, growing economies of scale and declining transport costs, in turn forcing high- costs producers out of the market. As a consequence, the flattening BHKP market pulp supply curve increases competition for profitability, punishes inefficient producers and exposes players to price fluctuations.

In this context, companies have low degrees of freedom to affect the Sales Price Profitability Lever as this is fundamentally the result of market balance. To compensate for this reduced profitability that affects most of the pulp and paper grades, companies have looked at rationalising their production costs to keep profitability at acceptable levels. This might include consolidating the business, streamlining operations and reducing their overheads (including their number of FTEs). However cost- cutting can only do a limited amount for increasing profitability.

By necessity the next step must be improving operational efficiency, which is the lever that the company can actively control. Ultimately, this can positively impact production volumes or raw materials and utilities consumption, which has direct effect on the profit equation, regardless of market conditions.

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Focus on what you can control - Execution Gap

Main internal levers for operations performance

Improving operational performance and efficiency is not straightforward. Plenty of companies find themselves unable to achieve significant improvements even though they expend significant resources on it. While continuous improvement initiatives have been a part of business culture for a long time, the pulp and paper sector has always been somewhat conservative in making it a common management practice.

When companies do apply continuous improvement initiatives, they often find they do not have the right operational capability to develop and implement effective and consistent performance improvement initiatives and harvest visible results.

Operations performance can be determined by the quality of three main factors: assets and process, people and organisation, and management systems.

  1. 1. Assets and processes – this is the way physical assets are run and optimised to create value, while minimising losses through improved stability. It is related to the design of manufacturing and business process, as well as to the subsequent ability to technically improve the business and physical proc
  1. 2. People and organisation – this is the way people organise, think, perform and conduct themselves in the workplace, both individually and collectively. It is related to the organisational structure, as well as people’s skillsets that can support the goals of an effective continuous improvement culture.

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  1. 3. Management systems – this is the formal structure, processes and systems through which human and organisational resources are aligned to achieve shared go It can include elements such as process variable tool monitoring, KPI reporting, shift reports, action planning systems and standard operating procedures. These systems should be geared towards effective continuous improvement.

These levers can be used in a number of different ways to improve operations, but they all aim to change operating methods and procedures together with the use of modern technology in operational control. Several companies have applied different methods such as Lean Six Sigma, Lean Management, TPS, Kaizen and Deming’s Circle – PDCA. But, understanding the technical challenges of the pulp and paper industry when applying continuous improvement tools is key, as out of- context implementation can actually do more harm than good.

Having recognised this, Pöyry has developed a methodology that incorporates the best of different continuous improvement techniques, while bringing industry savvy experts that can understand the specific needs of pulp and paper mills and speak their language. Pöyry’s ExGapTM methodology is based on sound analytics and process insights into operations, supply chain and organisation.

Execution Gap – how much value are we leaving on the table?

Fundamental to Pöyry’s ExGapTM methodology is qualifying and quantifying the Execution Gap (ExGap) of an operation. This can be defined as the difference between current performance and potential performance. It is the money that companies are leaving on the table by not being able to perform to their full potential with their current assets. This is a simple but powerful concept that is the first step on the long path towards sustainable performance improvement. Though a simple concept, the ExGap contains a powerful message:

  • It is usually significant – all industries, all market conditions
  • It is within our control

• It will never be captured until it is specifically identified and quantified

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The first step towards establishing and quantifying the ExGap is undertaking a mill diagnostic. This entails a full management process and system diagnostic, together with a technical process diagnostic, combining both management and technical perspectives. The diagnostic focuses mostly on non-capex areas of opportunity, as most of the improvement can come from better process monitoring and control. This highlights how most process improvement is unrelated to asset investment. Nonetheless, in selected circumstances, rapid return investments can also be identified to accelerate the ExGap closure.

Typically, for the pulp and paper industry the ExGap on operations can reach between 20-50EUR/t of improvement opportunity. Roughly 55% is attributed to increased production (if it can be valued) and 45% is related to variable cost savings. This is a sizeable gap that has a high impact on the bottom-line and can make the difference between a company’s success and failure.

The Pulp and Paper players are facing common challenges preventing them of capturing the full value of their operations

Case Study - Taking operational improvements to the next level

  • The client was a recycled graphic paper producer with modern assets who had already executed several improvement initiatives. Their goal was to improve production efficiency and stability. In addition to the technical issues in both paper machines and recycled plant, the mill had structural problems related to its management systems, hindering its performance.
  • Pöyry’s team stepped in to conduct an ExGapTM diagnostic with detailed data analysis and technical interviews during a two week site visit. The team identified 20EUR/t of lost productivity in production areas OEE, raw materials and energy consumption. The low performance was clearly attributable to more than mere asset quality: for example, management systems for the production monitoring and control were inadequate. Other typical organisational shortcomings included management of departmental silos, as well as lack of diligent planning, action and accountability.
  • The diagnostic phase was crucial to guide the next step on the performance improvement process. Next, Pöyry’s team and the client started to jointly bridge the execution gap, based on the first phase findings. The 12-month implementation project that followed included several changes in management and technical improvement initiatives. These were geared towards developing management system methods and tools for consistency of behaviour, actions and, ultimately, performance and results.
  • Importantly, performance transparency was also established. This included visual means and regular reports, clear and manageable targets, as well as improved communication/information sharing through meetings at the mill and within department levels. Emphasis was put on diligence and actions were taken against negligent or unintentionally faulty work. Ultimately, motivation and team mentality improved due to increased accountability.
  • By the end of the project, the mill achieved an annualized improvement level of about 4 MEUR on all aspects of the operation. The performance continued to rise further following the establishment of high performance culture. The main achievements included the following: 1) Technical downtime reduced by almost 50% on main PM’s; 2) Increased speed machine by 3%; 3) Break frequency was almost halved on one machine and stabilised on the second machine even with higher speeds; 4) Power consumption reduction of about 10%t; 5) Steam consumption reduction of about 10%.

