Graphic papermill M&A in full swing whilst Ex. Rates hit record new levels

Well, what a month!

After the news that Paper Excellence/Domtar (APP) would be acquiring the world’s largest Newsprint supplier, Resolute Forest Products, based in Montreal, Canada, we then had two significant and even strategic paper mill sales in Europe, namely Stora Enso’s Maxau SC papermill going to Lidl owners, Schwarz Group, and SE’s Nymolla UWF papermill being acquired by Sylvamo, itself recently created following the demerger of International Paper.

Meanwhile, Sylvamo has also just announced the sale of its Svetogorsk UWF mill in Russia to Pulp Invest for US$420m.

Sadly, we also lost a two former Arjowiggins Fine Papers mills as energy prices and other supply chain issues forced the closure of these iconic mills, at Chartham & Stoneywood in the UK, due to insolvency of the group that bought these 18th century mills in 2019, the latter mill being synonymous with the formerly renowned and much-lauded Conqueror brand.

Each of these M&A announcements generates a raft of new questions about the future of suppliers, mills and paper grades, in Europe, and now we have another to add to the September list:

Sappi sells off three mills: Maastricht (NL), Stockstadt (Germany) and Kirkniemi (Finland).

Summary of the mills as described by the supplier on its website:

https://www.sappi.com/sappi-accepts-offer-to-sell-three-european-graphic-paper-mills

Sappi Maastricht mill produces 260,000tonnes pa of coated woodfree paper and paperboard mainly sold to printers and packaging converters globally.

Sappi Stockstadt mill is an integrated pulp and paper mill located in Germany, producing 145,000 tpa of pulp which is used to produce 220,000 tpa of coated and uncoated woodfree paper mainly sold into the European print market.

Sappi Kirkniemi mill is an integrated pulp and paper mill located in Finland, producing 300,000 tpa of bleached mechanical pulp which is used to produce approximately 750 000 tpa of a variety of coated mechanical paper grades used in the print publication industry globally.

That leaves SAPPI with its two US mills (Cloquet and Somerset) and its remaining European operations at Lanaken (Belgium), Ehingen (Germany) and its flagship CWF mill, Gratkorn (Austria).?

In terms of CWF, SAPPI is currently the world’s second largest producer behind APP, with approx. 2.7mt pa in Europe and America. It’s the largest producer in Europe with approx. 1.9mt. and this will change only marginally as most of the Maastricht capacity is Specialty Coated Boards, with CWF accounting for approx. 160,000t pa. But for LWC & UWF paper, SAPPI is removing all of its European capacity.

????????????????????????????????????????????????????????Capacity?????????????Share of???????????Share of

SAPPI Mill??????????????????????????????????????Tonnes????????????????SAPPI??????????W.E. Capacity

Maastricht (CWF)????????????????????????????160,000????????????????-9%???????????????????????4%

Stockstadt (UWF)????????????????????????????220,000????????????????-100%???????????????????3%

Kirkniemi (LWC/MWC)?????????????????750,000????????????????-100%???????????????????16%?

Some observers say there is no surprise here as SAPPI had been looking for new owners for these mills for some time whilst others comment that, since acquiring the giant Finnish MWC mill, profitability had been an on and off issue; it will be telling to see how quickly the new owners can achieve ROI with this mill. And whilst the energy crisis is still a massive issue for many mills, it will also be interesting to see Maastricht and Stockstadt fare in the coming months, as prices remain sky high and demand becomes doubly impacted by both prices and recessionary forces. Certainly, some clever juggling will be required by the new owners, and it’s very much hoped that they will be guided by current excellent management teams at all of these mills.?

EMGE remains very pessimistic about paper demand – and price – prospects for 2023, as many will have read in our recent Publication Paper Price Forecasts, and this has not been eased by the worrisome new government measures in the UK – Europe’s second largest paper market - which have seen Sterling (GB￡) plummet to as low as US$1.04 last Friday. It currently stands at US$1.08, but a far cry from the US$1.9 to US$2 rates before the late-1992 ERM crisis and then again before the 2008 toxic loan crisis.

With inflation still raging, interest rates threatening to rise even faster since the UK’s “mini-budget” on Friday, debt ballooning (even more so than before), and without Europe’s reliable locomotive, Germany, to drag a stagnant continent out of the current econo-political crisis due to its own energy crisis as war to the east rages on, it’s difficult to see much light in the current tunnel, much before spring 2023, by which time, much damage will have been inflicted on the European paper scene, especially with the war in Ukraine becoming so entrenched.

These issues and more, many will have read about in the latest edition of EMGE’s Global Monthly Monitor, and we can’t say that developments of the past few weeks will have improved these prospects very much, as even China feels the impact of the current recessionary and inflationary effects on both its exports and general economic performance - possibly the worst in years – and therefore directly on its paper and packaging production too. This could also serve as a warning sign for Europe’s otherwise positively-minded packaging mills, with so many conversions from graphic papers over the past few years, as energy pressures at mills and difficult economic performance also have a direct impact on demand for packaging.

Iwan Le Moine

www.emge.com