Paper Advance.com

1 INTRODUCTION

The life-cycle of most pulp and paper products includes the same phases that many other products have; birth, rise, peak, decline and a quiet burial.

Not so with dissolving pulp i.e. viscose pulp (or, with a wider end-use spectrum, the group of high-alpha pulps). That is a grade of pulp, or rather a family of pulps with high alpha-content, which are used in a multitude of end-uses and which are also produced in a number of different ways, as illustrated below.

Figure 1 - End-uses and end-products of dissolving pulp

This is a product family which was in serious difficulties in 19970's, 1980's and 1990's but which has made a remarkable come-back.

2 HISTORY

The origin of dissolving pulp for textile use can be traced back to the town of Echirolles, which today is a suburb of Grenoble, the Olympic city in the French Alps. A famous French scientist – and industrialist – Hilaire de Chardonnet, later Comte de Chardonnet, invented there, back in 1884, a fabric he called artificial silk. This invention was based on nitration process and became fully industrialized. The fibres and textiles were introduced at the Paris Exhibition in 1889. While the process was slow to operate, dangerous and uneconomical, Chardonnet's fame as the "Father of Rayon" was well deserved. The process was in commercial use until as late as 1949.

In early 1890's, three British scientists; Beadle, Bevan and Cross, found that cellulose could be dissolved as xanthate, after treating it with alkali and carbon disulphide. This follow-up of Chardonnet's work was developed into a patented product.

Even prior to the development of viscose, other scientists had tried to use cellulose as a raw material to develop synthetic substitutes for expensive natural products. An Englishman named Parkes had won a bronze medal at the London World's Fair in 1862 with his product Parkesine, which was cellulose treated with nitric acid and a solvent. That never became an industrial product but Parkes' fellow countryman, John Wesley Hyatt develop celluloid in 1863. The aim was to replace ivory and one of the first products was actually false teeth. After a tea served too hot had softened those teeth, more practical uses were found, including combs and, later still, movie films. Even earlier than that, cellulose nitrate (dissolving nitrated from cellulose in alcohol and ether) had been developed but not for textile use, as well as cupro (dissolution in curammonium hydroxide).

With the development of viscose fibre, which really is a semi-synthetic fibre, as it is made from naturally occurring polymers, the first "hard" end-uses were complemented and later gradually largely replaced by "soft" ones. Cellulose was used to produce cloth. Expensive natural silk was the replacement target. Chardonnet's method was dangerously inflammable. The art silk, produced by xanthate process, proved much safer and speedier. An important part of the process was the development of spinning equipment by Stearn and Cross. They set up the Viscose Spinning Syndicate Ltd. with Alfred Nobel as one of the early shareholders. The sale of the patent rights by this Syndicate to a French textile company Courtauld in 1904 marked the true beginning of a large-scale (at the standards of those times) industrial production of dissolving and other high alpha pulps.

Other mile-stones included in early 1900's the development of acetates, the second-largest end-use of high-alpha pulps today. The word rayon was taken into use in 1924. The introduction of staple fibre came shortly thereafter, allowing the use of traditional spinning machinery. Sales of viscose fibres grew very rapidly with rayon process the clear winner among the different production techniques. Also in late 1920's/early1930's, the technical advances allowing the production of much stronger fibres which found their primary use as tyre-cord, the reinforcement fibre for car and other tyres. The war period promoted the use of many high-alpha cellulose end-products, including viscose fibres.

The threatening "mile-stone" came in the form of the development of clearly cheaper oil-based synthetic fibres, such as nylon, polyester and polypropylene. The first of these synthetic polymer based fibres were introduced during the II World War in early 1940's. In early 1970's, these inexpensive synthetic fibres started to drive viscose fibres into a long-lasting decline. Viscose fibre production had grown from some hundred tonnes in 1900's to 14 000 tons by 1920. In early 1930's, the production exceeded 200 000 tons. Year 1973 marked the record at 3.9 million tons.

Other end-uses than textile faced problems as well. Explosives were developed from non-cellulose raw materials and rayon tyre-cord was replaced by a combination of polyester and steel reinforcement fibres in car tyres. The collapse of the Soviet Union speeded up the decline of dissolving pulps in 1990's.

3 TURN-AROUND

Since the end of 1990's, dissolving and other high alpha pulps have made a good recovery and the old consumption records from early 1970's will soon be beaten, if the consumption of cotton linters pulp is added to the dissolving and other high alpha wood pulp consumption numbers, shown below from 1980 onwards, by region. The outlook for viscose and other high-alpha pulps is good, even if surrounded with some ever-present risks.