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What are the main challenges that industry faces in operations?

The root of an organisation’s ExGap lies in the three above-mentioned components of operations management – management systems, assets and process, and people and organisation. Issues and challenges that contribute to a company’s ExGap include:

Process variance and inconsistent results – inefficient use of assets together with lack of optimisation and limited standard operating procedures can lead to excessive process variability. Process variability leads to lower efficiencies and higher production costs.

Non-systematic management processes – incomplete or inconsistent management systems are a common cause of poor performance. This can be reflected in poor and incomplete management and process metrics, excessive and unfocused reporting, poor meeting and action structures, informal action planning, or the lack of a formal continuous improvement system. It’s typical to see different departments on the same mill using a different management process and tools.

Poor equipment availability due to sub-optimal maintenance practice – The ineffectiveness of maintenance function is more of an issue than the maintenance costs. Incomplete business processes and lack of management systems tend to generate low visibility and accountability of maintenance results, which reflects on poor equipment availability.

Lack of specific operational and industry skills – as a result of low industry profitability, investment in assets and people has been reduced. This results in a shortage of management and technical skills, which is exacerbated by an ageing workforce.

Obsolete instrumentation and automation – to maintain steady and stable processes, having the correct and most reliable measurements is essential. It is not possible to control a complex process of high inertia with infrequent lab measurements. At the same time, manually operated operations are fallible and prone to variability. Systems obsolescence is becoming a common issue in the pulp and paper industry.

Organisation silos and data overload – mill departments tend to be organised in silos where data and information doesn’t flow across borders. Holistic mill optimisation is thus more difficult. On top of this, pulp and paper mills are overloaded with too much data, and have insufficient time and tools to extract any valuable information or insights.

This is not a comprehensive breakdown of all the challenges the industry is facing, which varies between companies, segments and geographies. Rather, the challenges outlined above are consistently found across the pulp and paper industry and are the main causes of low operational performance.

What are the requirements to improve on operations?

Improving mill operations and achieving performance gains is not straightforward; different companies will have different levels of readiness for the long and sometimes difficult journey required. Ultimately, continuous improvement processes are about fundamental changes to a company’s culture.

There are two phases within Pöyry’s ExGapTM principles that drive continuous improvement processes: firstly, the diagnostic phase and secondly, the implementation phase.

The diagnostic phase is an intensive audit of the company’s operations, with the objective of identifying and quantifying the extent of the opportunities for improvement (ExGap), while also revealing clues about the causes of underperformance. This is a fundamental step, which any improvement initiative should start with. Typically, this can be developed within 1-2 months of intensive work, depending on the areas involved and the complexity of operation.

After diagnosing the state of operations, the next phase involves the implementation of new methods and practices that can help close the ExGapTM. This should be based on a 10-18 month initiative, in which all levels of the organisation are involved. Systematic processes are developed with a clear management structure that helps to unlock the operation’s true potential. At the same time, the development of people is promoted alongside efforts to change company culture. The result is a new approach and new system that is focused on continuous improvement.

In our experience, applying operational excellence methodologies is not enough to achieve tangible results in improving operations in the pulp and paper industry. It must be accompanied by deep technical knowledge of the industry and extensive technological expertise in order to challenge and change deep-rooted operating methods. The path to improvement can be both long and challenging, and companies must fully commit and dedicate all required resources to these initiatives. However, the reward is on the horizon and can be tangible.

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Concluding – why all of this matters?

Given the cut-throat competition in the pulp and paper sector, it is imperative that producers extract the most out of their assets. There is typically a great deal of value hidden within underperforming operations. This money is left on the table by companies that are not able to capitalise the best of their operations.

These improvements should be a priority, as they are entirely within a company’s control. Companies can’t control market forces, so focusing on what they can control is essential, and can be the difference between survival and failure. Based on our experience, the potential benefits on production, maintenance and supply chain can yield savings as much as 20-50EUR/t. It is time for pulp and paper companies to claim back this hidden value – the ExGapTM.

