forest-based bioeconomy outlook - indufor ltd. · lapland 55 north ostrobothnia 3 1 kainuu 3 2...

Agents' Day 2017 of Finnish Sawmills AssociationJyrki Salmi – Managing Director, Senior Partner, Indufor Oy

Forest-based Bioeconomy Outlook

Copyright © 2017 Indufor Oy

Content

Indufor in a nutshellFinnish wood resources and harvestingWood consumption in FinlandFuture investmentsConclusions and implications for the sawmilling industry

Copyright © 2017 Indufor Oy 2


Indufor in a nutshell

Indufor in a nutshell

Independent international consulting company based in Finland, New Zealand, Australia and the US with over 35 years of experience in the field of forestry, forest industry and natural resourcesProvide world class advisory services to a wide range of private and public sector clientsMore than 300 clients in over 800 projects in 5 continents.


Scope of servicesWorld class services to wide range of Clients: forest industry companies and associations, forest and land owners, and primary producers’ associations, investors and investment banks, development banks and others.


Due diligence of forestry investments

Valuation of forestry assets and financial modelling

Sustainability solutionsInvestment advisory and strategy

Wood supply studies

Strategic industry advisory

Benchmarking & process improvementsClimate change consulting

Development consulting

Project and program evaluation

Indufor – Forest Industry & Bio Solutions

Biomass sourcing and wood supply plansSite suitability for forest plantation and biomass species and varietiesPotential and realistic supply availability in biomass supply basketsDeveloping supply models and assessing associated cost structures

Business strategiesPre-feasibility/feasibility studiesBusiness plansMarket supply, demand and trade assessments – market entry solutionsEnd use segment and client identification studies


Due Diligence and M&APurchaser and vendor due diligenceValuations Mergers and acquisitions

Process ImprovementsTechnology assessmentsOperational improvement analysis

Industry benchmarkingIndustry segment productivity assessments Single plant benchmarking studies


Finnish wood resources & harvesting

Average annual increment of growing stock and drainAnnual industrial roundwood removals have been fluctuating between 40 and 60 million m3 during the past 20 years. Over this period the annual growth has been significantly higher than harvesting volumes.


0

20

40

60

80

100

120

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

million m³

Industrial roundwood removals Annual growth Drain (harvest + natural mortality)

Sustainable annual harvesting vs. consumption of industrial woodCurrent harvesting volumes do not fully realize the potential of Finnish forests and theoretically there are significant volumes being underutilized. In addition, ca. 9 million m3

of wood are imported annually, mainly from Russia.


VMI9 VMI10

VMI11

-20

-10

0

10

20

30

40

50

60

70

80million m³

Sustainable harvesting level

Domestic wood

ImportImports from Russia

Sustainable annual harvesting level vs. consumption of sawlogsCurrent harvesting volumes especially of pine sawlogs is below harvesting potential. Recently Finland has been relying on domestic resources and imports have been marginal.


VMI9VMI10

‐4

0

4

8

12

16

20million m³


Domestic

ImportFrom Russia

VMI11

Pine sawlogs

VMI9VMI10

‐4

0

4

8

12

16

20million m³


Domestic

ImportFrom Russia

Spruce sawlogs

VMI9 VMI10

‐4

0

4

8

12

16

20million m³


DomesticImport

From Russia

Birch sawlogs

VMI11

VMI11

Sustainable annual harvesting level vs. consumption of pulpwoodSimilar to sawlogs, particularly coniferous pulpwood is harvested below theoretical potential. However, some 6.5 million m3 of pulpwood, particularly birch, is imported mainly from Russia.


VMI*9 VMI*10

‐10

‐5

0

5

10

15

20

25million m³


Domestic

Import

From Russia

Pine pulpwood

VMI9VMI10VMI11

‐10

‐5

0

5

10

15

20

25million m³


Domestic

ImportFrom Russia

Spruce pulpwood

VMI9 VMI10

‐10

‐5

0

5

10

15

20

25million m³


Domestic

Import

From Russia

Birch pulpwood

Wood import by species and typeBirch pulpwood accounts for half of the imported volumes, followed by wood chips, designated for pulp production. Due to high export tariffs for sawlogs in Russia, only minor volumes of sawlogs are currently imported to Finland.


