Graphic paper markets good and stable in 2023, said Billerud CEO

The publishing paper business had a strong Q3 performance and anticipates opportunities in the US market with Verso mills acquisition

Billerud CEO Christoph Michalski told analysts on Oct. 25 during the company’s third quarter earnings call that the pre-feasibility studies for the conversion of former Verso’s Quinnesec and Escanaba mills in Michigan from printing and writing paper to boxboard are on track, with potential for a final decision on the investments in 2023.

“We’re super excited by the projects because the opportunity in the US is huge, and in the short term the good performance of graphic paper and specialties paper is making us not unhappy. Basically, we have very good businesses while we’re preparing for this transformation,” Michalski stated.

The CEO said that Billerud’s printing and publishing paper business had a “pretty good” third quarter, and the company does not see any significant changes in the fourth quarter.

“We call it stable in the future, and there are a number of reasons for that,” Michalski said.

He said the graphic paper demand decline will continue, “but at a slower rate (than) we have seen before,” while the specialty paper market should continue to grow at 2-3%.

“The acquisition of Verso gives us a dual track, or a second leg to stand on,” Michalski added, referring to boxboard.

Billerud reported its North American paper business net revenues for the third quarter hit SEK 3.7 billion ($340 million) and sales volume were 254,000 tonnes (280,000 tons). The company’s total paper product sales in the quarter tripled compared with a year ago, to SEK 6.5 billion, “mainly due to the acquisition of Verso … but also due to implemented price increases,” the company cited in its earnings report.

The paper business EBITDA also tripled in the quarter, to SEK 1.4 billion, with an EBITDA margin of 21%.

Billerud detailed that its paper product business area includes graphic paper, kraft and specialty paper (food packaging, medical, and industrial applications), sack paper (packaging for construction materials, chemicals and dry food), and market pulp.

“The mills at Skärblacka, Karlsborg, Pietarsaari, Escanaba, Quinnesec and the converting facility at Wisconsin Rapids (WI) belong to this product area,” Billerud noted in the report.

On the board business side, which includes liquid packaging board, cartonboard, and containerboard, Billerud reported a net sales increase of 25% to SEK 4.6 billion year-over-year. The area EBITDA was at SEK 915 million, with an EBITDA margin of 20%.

Transformation plan

Michalski noted that Billerud is running two pre-feasibility studies: one in North America, which involves conversion at the Quinnesec and Escanaba mills in Michigan from graphic paper to boxboard; and another one in Europe, which involves the construction of a bleached chemi-thermomechanical pulp mill in Norway, in a joint-venture with Viken Skog.

“These projects will both support our ambitions to grow in paperboard and have scopes that will provide considerable sustainability benefits,” Michalski said.

As part of its transformation plan, Billerud took scheduled maintenance downtime at its Gävle, Karlsborg, and Escanaba mills as well as a planned maintenance and major upgrade shutdown at the Quinnesec mill in the third quarter.

“It was a heavy quarter in terms of maintenance downtime. The biggest upgrade was at the Quinnesec mill, and the upgrade has been successfully completed,” the CEO announced.

For the US mills, Michalski said Billerud does not expect to have any shutdowns at Quinnesec in 2023, just a “smaller shutdown at Escanaba.”

He detailed that with the Quinnesec upgrade in 2022, Billerud can now produce “significantly more pulp at that mill (around 30,000 tonnes), as we changed the head of the digester, and also we improved the headbox of the Q41 machine which allows us to widen the operating window of that machine and will also allow us to play between graphic paper and specialty paper grades on the same machine.”

“The graphic paper is less stable than the specialty paper, which is growing strongly,” Michalski pointed out.

Q41 upgrade

Billerud’s plan is to produce its OptiLabel HB paper at Quinnesec’s paper machine No. 41, to provide additional domestic supply for pressure sensitive (PS) material paper. The company already makes OptiLabel HB and UniSil release liner on its paper machine No. 3 at the Escanaba mill. OptiLabel HB is a semi-gloss coated one-side (C1S) product for PS prime label applications, and UniSil is a release liner base sheet for PS siliconizing.

“This additional machine (at Quinnesec) will give us more manufacturing flexibility to support the PS marketplace for both release liner and face paper supply,” Billerud Sr VP of Marketing Aaron Haas said in a press release early in October.

Haas explained that Billerud launched OptiLabel HB production at the Quinnesec mill in 2020, during the peak of the Covid-19 pandemic, to support demand in the PS marketplace.

“We have already successfully made a significant volume of this product (at Quinnesec). … Our goal is to qualify products with strategic customers through the end of 2022, and be at expanded production rates by the start of 2023,” Haas said.

In the Oct. 25 earnings call, Michalski noted that the permanent closure of Pixelle’s 230,000 tons/yr Androscoggin/Jay, ME, specialty paper mill planned for early 2023 will change the specialty paper supply/demand balance in North America.

“We see strong demand in that market, and there’s no reason it is going to change,” Michalski said. “The (specialty paper) assets in the US are relatively old, and we have the best ones when it comes to cost-effectiveness.”

Graphic paper demand revival

The Billerud CEO noted that he’s seeing a little bit of revival in demand for graphic papers.

The (graphic paper demand) revival comes mainly from the premium catalogs … while (there’s) continuous downward trend in the mass segments.

“As we’re focused on the premium area (premium catalogs and direct mail), we see a positive trend this year, and we believe it will also stay sable into 2023,” Michalski said.

He said a lot of companies that went 100% digital “realized that (complementary) paper catalogs, additional mailings or small local companies-type promotions based on paper is far more effective than only the digital media.” Michalski also said that consumers are being more careful with privacy when using an app that tracks advertising, for example, and this has led the US market back to using more traditional media such as paper and television.

“Those are quite fundamental changes in the US these days, and graphic papers are now very attractive,” Michalski said.

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