Published in European News

Innovative start-up company and leading eucalyptus pulp producer connected for new high-value bio-based products

Fibria, the leading producer of eucalyptus pulp, and Spinnova, a Finnish start-up developing wood to fabrics technology, recently announced that Fibria is to acquire 18% of Spinnova and partner in the development, production and marketing of new materials using Spinnova's technologies. The two companies were brought together in a partnership search process managed by Pöyry. This is an example of Pöyry's choice to work closely with the startup scene from bio to digital. Pöyry has also a long-standing relationship with Fibria through many project assignments.

poyry logo 2017Pöyry's role in Spinnova's partnership development assignment was to help find the right industrial partner for the company, the assignment including potential partner analysis, partner relationship development, negotiations and contractual advisory. At the end of the process, Spinnova and Fibria came together for new opportunities in technology development, testing and piloting in pre-commercial scale of new high-value products. 

In such a process, being able to support a startup necessitates a trusted position among global forest cluster companies from biomass to end users, extensive market understanding and knowledge of innovative technologies, all of which Pöyry has put much effort into developing. 

Spinnova develops low-cost and environmentally sustainable technologies for making fabrics. The technologies use wood fibers to produce filaments and yarns that can replace cotton, viscose and other raw materials in both woven and nonwoven applications. Fibria is a Brazilian forestry company and the world's leading producer of eucalyptus pulp from planted forests. 

"The new partnership with Fibria will help Spinnova grow our business faster and significantly enhance our global competitiveness. We value highly this win-win partnership with a lot of strategic level synergies and a shared vision. It was great to work with the Pöyry team. They are real professionals and their help was invaluable during the partnership search process," said Janne Poranen, CEO and founder of Spinnova.

"We are active in the start-up scene and continuously looking for new technologies and companies especially in bioindustries, energy and the digital space. Our global network and strong relationships with major forest cluster companies enable us to find the right partners for different needs and connect start-ups and investors for mutual benefits. We are the trusted partner to our clients and support them with our market and technical understanding covering the whole value chain from raw materials to end markets," said Petri Vasara, Vice President Management Consulting, Pöyry.

About Pöyry

Pöyry is an international consulting and engineering company that delivers smart solutions across power generation, transmission & distribution, forest industry, chemicals & biorefining, mining & metals, transportation and water. Pöyry's net sales in 2016 were EUR 530 million. The company's shares are quoted on Nasdaq Helsinki (POY1V). Approximately, Poyry has 5500 experts. 40 countries. 130 offices.

www.poyry.com

Published in European News

Pöyry and Betulium have signed a Letter of Intent (LOI) for co-operation that will enable both companies to serve their clients better in bio-based businesses. Pöyry and Betulium share common objectives in bioindustry: together they have the know-how and experience which can be used especially in the field of nanocellulose for composites, plastics and similar materials as well as for wood-based nanocellulose and material testing in both the forest and chemical industries.

poyry logo 2017Betulium Oy is a Finnish clean-tech company established in 2013. Betulium provides renewable, biodegradable, and high-performance water-based cellulose materials to replace or supplement synthetic organic polymers in a vast number of industrial applications. Betulium runs a pilot plant producing material on an industrial scale in Espoo, Finland. Nanocellulose can be used in the manufacture of paper, feeds, foods, cosmetics and pharmaceuticals.

Pöyry has a proven track record in process engineering excellence in the chemicals and biorefining sectors and knows the complex bioindustry value chain, megatrends, drivers and business partners. Pöyry's highly-skilled experts can help clients to identify value added opportunities and commercialise bioproducts with engineering solutions that maximise profitability, sustainability and health, safety and environmental (HSE) aspects.

"Our services in bio-based solutions cover the whole project life cycle from identifying opportunities through market studies and developing the business idea to the design and start-up of industrial scale production plants. This co-operation initiative will benefit both parties but especially our clients who can make use of the whole value chain advantages reached from one source, enabling smoother and more efficient R&D operations," says Nicholas Oksanen, Executive Vice President of Pöyry's Industry Business Group.

Did you know? Pöyry has been delivering bioindustry solutions for 60 years. 
http://www.poyry.com/services/smart-solutions/bioindustry

About Poyry

Pöyry is an international consulting and engineering company that delivers smart solutions across power generation, transmission & distribution, forest industry, chemicals & biorefining, mining & metals, transportation and water. Pöyry's net sales in 2016 were EUR 530 million. The company's shares are quoted on Nasdaq Helsinki (POY1V). Approximately, Poyry has 5500 experts. 40 countries. 130 offices.

www.poyry.com

Published in European News

Over a year has gone by since the IAEA (International Atomic Energy Agency) verified Tehran’s compliance with the nuclear agreement, and many of the economic sanctions against Iran were removed. During that time, the country’s relative isolation from international markets, especially those in the West, has led the country to establish an independent economy. While Iran has been successful in becoming self-sufficient, its open doors to much of the world has now put a spotlight on areas for investment where growth has faltered since the sanctions.

One of these untapped markets is Iran’s forest products – an area showing significant growth potential. Considering Iran’s raw material balances and demand prospects for forest products, probably the most obvious business opportunities for international players can be found in the wood raw material supply.

Forest Resources

poyry logo 2017Iran is located in the mid-latitude belt of arid and semi-arid regions of the earth. Consequently, Iran is sparsely forested with only some 7 million hectares of forest covering less than 5% of the nation’s land area. Most of Iran’s forests are found in the North in a region called the Hyrcanian forests and is the primary wood production region in the country accounting for about 30% (2.1 million hectares) of the country’s forest area. About 15% of the Hyrcanian forests are protected from harvesting. The main species of the Hyrcanian forests are hardwoods, including beech, hornbeam, maple, oak, alder, elm, ash and ironwood and a few softwoods including cypress, juniper and yew.