Birch pulpwood53 %

Wood chips28 %

Spruce pulpwood6 %

Pine pulpwood4 %

Other hardwood pulpwood

3 %

Pine sawlogs3 %

Spruce sawlogs2 % Birch sawlogs

1 %

Total, 2015 – 9 million m3


4 13

Lapland

511

North Ostrobothnia

3 7

Kainuu

36

Central&SouthOstrobothnia

5 9

North Karelia

59

North Savo

6 9

South Savo

0Åland

3 7

South‐western

3 6

Pirkanmaa

5 7

Häme‐Uusimaa1 3

Southern coast

5 9

Central Finland

4 5

South‐eastern

Increment

Industrial roundwood removals

In the Southern regions, where most of the production facilities are located, almost all the available wood resources are being processed recently and there is high competition on the raw material market.In Northern Finland the utilization rate is lower, but the distances are longer and accessibility is poorer

Increment vs. industrial roundwood removals by region

Industrial roundwood removals vs. total wood consumption by region


4 6

Lapland

5 5

North Ostrobothnia

3 1

Kainuu

3 2

Central&SouthOstrobothnia

5 5

North Karelia

5 5

North Savo

63

South Savo

0 0

Åland

3 7

South‐western

3 3

Pirkanmaa5 5

Häme‐Uusimaa

1 0

Southern coast

5 6

Central Finland

420

South‐eastern

Total wood consumption

Industrial roundwood removals

Wood consumption is the highest in the Southern part of FinlandIndustrial roundwood removals are not sufficient for satisfying the demand in several regions.


Wood consumption in Finland

Wood flows in FinlandIndustrial processing dominates even use in energy production has increased.

Source: Luke, 2016.

Wood products

P&P industryIMPORT

Forest

Annual growth

106

Annual removals

79

Annual harvesting

65

Industrial roundwood

64

Increment of growing stock

26Forest chips

9Energy wood

9

27

37 Sawdust & wood chips

9

Recycled fiber650 000 t

Import sawdust &

chips3

Roundwood7

Roundwood & wood chips

exports1

Harvesting residues and drain

5

million m3


Wood consumption of the Finnish forest industriesAlmost 60% of the wood consumption originates from P&P industries, whereas 35% is consumed by sawmills, mainly of medium and large size. The rest of the demand is created by birch plywood producers. In addition, 9 million m3 of wood is used for energy generation annually.


Source: LUKE

Large and medium-sized

sawmills36 %

Small sawmills1 %

Plywood and veneer

industries4 %

Other1 %

Mechanical pulp industry

10 %

Semi-chemical pulp industry

2 %

Chemical pulp industry

46 %


Sawnwood and P&P production in FinlandSawnwood production has not reached pre-crisis level of 2007. Currently, pine and spruce sawnwood account for equal share. Pulp production is still recovering from significant drop in 2009, accompanied by paper making capacity shrinkage. Sawmilling industry generates annually around 3 million m3 of wood chips, suitable for pulp production.

Sawnwood production

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

million m3

Pine Spruce

Pulp production


0

1

2

3

4

5

6

7

8

9

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

million t

Bleached coniferous pulp Other pulp

Raw material composition in P&P industries in FinlandMore than half of the domestic raw material is comprised of coniferous pulpwood, whereas hardwood pulpwood accounts for 20%. Also, one fourth originated from wood industries processing residues and waste wood. Almost 9 million m3 were imported, represented mainly by hardwood pulpwood and wood chips.

Domestic fibre

Pine pulpwood

37 %

Spruce pulpwood

21 %

Hardwood pulpwood

21 %

Processing residues & waste wood

21 %


All fibre


Pine pulpwood

31 %

Spruce pulpwood

18 %

Hardwood pulpwood

29 %

Processing residues & waste wood

17 %

Imported wood chips

5 %



Future investments

Future investments 7 million m3/a increase in coniferous pulpwood and sawlog use in 2015-2017 and possible further increase of 10 million m3 in 2018-2020 and 5 million m3 thereafter.

