Shotton paper mill put up for sale by UPM

The Shotton paper mill in north Wales has been put up for sale – rather than closure – by its owner, UPM of Finland.

UPM, announced yesterday (26 August) that its plan is for the Deeside mill, which can produce up to 250,000 tonnes of newsprint a year, to be sold. This would be for for the subsequent conversion of the paper machine to produce another material, such as lightweight cardboard.

The reason for the sale of the mill is, said UPM, because of a “continued long-term decline in graphic paper demand combined with weakened economic outlook”.

Generally, European market demand and prices for both newsprint reels for use as newspapers, and graphic paper for making products such as magazines, continue to fall with the Covid-19 pandemic hastening a slump in sales, including in the UK.

Kaipola

The Shotton announcement was part of a package of measures announced by UPM which included the significant news that the company is to shut three paper machines at its Kaipola mill, north of Helsinki. At Kaipola, 450 jobs are likely to be lost and the machine closures will take 450,000 tonnes of newsprint capacity out of the market along with 270,000 tonnes of coated mechanical paper.

UPM has already this year said it is closing its Chapelle newsprint mill in France which had a 240,000 tonne capacity.

SCA Ortviken

And, the UPM closures come against a background of other actions in the paper mill sector because of the decline of newspapers and magazines. This week another large paper business, Sweden’s SCA, announced changes for its 756,000 tonne capacity Ortviken mill in Sundsvall, Sweden which has been one of the world’s largest publication paper mills. The plant is already producing some cardboard materials, rather than newsprint, but yesterday (26 August) it revealed that it is to invest in pulp production at Ortviken for the packaging and hygiene sector and discontinue publication paper production.

SCA noted: “Demand for publication paper in Western Europe has declined by approximately 5% per year since 2008. During the coronavirus pandemic, demand for publication paper decreased by a further 30-40%.”

Shotton

At Shotton, UPM stated that the mill assets include “the materials recollection and recycling facility, deinking plant, paper machine line and energy infrastructure as well as established access to the UK recycled paper market.”

Commenting on the plan to sell the mill, Winfried Schaur, executive vice president of UPM Communication Paper, said: “UPM Shotton is well positioned to serve the UK market. However, we look for outside opportunities for alternative long-term use of the mill as the newsprint consumption continues to decline. The paper machine is technically flexible to support conversion especially into containerboard production.”

UPM’s decision to try and sell the paper machine for conversion is seen as likely to attract interest from home and abroad with Chinese cardboard producers already developing their own plants outside of China to produce cardboard as well as some pulp to use within China.

Shotton is one of two newsprint mills in the UK, the other is the larger Palm Paper facility in King’s Lynn, Norfolk which also produces newsprint and paper grades suitable for brochures and other products.

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ANALYSIS

Yesterday’s announcement by UPM will come as a big blow to its home country of Finland with the proposed permanent closure of Kaipola which takes out 720,000 tonnes of capacity and sees 450 jobs lost.

From a UK perspective, there may even be a sigh of relief that Shotton has been put up for a sale with a likely two year timeline for a deal to be concluded.

There are said to have been visits by businesses interested in converting the mill to cardboard last year and to an extent there is little surprise in the announcement in the wake of the decline of newspaper sales and a number of magazine closures this year.

Interest will now focus on whether the three main domestic mills, DS Smith, Saica and Smurfit Kappa opt to purchase Shotton (although Smurfit Kappa already has two machines). Or, will there be overseas interest?

Less than a year ago, the chairlady of China’s Nine Dragons paper business, Cheung Yan, said: “We will strengthen our efforts in expanding the domestic sourcing channels for recovered paper purchase, and continue to explore opportunities to expand the production capacity of recycled pulp overseas.”

One disadvantage for UK mills producing cardboard and potentially in attracting overseas investment, has been ongoing high energy costs compared to countries such as in south east Asia and the United States. However, Shotton has seen investment in the mill, including in its boiler this year, and the plant will have the support of the Welsh Government.

Nevertheless, a cardboard mill, which could produce lightweight materials, should also have a good market with a growing demand for material, helped by a desire to switch away from plastic for some packaging and other products.

Politicians and a Prince

Welsh politicians are expected to be keen to see the mill survive, partly because of the jobs it creates but also because it would give it more domestic reprocessing capacity for recyclable materials.

The mill has also won support in the past from the Prince of Wales, HRH Prince Charles (see letsrecycle.com story) who praised the switch by the mill to using recycled material.

Palm Paper

UPM could also have stolen a march on Palm Paper with the ‘sale for conversion’ announcement. Palm has a more modern mill than UPM at King’s Lynn with a capacity of 400,000 tonnes. But, as with UPM, Palm is also having to face up to the slump in newspaper and magazines sales.

There has been some anticipation in the recovered paper sector that within three years Papierfabrik Palm, a privately-owned German paper company which owns the King’s Lynn mill, might have announced plans to convert it to cardboard production. The company has significant knowledge and understanding of cardboard production having a number of board mills in Germany.

MRF

UPM, unusually for a papermaker, built a materials recycling facility at its Shotton mill. The original aim was to collect about 120,000 tonnes of newspapers and magazines from about 250,000 tonnes of feedstock.

The MRF has a number of local authority contracts and is included in the sale. While the volume of newspapers and magazines in feedstock is declining, the amount of used cardboard at the MRF is thought to be increasing, which could give the operator of a converted machine some feedstock. However, in the past paper mill groups which have acquired a MRF have also opted to close it.

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Source: letsrecycle.com Packaging