Figure 3 - Dissolving wood pulp demand

For this turnaround, there are many reasons which the leaders of Courtaulds, back in mid 1950's when they already deemed viscose a product with very unattractive future, could not envisage although they, quite correctly and very early in the game, saw the problems of 1970's – 1990's looming ahead. The drivers supporting further growth in viscose and other high-alpha pulps are quite varied. The key ones are listed below:

• Population growth & structure
• Growth in the average per capita income, especially in the emerging markets
• Changes in the life-styles
• Convenience (viscose and cotton fibres and more comfortable than most oil-based fibres)
• Environmental and health issues (such as carbon footprint analyses or the rapid increase of filter cigarettes in the developing world which has boosted the demand for cellulose acetate tow)
• Renewability of the raw material base
• Development of energy and other by-product sectors of dissolving pulp production processes
• Social issues, such as the use of labour in pulp mills vs. the labour conditions on the fields of cotton in the developing world
• Industrialization of the emerging markets
• New applications and end-uses + the technical development (especially viscose use in the textile blends and the rapid growth of the non-woven sector which uses substantial volumes of viscose staple fibre)
• Re-found old applications (car tyre cord for run-flat tyres)
• Development of Lyocell and other viscose fibre process/product innovations
• Substitution of competing fibres by viscose
  
  • Rising price of energy in general and oil in particular
  • Recent drop and future limitations in the cotton supply
  • Rising volumes of viscose fibre in non-woven products

Substitution has been the most important driver over the past few years. Dissolving and other high-alpha pulps have taken some market share from oil-based synthetic fibres but in many applications these still hold on to their share. The biggest change has been seen in the interplay between cotton and viscose. Firstly, and most importantly, the cultivation area for cotton has been reduced, e.g. in the US South, where corn and soy-bean have taken over some of the acreage earlier held by cotton. Secondly, technical development of viscose fibres has allowed a more direct replacement in some end products. Thirdly, the spinning and other techniques needed in the textile production have been developed to allow more and more blends. Most of the substitution has taken place in these blends through a gradual introduction of higher shares of viscose fibres in those applications where the special features of dissolving pulp based fibres can be utilized, especially in production with the highest speed looms.

Draughts and other weather-related problems have also limited the cotton supply. As about 25% of the dissolving pulp is produced from cotton linters, the difficulties in cotton cultivation have also impacted the cotton linters based dissolving pulp production and wood-based pulp production has benefited.

The importance of the substitution impact is easily seen from the attached table revealing the use of the different fibres in textile production (average of years 2007-2009; numbers rounded). Other natural fibres include e.g. wool and silk. Viscose volume includes cotton linters and the use of staple fibre in non-woven products.

Table 1. Fibre consumption in textile industry

The low share of viscose fibre of the total fibre volume used in textiles means that if viscose replaces 1% of synthetic fibre, dissolving pulp demand goes up by nearly 11% and if viscose replaces 1% of cotton, nearly 6% more of dissolving pulp is needed.

The combination of substitution of those positive drivers in the textile end-use, growing demand in non-woven products and positive growth in some other end-uses, mainly in the speciality pulp sector, turned, as earlier said, dissolving pulp demand back up in the turn of the century, after a long decline through 1970's-1990's.

4 COME-BACK CONTINUES?

Opposite to most other grades of pulp, the consumption of dissolving and other high-alpha pulps did not go down in the 2009 recession as demand leaped in China, even if a large number of textile mills were closed during the 1st half of the year. First statistics from 2010 indicate that a strong growth continues. Chinese import statistics showed the Q1 2010 dissolving pulp intake up a whopping 79% over January-March 2010 on this nowadays clearly biggest single dissolving pulp market. The price for standard grade dissolving pulp has climbed up to/near all-time record levels.

While we believe that the demand growth will continue in the foreseeable future at rates varying somewhere between 3-7%/annum, depending on success of the annual cotton crops, of oil price levels and many other issues, a word of warning is in order for those who now, seeing the high prices, plan with great enthusiasm to jump into the band-wagon, hoping to catch a wonderful ride.

The risks and issues promoting caution and very careful technical, marketing and financial planning include the following:

• Lower oil prices and better cotton crops could reverse, at least temporarily, the recent substitution trends
• Far more money is invested into the development of synthetic fibres than into wood pulp based fibres; new products and applications using these fibres could eat into the dissolving pulp demand
• Some recently positive end-use trends are likely to turn less positive or even negative. One such example is the high alpha pulp for acetate tow. So far the switch to filter cigarettes in developing countries has outpaced the reductions of smoking in the Western World. Once this switch is nearly completed, further reductions in smoking start reducing the consumption growth in this end-use considerably
• The environmental message of wood-pulp based fibre, e.g. in terms of carbon footprint, is clearly better than for synthetic fibres or cotton but, dissolving pulp assets are old and continue to have environmental problems on mill sites
• The quality control is very strict and the acceptance of the quality from a new mill takes up to two years in some end-uses
• The investments into a totally new dissolving pulp line are manifold to building an equal amount of synthetic fibre capacity
• Conversion of existing paper pulp lines into dissolving pulp is complicated. There are some success stories but there are also complete or partial failures. All parts of the chain from the forest resource to marketing of the final products need to be taken into account in the planning process

5 TECHNICAL ENTRY BARRIERS

The dissolving pulp markets appear attractive especially within the traditional pulp and paper industry. Moreover, the asset base is mature and production lines generally small. This makes it possible to generate attractive cash flows with old and small pulp mills that would have been uneconomical to run for decades in production of standard paper grade kraft or sulphite pulps.