Company Location / product Investment, EUR million Increase in wood use Timing

2015-2017

Metsä Group Äänekoski 1 300 000 t/a pulp and other bioproducts 1 200

4 000 000 m3/a coniferous pulpwood.Q3 2017Current use 2 300 000 m3/a birch and coniferous

pulpwood.UPM Kymi 170 000 t/a pulp increase 98 600 000 m3/a coniferous and birch pulpwood. Q4 2017UPM Kaukas modernization of pulp mill 50 200 000 m3/a coniferous and birch pulpwood. Q4 2016Kotkamills Conversion from paper to packaging materials 170 200 000 m3/a of coniferous and birch pulpwood Q3 2016Stora Enso Varkaus LVL 100 000 m3/a 43 250 000 m3/a coniferous sawlogs Q2 2016

Stora Enso Varkaus 310 000 t/a pulp (+390 000 t/a kraftliner) 110 1 100 000 m3/a more coniferous pulpwood. 800 000 m3/a reduction in birch pulpwood. Q4 2015

UPM Kymi 170 000 t/a pulp increase 160 600 000 m3/a coniferous and birch pulpwood. Q3 2015

Keitele Kemijärvi Lappi Timber 150 000 m3/a sawnwood / glulam 32 300 000 m3/a coniferous sawlogs. Q1 2015

2018-2020Boreal Bioref Kemijärvi 400 000 t/a pulp and other bioproducts 750 ca. 2 200 000 m3/a coniferous pulpwood and chips 2019-2020

Kaidi Kemi biofuel refinery 200 000 t/a biofuels 900 2 800 000 m3/a pulpwood, energy wood, wood residues 2019

Finnpulp Kuopio 1 100 000 t/a pulp and other bioproducts 1 400 ca. 6 000 000 m3/a coniferous pulpwood. 2019Other announced investment plans

Savonlinna biorefinery project Savonlinna 50 million liters of liquid biofuels n.a. n.a. Announced Q3 2016

Kaicell Fibres Kajaani or Paltamo 400 000-460 000 t/a pulp n.a. ca. 2 500 000 m3/a pulpwood. Announced Q2 2015Haapajärvi biorefinery Haapajärvi, softwood kraft pulp, 400 000 t/a 500 ca. 2 million m3/a coniferous pulpwood Announced Q2 2016

St1 Cellunolix® Pietarsaari n.a. n.a. Announced Q4 2016


Future investmentsGreenfield plans focused in central and north. Chinese involvement in more than one project.


Wood consumption will be increasing in the Northern and Central part of FinlandIn 2015-2017 wood consumption is to increase by 7 million m3, mainly represented by coniferous pulpwoodIf all announced projects are completed, that will result into annual wood consumption growth of over 20 million m3 by 2022This would result in a significant additonal supply of coniferous sawlogs and birch veneer logs in the domestic market.

Future investments – Most significant projectsÄänekoski is the only project under construction. Chinese CAMCE strongly involved in Kemijärvi project.

Äänekoski • First next-generation bioproduct mill in the

world• Up in operation in Q3, 2017• 1,2 billion € investment• 1,3 million tons of pulp• Bioproducts (tall oil, turpentine, lignin products,

bioelectricity and wood fuel)• 4.5 million m3 of coniferous pulpwood• 2 million m3 of birch pulpwood• Up to 2 500 jobs generated• Annual impact of more than EUR 0.5 billion on

Finland’s GDP

Boreal Bioref• Develops biorefinery in Kemijärvi• Up in operation in 2020. No investment

decison yet• EUR 780 million investment (letter of intent

with CAMC Engeneering signed in 2016)• 400 000 t of pulp (dissolving pulp, long fibre

market pulp)• Bioproducts (microcrystalline cellulose, MCC

C5- and C6 sugars, pine oil and turpentine, bioenergy, soil improvement substances)

• 2.3 million m3 of coniferous, mainly pine, pulpwood and chips from nearby sawmill

• Location close to Keitele group sawmill and glue laminated timber mill


Future investments – Most significant projectsChinese Kaidi involved in Kemi project. Finnpulp plan closest to the Äänekoski project which is under construction already.

Kaidi Finnpulp• World's largest softwood pulp mill • Up in operation in 2019. No investment

decision yet.• 1.4 billion € investment. No major investors

announced yet. No investment decision• 1.2 million tons of coniferous pulp• 1 TWh of electricity and 65 000 t of tall oil


• Second generation biorefinery • Up in operation in 2019; investment decision

to be done in 2017• 900 million € investment carried out by

Chinese Kaidi• 225 000 metric t of biofuels (75% - renewable

diesel, 25% - renewable gasoline)• 2.8 million m3 of wood biomass (energy wood,

harvesting residues and other brown side streams from sawmilling)

Future investments – Most significant projectsKaicell and Haapajärvi are 200 km from each other with no public information of investors.