The second most important forest area is located to the west, accounting for about 40% of the Iranian forest area and comprising mainly oak. However, Zagros is not suitable for industrial production because much of the area has been converted to grazing but has been found suitable for forest plantations. The last major forest area is called Mangrove forests in the south and is protected from harvesting.

Growing Wood Products and Paper Market

At present, there are hardly any sawmills left due to the shortage of sawlog-sized wood and the shortage of adequate water resources is a major constraint to plantation development. The Iran Government is not placing any serious emphasis on securing domestic wood supply – instead, the industry’s sentiment is that the state encourages wood imports instead of domestic supply.

The development of wood-based panels industry has been quite divergent despite the fact that it shares upstream challenges similar to the sawmilling sector. The market size is not monumental, but the potential for growth is significant. The increasing demand for modern furniture, built-in-fitments and other home-furnishing products will keep the Iranian wood-based panels market in a growth track well into the future. Panel exporters will likely maintain their presence in the country, but in particular, suppliers of modern panel production lines will likely activate in the future, as Iranian companies will invest in new technologies in an attempt to become more competitive.

Reliable data on industry output and product demand for Iran’s pulp and paper market is lacking considerably. However, most Iranian paper industry players share the view of a growing domestic market. But they face many of the same challenges as the wood raw material industry; a costly and limited supply of wood or fiber; a need to modernize mill assets and the threat of strong international competition. Potential foreign investors should see the opportunity in those challenges; it opens doors for foreign capital and investment in a market with high demand and little production.

Several factors including the modernization of society and retail trade, along with the rise of the middle class will eventually lead to the rise of packaging industry in Iran. The packaging industry is seeking ways to modernize existing assets and invest in new production lines – including primary paperboard production and packaging converting through final products packaging. Historically, Chinese suppliers have been the main beneficiaries of the rise of the packaging machinery market in Iran. With the lift of the sanctions however, Iran is also looking for high quality machinery from regions outside China, eyeing markets that have been banned in recent years.

Another sector that has the potential for profitability for Western investors is the Iranian tissue and hygiene sector which up until now has been dominated by domestic suppliers, and one Turkish group, in the absence of strong international players. The industry has invested somewhat ahead of demand in the anticipation of rapidly growing market. In terms of per capita consumption, Iran is lagging far behind the large Middle East countries as well as its global peers of the same income level, but is quickly catching up with them in terms of demand level.

Dawn of a New Economic Era?

The oil embargo and other economic sanctions have been the key reasons behind Iran’s flimsy economy during the current decade. However, the sanctions may have helped the country cope with the commodities slump by forcing it to diversify its economy. Iran is the third largest economy in the MENA region after Turkey and Saudi Arabia. It has the second largest population of the region after Egypt with an estimated 82.8 million people in 2016. Compared to most MENA countries, Iran is in a relatively good position in terms of oil dependency, thanks to the Government’s efforts to reduce dependency on oil and gas by focusing on expanding other sources of revenue.

Because of the sanctions and its relative isolation from the rest of the industrial world, Iran has had to make itself independent from the rest of the world. As a result, Iran has fostered a strong workforce – the country’s vast population is young, urbanized and highly educated and the country has an established manufactured commodities market. The opportunity for strong growth in key markets along with a reliable domestic workforce makes Tehran and other thriving metropolises attractive destinations for foreign businesses and set the stage for future investment post sanctions.

While many sanctions banning trade and finance remain in place due to concerns over Iran’s human rights record and military programs, the overseas business community should not lose perspective on the growing opportunities in the country. Iran has taken crucial steps to mend business relations with the West. It privatized its industrial sector and gives investment incentives for foreign capital. Most national and EU-level restrictions were eliminated after January 2016 and several European companies have taken advantage of this situation. These include European Airbus, Italy’s state rail company, the French car maker Renault and the Danish pharmaceutical company Novo Nordisk to name a few. Further, a number of Asian firms are already making steady inroads to the Iranian markets.

China intends to fully exploit the potential for cooperation with Iran, predominately in infrastructural projects and manufacturing. China’s Silk Road Strategy provides the framework and encourages Chinese companies to increase their involvement in the opening Iranian market. This would be a reason good enough for the European businesses to take a closer look at hiding opportunities in one of the most stable Middle East markets at the moment.

Accessing the Market
Iran offers one of the few forest products markets that are showing significant growth potential which, owing to the country’s vast population base, can turn out considerable in terms of both volume and value. It is therefore recommended and meaningful for business developers and marketing managers to investigate the country’s existing and emerging opportunities.

Access to relevant market information is necessary for companies that want to discover trading and investment opportunities in Iran. The to-do list should include collection of market data and finding the right local partners in the country, as well as checking global compliance/sanctions lists to ensure that business is conducted by the book. All things considered, businesses need to understand the nature and extent of the current (remaining) restrictions and be prepared for possible challenges.