Because of this very reason, there is a relatively strong demand for pulp mills that would be available for little or no money and which could be converted to dissolving pulp with low investment costs. There are hundreds of pulp mills in the world which are generating inadequate financial returns over the cycle. Therefore we should assume there are numerous good candidates for conversion available. Or should we not? Also, if 1.5 million ton supermills are attractive investments for paper pulp, should not a same size dissolving pulp mill be an even more profitable operation?

The main challenge in latter question is that the market size cannot assume supermills' capacity additions without significant discount in price combined with dramatic drop in the cost of marginal production, which would make the price drop more or less permanent. Therefore, the capacity additions need to be relatively small, which runs up the specific investment cost. In addition, the development of fast growing Eucalyptus species has been focused on minimising the lignin content of wood rather than maximising the cellulose content of it. The yield benefits of the genetic development may therefore be marginal, at least still today.

Despite this headwind, Saiccor and RGM/Säteri have during the past years successfully added new capacity to their sites in South Africa and Brazil. However, we need to go back decades in history before we start to recognise greenfield investments on dissolving pulp production. Because the history has shown us the greenfield investments are not a viable option, the conversions of old pulp mill assets come into play.

As mentioned earlier, there is an asset base of hundreds of old pulp mills which could at least theoretically be converted to dissolving pulp production. There are five critical factors which influence the feasibility of the conversions the most:

• Wood cost
• Scale
• Investment
• Asset quality
• Environment

In general, wood cost is the single largest cost item in the production of chemical wood pulp. Because the yield in the dissolving pulp production is much lower than in other chemical pulps, the importance of competitive wood supply, especially for the marginal volumes, is emphasised. In fact, a ton of standard viscose grade dissolving pulp typically consumes a full green ton more wood than a ton of paper grade pulp. With average price differential of about 300 dollars per ton over an economic cycle and relatively modest increase in the chemical and energy consumption, the combination provides a healthy increase in the per ton contribution margin.

However, the fixed costs may become unbearable at per ton basis as the production can easily drop by a third, depending on the mill. The drop is driven by the physical constraints of the assets, but also due to lower utilisation rates of the production lines as the product specifications may force the production to take less risks. Therefore, an assumption of per ton fixed costs increase of up to 60 percent can be justified. As a rule of thumb, any at least marginally profitable market pulp mill should be able to churn better per ton operating profit with dissolving pulp than with paper grade pulp provided the production assets would be suitable for the both grades. The larger mills would likely suffer on absolute basis as the volume decline would eat the margin improvement, while the smaller mills would likely be on the beneficiary side.

The key constraint for the feasibility of a conversion is the investment cost which is mainly driven by the asset quality. The typical issues are tight chemical recovery, insufficient cooking capacity due to extended cooking cycles, extensive washing and more aggressive bleaching. The dryer is typically the easiest point, capacity-wise, as the pure cellulose drains much better than fibres with hemicelluloses. Attention must be paid on the stable formation and packaging equipment. The product is sold both in rolls and bales, yet it is not an absolute must to have the both capabilities.

The tight chemical recovery is more of a capacity issue than anything else. However, many of the pulp mills, which are ideal or suitable for conversion, have aged recovery islands with apparent needs for replacement investments. The extended cooking cycle is result of an extensive hemicelluloses removal during the cooking phase. This leads to lower production rates not only because of longer cooking times but also because of lower output per ton of wood. More cooking capacity is required almost without exception. The batch cooking process is largely preferred due to better control. As opposed some common beliefs, continuous cooking is suitable for dissolving pulp production. It has been employed at least in Bratsk, Guaiba and Varkaus pulp mills. None of these mills produce dissolving pulp today, however. The brownstock areas and bleach plants are typically a smaller issue in conversion to standard dissolving grade, yet significant investments are needed for cold caustic extraction stage required for the highest alpha grades in the kraft process.

In addition, environmental constraints may become an issue at location with restricted possibilities to discharge effluents. The more aggressive hemicelluloses removal means higher effluent load and potential utilisation of sodium hypochlorite in the final stages of bleaching results in higher toxicity. An investment on effluent treatment improvement can address the former issue.

The combination of the issues described above makes it challenging to find a viable conversion candidate pulp mill from the existing asset base of paper grade pulp mills. Given the good market prospects, this fact provides the few truly suitable candidates with a promising business opportunity.

AUTHORS :

Timo Teräs Leading Advisor Pöyry Management Consulting Oy Jaakonkatu 3, P.O. Box 4 FI-01621 Vantaa, Finland +358 10 33 22561 This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Petri Jokinen Senior Consultant Pöyry Management Consulting Oy Jaakonkatu 3, P.O. Box 4 FI-01621 Vantaa, Finland +358 10 33 22160 This e-mail address is being protected from spambots. You need JavaScript enabled to view it