UPM (Finland) this week made the investment decision to construct a 2.1 million metric ton greenfield eucalyptus pulp mill near Paso de los Toros in central Uruguay. The highly competitive mill investment of $2.7 billion will grow UPM’s current pulp capacity by more than 50%, resulting in a step change in the scale of UPM’s pulp business as well as in UPM’s future earnings. Additionally, UPM will invest $350 million in port operations in Montevideo and local facilities in Paso de los Toros. The mill is scheduled to start up in the second half of 2022.
With a combination of competitive wood supply, scale, best available techniques and efficient logistics the mill is expected to reach a highly competitive cash cost level, approximately $280 per delivered metric ton of pulp. This figure includes the variable and fixed costs of plantation operations, wood sourcing, mill operations and logistics delivered to the main markets. This would position the mill as one of the most competitive mills in the world and enable attractive returns for the investment in various market scenarios. Furthermore, the safety and sustainability performance of the value chain from plantations to customer delivery is expected to be on an industry leading level.
The prerequisites for the investment have been carefully prepared in cooperation with the state of Uruguay. For UPM, it has been important to ensure sustainable, competitive operations long-term and to minimise risks both in the project phase and during continuous operations. For Uruguay, the project and the infrastructure development offer significant opportunities for economic and social development.
“During the past decade UPM has developed additional plantation areas in Uruguay and created a market driven pulp business with wide customer base in growing end uses. At the same time, we have consistently improved our financial performance and achieved a truly industry leading balance sheet. We are now in an excellent position to take this transformative step and capture the opportunities of attractive, growing markets in a sustainable and highly competitive way,” says Jussi Pesonen, President and CEO of UPM.
Attractive long-term market outlook
The business fundamentals for the investment are positive given the healthy long-term demand outlook of pulp, especially in Asia. The robust market growth is based on global consumer megatrends that drive the demand for tissue, hygiene, packaging and specialty papers. The annual trend growth of global market pulp demand is estimated to be about 3%.
In the coming three years, only limited additional capacity is expected to enter the markets. In the long term, creating a competitive and sustainable wood supply forms an entry barrier which limits the rate at which new capacity can enter the market.
TAPPI
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