The Iranian wood processing, paper and packaging industry is currently modernizing its asset base. Investments that are enhancing cost competitiveness and product quality will be on the front burner, thus providing business opportunities for machinery and equipment vendors in Europe and Asia. New opportunities for packaging and converting firms will open up as FMCG companies have paved their way onto the market and started to form local and international partnerships in order to develop their offering in the country.

 

Published in Asian News

Pirkko Petäjä, Principal at Pöyry Management Consulting, and Mikko Helin, Senior Consultant

Since 2000, the European tissue volume has grown from 5.7 million tons to almost 8.5 million tons. A clear trend connected to this growth has been consolidation of the largest players.

Consolidation is a clear trend in the European tissue industry

poyry logo 2017The large producers have been growing through sizeable acquisitions, as well as by organic growth. The most active acquirers have been SCA, Sofidel and WEPA, while all of the mentioned, and in addition ICTTronchetti, have also been active builders of new capacity. The capacity share of the three largest players has grown from approximately 40% to 50%.

The business environment is better in a consolidated market. The impact of consolidation is also reflected in the performance of individual companies; after the consolidation steps in Europe, SCA’s tissue business experienced evidently higher and more stable margins. While large companies have been becoming even larger, there has been a continuous stream of new entrants to the tissue business, as barriers to entry are relatively low. The Eastern European industry especially is still fairly fragmented, and consolidation could significantly improve this business environment.

European tissue M&A over the last 15 years

The leading European tissue companies have targeted major strategic acquisitions, such as SCA’s acquisition of P&G and G-P, Sofidel’s acquisition of LPC and WEPA’s of Kartogroup. These deals have resulted in significant synergy benefits and positively impacted the business environment. There is, however, a limited number of opportunities for large acquisitions. Finding one buyer for all, or the majority of, assets has become difficult. This has led K-C to actively divest its less profitable units and locations, where it does not have ‘number 1 brand position’. Since 2000, K-C has divested some 300,000 t/a tissue capacity as individual mills to different buyers.

In the same time period, most of the largest companies in the industry have made a clear transformation through acquisitions. SCA, the clear leader in the M&A activity, has more than doubled its size in the last 15 years. Sofidel first expanded throughout Europe with new mills, and then through acquisitions. Sofidel has grown into a million ton company, and has recently started to expand outside of Europe. WEPA made one of the biggest leaps by first acquiring Kartogroup, and more recently through active organic growth and complementary smaller acquisitions. Kimberly Clark has been a clear exception - its capacity in Europe has reduced over 30%. Metsä Tissue has been stagnant. The last acquisition they made was ten years ago, and the company’s organic growth has been cautious, mainly replacing outdated capacity. Companies on the smaller end of this spectrum have grown steadily and have doubled their capacity since 2000. Lucart has made acquisitions and built mills in France and Italy, and Carrara in Italy.

Recent M&A ac tivities focused on small companies and individuals mills

In the last five years, since SCA’s G-P acquisition in 2012, European tissue acquisitions have been relatively small. Deals have included re-arrangements related to the aftermath of the G-P exit: Sofidel’s completion of its portfolio through purchase of selected targets, and WEPA’s strategic acquisitions in the UK and France, and divestment of two Italian mills. In addition, recent deals have involved acquisitions of individual single mills, or small companies, where the buyer is often a private equity fund and in many cases, the seller is K-C.

In some cases, there is distinct strategic benefit to the smaller deals. These are often concentrated to the CEE, currently a ‘hot’ area in European tissue. The Paloma deal, whereby the Slovenian company finally ended up with the Slovakian SHP, is one step towards Eastern European consolidation. Also, the Abris Capital acquisition of the Romanian Pehart Tec forms a future platform for further consolidation. In the Iberian Peninsula, strategic investments include Cominter acquiring Cellulosas de Hernani, and Portucel acquiring AMS. The acquisition by Portucel (now the Navigator Company) of AMS-Paper in Portugal anticipates a future significant move into the tissue sector. Other strategic acquisitions include purchase of independent converters or independent converters acquiring base paper mills.

Industrial buyers complement their portfolios with acquisitions and target stronger position, consolidation and synergy benefits. Financial investors have become more interested in tissue acquisitions than before. In many cases, there is a clear strategic intent behind these deals as well.

Characteristics of organic growth and new builds

A large share of the new tissue capacity in Europe has been built by larger companies that have renewed their assets or grown organically.

  • Tronchetti has built 350,000 t/a new capacity in the last some fifteen years
  • SCA has closed down 180,000 t/a obsolete capacity and built 275,000 t/a new
  • Sofidel has grown outside Italian markets with 250,000 t/a new capacity WEPA has soon built 190,000 t/a new capacity, speeding up in the last few years

New capacity has also been built by small and medium size established players and by newcomers. The Iberian Peninsula specifically has seen many investments (AMS, Suavecel, Paper Prime, Renova) and more capacity increases are planned. Eastern Europe has also seen an increase of new investments. Part of these has been made by established large groups such as SCA and ICT. Russian companies such as Syassky and Syktyvkar Tissue Group have also grown to sizable players in a relatively short time. Pehart Tec investments have been supported by the new owner, Abris Capital.

