Pulp Growth Ain’t Pulp Fiction
August 1, 2010 By Pulp & Paper Canada
While “pulp fiction” may resonate with the hearts and minds of people, the wood pulp business sector sometimes results in a hollow response. While readers would not be able to turn the pages of their …
While “pulp fiction” may resonate with the hearts and minds of people, the wood pulp business sector sometimes results in a hollow response. While readers would not be able to turn the pages of their pulp fiction books or enjoy their cotton and rayon clothing without their wood pulp brethren, the pulp sector is often looked upon as sleepy.
Though the pulp sector may appear quiet, the market players are “yawning” all the way to the bank. “Between 2002 and 2006, world exports of wood, pulp and paper products grew at an average annual rate of 10.6%,” reports Global-production.com, Inc., a business economics consultancy. Despite the volatile economy, the upward price trend in market pulp continues across the world.
“The fundamentals of the pulp market continue to be very strong,” reports PulpWatch, a leading provider of business information and consultancy services to the international pulp and paper industry.
As a contrarian investor, I keep focused on industries widely considered to be depressed with an eye on purchasing world class assets at deeply discounted prices. My company recently paid $1.2 million to Fraser Papers for a facility in Quebec with an insured replacement cost of $851 million in assets. We are converting this mill into a specialty dissolving pulp operation. Dissolving wood pulp is chemically refined bleached pulp composed of pure cellulose fibres extracted from trees. Dissolving pulp is the major source for the natural cellulose used in the production of rayon.
I believe rayon demand is at a tipping point around the world. The declining global production of cotton is insufficient to meet global textile industry demand; particularly with the rapidly expanding middle class in China and India. Industry analysts indicate that the rayon market has grown at 7% globally and over 10% in China for the last five years. Rayon is typically blended with other fibres and can logically displace the cotton shortfall. Rayon has high uniformity which leads to significant improvements in productivity in spinning and textile plants.
Rayon demand has revealed a gap in supply. Total dissolving pulp capacity in late 2007 was 2.4 million tonnes according to the CCF Group (China Chemical Fibers & Textiles Consultancy). Expansions and conversions with plants in Brazil, South Africa and Canada added 0.6 million tonnes of dissolving pulp capacity in 2008, but closures of many higher-cost dissolving mills resulted in limited capacity to fill the increasing demand.
Driven by overall textile demand and increasing preference for rayon over cotton, more than one million tonnes of additional rayon capacity (dissolving pulp customers) was built in China in 2009 and an additional 0.5 to 0.7 million tonnes in China is planned to start-up in 2010. There is a current shortfall of approximately 0.5 million tonnes in annual rayon supply which is expected to continue during the next several years.
Rayon’s future is looking very promising, which is why we sought to invest in this sector. With our Quebec facility, we are transforming an asset which was previously underutilizing its potential by operating as a high-cost producer into a specialty product producer which is low-cost and globally competitive. Over 90% of the existing mill equipment is ideally suited to produce high-quality specialty cellulose for the rayon textile industry.
The consumer advantages of rayon are clear: it is woven into soft, absorbent and comfortable fabric which supports vibrant colors and wears well. Rayon is one of the most widely used fabrics in the world which can be blended with man-made or natural fabrics.
For many centuries, people have relied on plants and animals, such as silkworms, sheep and buffalo, to provide the materials needed for clothing. In our 21st century world, we look to technology and chemistry to create our fabrics. Rayon, dubbed “laboratory’s first gift to the loom”, is widely considered to be one of the most versatile and economical man-made fibres available.
As Fortress Paper’s Chairman, Chief Executive Officer and Director, Chadwick Wasilenkoff, age 37, oversees the company’s production of security and other specialty papers. In August 2006, Mr. Wasilenkoff headed up a group of investors to purchase the Landqart Mill in Switzerland which produces high quality security paper including bank notes and passports, and Germany’s Dresden Mill, and created Fortress Paper Ltd., www.fortresspaper.com,which he took public in July 2007 with a $46-million offering. Based in Vancouver, Canada and Palm Springs, California, Wasilenkoff is an established entrepreneur with extensive capital markets experience specializing in the resource industry and currently serves as a director with various publicly listed companies. He can be reached at: firstname.lastname@example.org.
Entrepreneur Chadwick Wasilenkoff invests in sectors considered to be “depressed”, to obtain assets at discount prices.
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