Kaicell

• Up in operation in 2020• No investment decision yet• Production capacity 450 000 t of coniferous

sulphate pulp • 2.5 million m3 of coniferous pulpwood from

Kainuu region

Haapajärvi

• Announced in April 2016• Up in operation in 2020• No investment decision yet• Production capacity 400 000 t of coniferous

kraft pulp • Wood consumption of 2 million m3/a

(coniferous pulpwood)


Wood consumption growth in FinlandSignificant number of investments is being planned and to be completed by 2022. Largest wood consumption growth originates in P&P sector. However, sawnwood output is required to increase to get the required fiber for these investments.


Wood consumption increase per region


65.3

13

Lapland

52 10

12.5 7

Kainuu

4,66,5 9,3

NorthSavo

20

1,6

5,3

South‐eastern

6

49

CentralFinland

Boreal bioref in Kemijärvi and Kaidi in Kemi, both consuming pulpwood. Greenfield sawmill by Keitele.

Kaicell, cosuming pulpwood.

Finnpulp, cosuming pulpwood and expansion of Stora Enso’s Varkaus mill, both pulpwood and sawlogs.

Äänikoski, consuming coniferous pulpwood. UPM’s Kymi and Kaukas

pulpmills expansions, Kotkamill’s paper machine conversion; all pulpwood.

North Ostrobotnia

Most of pulpwood consumption increase is for coniferous pulpwood.Wood use would increase above local increment in central Finland.

Current forest increment

Current wood consumption

Additional wood consumption


Conclusions & implications for the sawmilling industry

Outlook for Finnish sawnwood industry Announced P&P investments will significantly increase the demand for pulpwood and pulp chips. All investment plans are close to existing sawmills.


Operating Sawmills in FinlandUpcoming investments

Outlook for Finnish sawnwood industry Sawnwood production is expected to set new record level but the production growth can most likely be met by the existing sawmills.

It can be expected that future investments in P&P sector will lead to increased sawlog availability on domestic marketEstimates of annual production growth have varied between 1.5 and 3 million m3 – both levels would mean new national record production Regardless of the eventual output increase, the whole production volume can most likelybe produced by the existing sawmills through minor investment and/or debottlenecking as well as adding shifts in production.

Sawnwood production forecast


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10

12

14

16million m3

Additional sawnwood production

Outlook for Finnish sawnwood industryFinnish annual domestic market has been fluctuating between 3 and 4 Mm3 lately, whereas exports have been growing steadily since 2009 reaching almost 9 Mm3 in 2016. In case annual sawnwood output growth exceeds 1.5 Mm3, exports become more and more vital. Emerging markets would be of significant importance to absorb the new volumes.

Sawnwood domestic market

0

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8

10

12

14

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

million m3

Sawnwood exports

0

2

4

6

8

10

12

14

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

million m3


Additional sawnwood production

Additional sawnwood exports

Home takeaways

There is a significant gap between the sustainable annual harvesting level and the actual drainregional differencessupply-demand balance varies between wood species and assortments economically available supply smaller than theoretical

P&P industries account for almost 60% of the overall wood consumptionover three quarters is round pulpwood, and one quarter chips

Numerous greenfield and capacity expansion investment announcementsP&P and bioeconomy represents a clear majorityForeign ownership – especially ChineseUnrealistic to expect all investment plans to materialize

New P&P / bioeconomy investments require remarkable volumes of pulpwood as well as processing residues

Forest owners need to be able to sell their logs as well which require higher output from the sawmillsDomestic market can’t alone absorb the expected volume increase


Indufor OyEsterinportti 2FI-00240 Helsinki FINLANDTel. +358 50 331 8217Fax +358 9 135 [email protected]

Indufor North America LLCPO Box 28085Washington, DC 20038 USA1875 Connecticut Avenue NorthwestWashington, DC 20009 USAwww.indufor-na.com

Indufor Asia Pacific Ltd7th Floor, 55 Shortland StPO Box 105 039Auckland City 1143NEW ZEALANDTel. +64 9 281 4750Fax +64 9 281 4789www.indufor-ap.com

Indufor Asia Pacific (Australia) LtdPO Box 425Flinders Lane, Melbourne VIC 8009AUSTRALIATel. +61 3 9639 1472www.indufor-ap.com

forest-based bioeconomy outlook - indufor ltd. · lapland 55 north ostrobothnia 3 1 kainuu 3 2...

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