There are various players adding single width machines to replace old capacity, or just to grow or start producing tissue. Only the largest industrial companies have added double width machines.

New Generation of Tissue Entry

Tissue capacity increase is not only by expansion of existing producers but there is versatile motivation for new entrants. This can be push or decline of their current businesses - for example, smaller pulp mills losing competitiveness and integrating to tissue or graphic paper sites, looking for new opportunity due to their declining market. There are also cost benefits for this type of entry in terms of both manufacturing and investment costs. For a newcomer the entry is often much easier to an existing site.

Entry into the tissue market often starts from converting. When capacity is high enough for a paper machine, many independent converters start to consider their own paper production. Margins are normally higher for an integrated player as the concept has many cost benefits, while the producer is also stronger and less vulnerable with its own base paper. Consequently, adding base paper production is attractive to sizable independent tissue converters.

Investors are currently active in the tissue sector making base paper additions possible, and enabling consolidation moves. Therefore, even investors can be considered a new entrant group.

Large family companies and financial owners increasing their share of the industry

In the 1990s large multinational paper or hygiene companies accounted for a large share of tissue companies in Europe. Family companies were small and more locally based. A significant share of tissue companies were private, local single mill companies.  The number of large listed and multinational companies has reduced from those days. Current major ones include SCA, K-C and Metsä Group (Metsä Tissue). The exit of North American companies from Europe has reduced the presence of multinationals and non-European companies significantly.

Family-owned companies have grown significantly, spreading across and even outside of European regions. New family companies have also become more visible. In addition, the industry has seen the reincarnation of family companies, such as Carrara Group carrying the family name of former Cartoinvest owners and the independent converter Leicester Tissue Company owned by the Tejani family (former owner of LPC).

Financial owners are also becoming more common in tissue, especially in growth areas such as Iberia and Eastern Europe. Local funds have been common participants in smaller deals, while large international funds have always shown interest when anything significant has been for sale, as now related to the recent split of SCA into two companies.

There are investors behind several tissue companies, either full or partial. In addition, there are various small privately or even state owned companies. For many small companies the ownership structure is not known.

The European top 100 tissue base paper producers’ capacity is broken down into different ownership categories. Family and private companies account for approximately 40% of capacity. Listed, large, and often multinational companies are the second biggest group.

Investor ownership of tissue base paper producers accounts for approximately 7% of ownerships. This analysis does not include independent converters, which are mostly private companies, but can also be owned by investor funds (e.g. Accrol Paper). Minority ownerships, such as the case of Syktyvkar Tissue Group (30% Venture Investments & Yield Management), are also excluded from this estimate. Considering all of this, it is fair to say that some 10% of the European tissue business is in the hands of financial owners. There are no large groups involved in this type of ownership at the moment, although in Eastern Europe this kind of players are developing.

Published in European News

nanocellulose2 vtt jarkko blog

While nanocellulose was discovered already in the late 1970s, it was only in the last ten years that a rise of patent applications related to nanocellulose occurred. As promising as the nanocellulose materials do sound, we are still waiting to see their concrete applications expand to mass production.

Nanocellulose is nano-structured material derived from cellulose fiber. Depending on the nanocellulose type, it typically measures between 2-50 nm in width and 100-5 000 nm in length, which compares to 80 000 nm of human hair width and 0.3 nm of a gold atom’s width. Nanocellulose has numerous beneficial qualities, including light weight as well as high strength and absorbency, which means it can improve the functionality and cost-effectiveness of various materials and products. Nanocellulose is completely renewable which gives it an advantage over fossil fuel based raw materials.

A variety of applications across industries

The potential applications for nanocellulose are numerous, including the paper and board, composites, food, cosmetic and pharmaceutical as well as electronics industries.

Probably the first application for bacterial nanocellulose, one of the main categories of nanocellulose, was developed back in 1989 when Sony made a limited set of 2,000 units of headphones. Sony apparently tried every conventional material for forming diaphragms but found nothing which would yield the 'broad, deep sound of a room speaker system' and eventually discovered "bio-cellulose”. The price for the headphones was a staggering 2,499.95 US dollars. Since then, due to its high purity, bacterial nanocellulose has been used in applications such as wound dressings, face masks and artificial blood vessels. It is produced synthetically from low molecular weight sugars such as glucose by using acetic acid bacteria.

Nanocrystalline cellulose (NCC or CNC), another type of nanocellulose, is produced by strong acid hydrolysis and is already being manufactured in a demo production plant in Canada by CelluForce. However, actual high volume applications are still missing. So far it has been tested in oil drilling applications and used in adhesives. As far as composite use, the problem is how to utilize the full strength potential of the crystals as they easily behave like a filler. 

Nanofibrillated cellulose (NFC), the third main category, is produced by mechanical fibrillation and can be used in industrial and food applications as a rheology modifier. It has also potential for use as a barrier material in food packaging as it has better oxygen barrier properties than polyethylene for example. Wood-derived ingredients, such as xylitol (E967), microcrystalline cellulose (E460), cellulose powder (E460) and carboxymethylcellulose (E466) have been used as food additives already for decades. However, food additive or novel food legislation does not – at least yet – cover nanofibrillated cellulose. It seems likely though that nanofibrillated cellulose will be added to E460.

