UPM annual report 2015

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UPM Annual Report 2015 UPM Annual Report 2015 21 22
contents
IN BRIEF STRATEGY BUSINESSES GOVERNANCE STAKEHOLDERS ACCOUNTS
Long-term commitment
to eucalyptus
UPM has been planting eucalyptus in Uruguay
for a quarter century after new legislation
was passed to boost the forest industry. The
plantations are managed by Forestal Oriental,
a UPM-owned company active in Uruguay
since 1990.
Most of the harvest from UPM’s eucalyptus
plantations in Uruguay is used to make pulp
at the UPM Fray Bentos pulp mill. The mill
began operations in November 2007.
Eucalyptus trees are mature for harvesting
within about ten years. UPM has continued
developing the species chosen for cultivation
through systematic breeding. The ultimate goal
is to ensure that the pulp remains as uniform
as possible, as this is crucial for customers’
production processes.
In addition to pulp, the Fray Bentos mill
generates electricity, which is sold to the
national grid. The mill generates nearly 9% of
the Uruguayan electricity supply.
UPM has been co-operating with private
landowners since 2005 within the framework
of the FOMENTO Programme. Under the
programme, UPM Forestal Oriental supplies
the tree seedlings and is responsible for
planting and harvesting the trees later on.
The plantations offer income for agriculture,
while the forest industry is expanding its
planted areas with the support of farmers.
Read more:
Business development
Over the past two years UPMhas made focused investments in expanding production
and improving efficiency at the Pietarsaari, Kymi and Fray Bentos pulp mills.
The modernisation of the UPMPietarsaari pulp mill was completed in 2014 and the
UPMKymi mill expansion investment was completed in 2015. Minor investments have
been made in the Fray Bentos mill to increase production in line with the permit
received in June 2014.
Having successfully completed these projects, focus is turning to releasing benefits
of the investments. Production capacity of these mills grows gradually by 340,000
tonnes.
In June, UPM announced a EUR 50 million investment in UPMKaukas pulp mill in
Lappeenranta. When completed, the work will strengthen the mill’s efficiency, com-
petitiveness and optimisation and benefit the entire Kaukas integrated mill. The
investment is expected to be completed by the end of 2016.
UPM’s pulp mill expansions, part of UPM’s growth investments, are primarily pro-
duction debottlenecking investments and thus estimated to be value enhancing with
low risk. When all projects are completed, UPMwill have realised full potential of its
existing pulp production operations.
The investments in the Kymi and Kaukas mills will complete UPM’s strategic
decoupling of its pulp and paper businesses. This will enable higher efficiency and
separate optimisation of pulp and paper production, while simultaneously maintaining
internal synergies at the mill sites.
UPMBiorefining offers its pulp customers a multi-fibre pulp product range directly
from producers to the global market. From own production or through co-operation,
UPMBiorefining provides customers with the most versatile range of northern soft-
wood, birch, eucalyptus and semi-chemical pulp.
UPMBiorefining’s own pulp sales and technical service experts are located close to
customers and in each mill working in close co-operation with UPM’s global R&D
network.
Demand for chemical pulp continues to increase globally due to its versatility in a
broad range of end-use applications. Growth is stable, predominately driven by private
consumption.
The wide range of pulp end uses with different quality requirements makes select-
ing the most suitable pulp quality essential to providing benefits to the customers. In
pulp production, the quality of the wood fibre impacts sourcing costs, production
efficiency and pulp quality. For UPM’s pulp customers and the production alike, con-
sistent product quality is of utmost importance.
UPMBiorefining’s multi-fibre offering fits well into the frame of sustainable fibre
usage, i.e. optimal fibre for each end use. In wood sourcing for pulp production, UPM
meets the highest sustainability demands in the industry.
In January, the UPMLappeenranta Biorefinery started commercial production of
advanced renewable diesel UPMBioVerno. The biorefinery is the first of its kind in the
world.
The production process works as planned and the high quality end product fulfils
customer specifications. The production ramp-up phase of the biorefinery has included
customary new process and production-related challenges. In 2015 efforts targeted
improved utilisation and stable production.
Production is based on a hydrotreatment process developed by UPM, and the capacity is
approximately 120 million litres of advanced renewable UPMBioVerno diesel annually.
The Lappeenranta Biorefinery is the first significant investment in a new and innovative
production facility and marks an important step in UPM’s transformation process.
InMay, distribution of UPMBioVerno started through St1 and ABC service stations in
Finland. UPMBioVerno is a competitive and sustainable alternative to fossil fuels or first
generation biofuels, and is well positioned among the few existing advanced biofuel alter-
natives available on the market.
As an integral part of UPMBiorefining’s value chain, efforts to enhance performance of
the wood supply chain continued. Sourcing of high quality logs and pulp fibre as well as
full-production in sawmills enabled efficient production at integrated mills and also ena-
bled UPMBiorefining to act as a reliable and stable customer on the wood market.
UPM increased production at sawmills through several debottlenecking investments,
e.g. the modernisation of the log sorting line at Seikku sawmill improved the overall pro-
duction efficiency.
Markets and drivers
• Chemical pulp demand is growing globally by approximately 2-3% annually, driven by
growth in private consumption. In 2015, global market shipments increased by 3%
compared to the previous year.
• Pulp consumption is driven by an increasing use of tissue papers, hygiene products as
well as board and specialty papers, for example for packaging and labelling. In develop-
ing markets, growth is also underpinned by middle class expansion and fast urbanisa-
tion.
• Demand for hardwood pulp grows faster than for softwood pulp due its end-use quali-
ties and lower production costs.
• The global hardwood pulp production capacity is growing, primarily through new pro-
duction line installations entering the market. The softwood pulp production capacity is
growing mainly through expansion investments.
• Chemical pulp demand is also supported structurally as the graphic paper segment
supplies fewer white recycled fibres for the growing tissue and speciality segments.
• Older pulp capacity has been closed down for financial and environmental reasons.
• Demand for advanced biofuels is growing due to stricter environmental standards and
sustainability requirements. Regulation developed in favour of advanced biofuels.
• Sawn timber demand is driven by the activity of joinery, packaging, distribution and
construction industries. In 2015 demand remained stable in Europe, Asia and the Mid-
dle East and North Africa.
Clean power
from the Finnish forests
The UPM BioVerno renewable diesel
project reached its ultimate goal when the
product was launched onto the markets at
the beginning of May 2015. Finnish energy
company St1 has been selling UPM BioVerno
as part of their Diesel plus fuel at its filling
stations in Finland.
Harri Tuomaala, Marketing and
Communications Director at St1 confirms
that an important share of St1 diesel
customers are using Diesel plus containing
UPM BioVerno on a daily basis as there are
over 100,000 Diesel plus refills in a day.
Tuomaala says that the technical properties
of UPM BioVerno make it an excellent
component in St1’s Diesel plus. A higher
cetane number improves the engine
performance due to a fast combustion of
the diesel fuel. UPM BioVerno has also
been granted the Finnish Key Flag symbol.
“For consumers this is a clear case as Diesel
plus with UPM BioVerno is compatible with
all diesel engines, just like traditional diesel.
In addition, it is seamlessly compatible with
the existing distribution infrastructure.”
“UPM BioVerno is delivered from
Lappeenranta to our blending terminal
located in Hamina. Then it is blended there
with our Diesel plus product and delivered
to our service stations across the whole
country.”
Read more:
UPM Biorefining