The packaging industry is driving ecological and lighter packaging material, favoring low grammage coated boards. With nanofibrillated cellulose, the basis weight of board material can be reduced without compromising the required strength properties. The result is light weight products that consume less raw materials, which, in turn, increases revenue and creates smaller ecological footprint. For this reason, nanofibrillated cellulose is already being produced in industrial scale and has found its way into a high volume application in the liquid packaging board industry.

Building a solid business case

The above means that the best option is to produce nanofibrillated cellulose at the same site where it is used. For example in the board application, this integration provides clear advantage in quality and in energy efficiency.

A large scale production of bacterial nanocellulose would require high volumes of sugars, nutrients and fermentation tanks. In addition, production capability is also very low, at 0.4 g/l/h. The solution could lie in genetically-altered algae that would be entirely self-sustaining. They could produce their own food from sunlight and water, and absorb carbon dioxide from the atmosphere.

Nanocelluloses are generally considered expensive and challenging to produce. High energy consumption and complicated chemistry create a hindrance for entry to market, added to the competition from already existing products. This means that it would be crucial to create completely new applications or significant added value compared to existing rivals. In addition, current low oil prices can have a negative effect on novel products that might not be able to compete in the same price league.

The key is to identify the applications where currently available products can be out-performed by nanocellulose. In the optimal case, nanocellulose would solve a problem where existing products have failed. This would also require that customers understand the potential of nanocellulose and create a market-pull for the product.

In the end, it all comes down to bringing together the right specialists with extensive knowhow and tuned mindset for solving these obstacles.

Did you know?
Pöyry is involved in nanocellulose business through its Pöyry µCellTM process concept for producing nanocellulose reinforced packaging board. We also provide market entry and business development strategies, technical concept studies and market analyses.

Published in European News

Advanced biofuels and biomaterials have been high on industrial companies’ agendas for several years. Investments in R&D, pilot projects and development initiatives have also generated some commercial scale production, but a lot of potential is still untapped.

Nicholas Oksanen, President of Pöyry’s Industry Business Group, recently gave a presentation at the Lignofuels 2017 Conference in Helsinki, Finland, about advanced biofuels and materials and a European market overview. In his presentation, Oksanen noted that woody biomass is gaining interest as a feedstock for biofuels while its use is still rather limited. 

The benefit of advanced, or 2nd generation feedstocks (lignocellulosic feedstocks, non-food crops, industrial waste and residues), is that they are more sustainable compared to 1st generation, food or feed based feedstocks such as corn, sugarcane, soybean oil or rapeseed oil. Secondly, compared to crude oil, sugar and maize, the price level of wood has remained stable through the 2000s and 2010s while the prices of the alternative feedstocks have experienced great fluctuation.  Also, by using harvesting and side-stream residues as biofuel and materials feedstock instead of burning them for energy, companies are able to maximise added value. 

Woody biomass is gaining interest as feedstock for bioproducts

bioproduct feedstock prices

source: Pöyry

“Biobased products also present new product opportunities for industry players. For example lignin, nanocellulose, hemicelluloce or tall oil open new business potential for bioenergy, biofuels and biochemical sectors and the packaging industry,” Oksanen said. “The EU’s ‘Renewable Energy Directive’, which prioritises waste and residues, has also increased the industry’s interest in 2nd generation feedstocks.”

 Bioproduct opportunities for Pulp & Paper companies

bioproduct opportunities

source: Pöyry

While the opportunities are lucrative, there are challenges that have slowed down larger scale bioproduct investments. At the moment, one of the major challenges is caused by political uncertainty and the direction of the EU legislation, imposing a market risk for companies. Also, country-based biofuel policy mechanisms would require harmonisation. With the exception of wood, advanced feedstock sourcing and the supply chain is still immature and requires further development before it can be relied on.

“For companies, the main focus is to find a valid business case in which the feedstock price plays a big role. However, it is crucial to master the whole value chain from feedstock to markets to ensure profitable business and investment,” Oksanen summarises.

bioeconomy value chain

source: Pöyry

About Pöyry

Pöyry is an international consulting and engineering company. We deliver smart solutions across power generation, transmission & distribution, forest industry, chemicals & biorefining, mining & metals, transportation and water. Pöyry's net sales in 2016 were EUR 530 million. The company's shares are quoted on Nasdaq Helsinki (POY1V). Approximately 5500 experts. 40 countries. 130 offices.

www.poyry.com

Published in European News

Thanks to renewable energy regulations, the demand for tall oil is increasing. The by-product of the kraft pulping process industry can improve the efficiency of a pulp mill and be sold as a commercial product to processing industries.

2017 02 02 124431

The EU’s ‘Renewable Energy Directive’ requires all EU countries to ensure that at least 10% of their transport fuels come from renewable sources by 2020. The EU is also planning even more ambitious targets for greenhouse gas emission reductions to fulfill its pledges towards the Paris Agreement of which decarbonisation of the transport sector is a cornerstone.

This regulatory nudge has increased interest in tall oil as a biofuel feedstock.However,this emerging demand for the raw material competes with the use for more traditional tall oil derivatives, such as resin and fatty acids produced in distilleries. Whilst the price for crude tall oil has been slowly increasing to around 400-500 EUR/t, due to biodiesel competition and increase of the distillates product prices, the regulatory pull increases the competitiveness of tall oil as a biofuel feedstock from a biofuel manufacturer’s perspective.

2017 02 02 124449

What is tall oil?

Tall oil is a commercially important by-product of softwood (i.e. pine or spruce) from pulp production. It is produced by first separating ‘tall oil soap’ from the ‘black liquor’ that is formed in the pulping process. The tall oil soap can then be reacted with acid to product ‘crude tall oil’.

Pulp mills burn the black liquor to generate heat and electricity. As soap removes some capacity of burning the black liquor and hinders the operation of the evaporation plant , it makes sense for the mills to separate the soap from black liquor.

Besides producing tall oil of the separated soap, soap can alternatively be sold or burned for additional electric power but this is often not so profitable.

So in addition to bringing income to the mill as a commercial product (even more than selling the soap as such), separating tall oil from soap improves the overall efficiency and operations of the mill as primary processes are not compromised.

Capacity expansion potential

2017 02 02 124413As the price of crude tall oil increases, coupled with more modern techniques for extracting this raw material at existing softwood pulp mills, it is becoming more and more lucrative for pulp producers.

The key factors impacting the profitability of tall oil production are:

  1. the local market environment and demand
  2. the scale of pulp production

When the softwood pulp production capacity is roughly 100,000 tons per year or more, tall oil separation for commercial purposes is usually more profitable than the alternative use of soap.

Currently, there are an estimated 40 softwood pulp mills globally that could utilise tall oil separation based on their annual pulp production capacity but are yet to capitalise on the opportunity. In Northern and Central Europe, tall oil separation is already quite common but the biggest untapped potential with current pulp production assets lies in the US.

Tall oil business case

Investment in a new tall oil plant is a feasible option both for mills with too small or outdated tall oil plants as well as for mills without an existing plant. For mills that sell tall oil soap and do not have a tall oil acidulation plant, the investment payback time is usually between 1-3 years.

In case the mill burns the soap in the recovery boiler, commercial benefits are further improved by the fact that the mill can increase pulp production when recovery boiler capacity can be utilised for black liquor combustion instead of soap burning. If a too small or outdated tall oil plant is renewed with the aim of increasing tall oil production by 25%, the investment payback time varies between 2-5 years.

Based on pulp production growth forecasts up to 2030, an additional 300,000 tons p/a of crude tall oil could enter the market. These capacity expansions would help supply the growing demand for crude tall oil and would mark significant growth opportunities for tall oil applications.

Did you know?

Pöyry provides complete, value adding service offering to pulp mills, from developing raw material sourcing strategies and conducting market research and business case analysis to delivering HDS® (Hydro Dynamic Separator) tall oil plants and providing operational support and performance improvement. Over the past 30 years, we have delivered more than a third of the world’s tall oil plants and helped several mills to design or improve their soap and tall oil separation processes in order to increase profitability and efficiency to drive growth.

Jarno Peltonen Director, Pulp Technology, Industry Business Group, Pöyry
Published in European News

The article, ‘The Delivery Economy: When boxes fly', outlines how the continual increase in delivery based, convenience shopping is making companies consider every ounce and pound of their packaging, as they seek to drive down shipping costs. Some well-known companies are taking this a step further; Amazon, Google and UPS are working on unmanned drone delivery systems where reduced size and weight of packaging will be even more vital. These developments are driving the emergence of lightweight containerboard in the delivery economy.

poySoile Kilpi, Director at Pöyry Management Consulting North America states, "If you are a mill or a converter that provides the paper and board for packaging who is cutting precious ounces from the corrugated container, you could have a lot to gain from these new opportunities – however futuristic they may currently seem.”

The article argues that the delivery economy provides multiple business development paths for a corrugated manufacturer in addition to drone delivery. The Point of View contains numerous best practice examples, highlighting real case studies to illustrate these points.

Kilpi continues, "Mega trends support the idea that the delivery economy is here to stay. The convenience of the delivery economy is supported by increasing urbanisation and household trends. Efforts for more sustainable solutions, whether done to reduce costs through lighter and less packaging or for environmental stewardship, are not going away.”

America’s population may be aging, but older generations are also getting tech savvy and embracing e-commerce. Millennials have practically lived their whole adult lives with e-commerce and have formed shopping habits around its existence. With this in mind, corrugated manufacturers must embrace all the new possibilities this presents.

Download the report

The Delivery Economy: When Boxes Fly Point of View report

About Pöyry

Pöyry is an international consulting and engineering company. We serve clients globally across the energy and industrial sectors and provide local services in our core markets. We deliver management consulting and engineering services, underpinned by strong project implementation capability and expertise. Our focus sectors are power generation, transmission & distribution, forest industry, chemicals & biorefining, mining & metals, transportation and water. Pöyry has an extensive local office network employing about 6,000 experts. Pöyry's net sales in 2015 were EUR 575 million and the company's shares are quoted on Nasdaq Helsinki (Pöyry PLC: POY1V).

www.poyry.com

Published in European News
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