Pulp Update

PULP MILLS UPDATE

JULY 2007

Air Products and NORAM Form Siloxy Joint Venture

Domtar Sells Forest Products Business

West Coast Paper to Raise $40mn

Neenah to Close Ohio Paper Mill

Metso Wins EU150 Million Order From Brazilian Papermaker VCP

Stora Enso Investing to Improve Board Quality and CTMP Production at Fors Mill in Sweden

EU Approves 106 mln eur Aid for Portuguese Pulp, Paper Sector Projects

Hong Kong’s Lee & Man to Build Paper Mills in Hau Giang

SCA to Build New Corrugated Board Plant in France

Weyerhaeuser Sells Oregon Plywood Mill to Pacific States

South America Forest and Paper Sector a New Player on Global Scene

Air Products and NORAM Form Siloxy Joint Venture

Air Products recently announced it has formed a joint venture company named Siloxy Limited with NORAM Engineering and Constructors Ltd. of Vancouver, British Columbia, Canada to market patented and proprietary technologies toimprove the environmental and economic performance of non-wood pulp mills. Many non- wood pulp and paper mills must comply with new stringent water discharge regulations. The Siloxy technologies provide compliance by substantially reducing the discharge of water pollutants from these mills while producing a positive return on investment. The technology may be applied to wood-based pulping as well.

"We are excited about the formation of the Siloxy joint venture and what it offers the pulp and paper industry in the way of environmental and economic benefits," said Robert W. Levis, vice president and general manager, Asia Merchant Gases for Air Products.

"We're very pleased to be working with Air Products to address a long- standing technical and environmental issue. We believe that we have solutions that will demonstrate economic and environmental benefits," said George Cook, president of NORAM.

"These are proven technologies that we can put in place in regions of the globe where waste streams from straw pulping process impact water resources and water quality. Siloxy offers a way for pulp mills to continue to manufacture, reduce their environmental impact, and improve their economics," said Tom Mullen, Siloxy's president and general manager.

Siloxy has ownership of three novel technologies:

Desilication technology that removes silica from a by-product stream (black liquor) of the pulping process.
Oxidation technology which combusts black liquor or waste streams with a high chemical oxygen demand (COD) with pure oxygen.
Evaporator technology for highly foaming black liquors. More information on these novel technologies can be found at http://www.siloxy.com.

Domtar Sells Forest Products Business

Domtar is selling its forest products business to newly created Conifex for roughly $285. The company confirmed the sale will allow it to focus on paper production.

Included in the package are the Ear Falls, Nairn Centre, Timmins and White River sawmills in Ontario and the Grand-Remous, Lebel-sur-Quevillon, Malartic, Matagami, Ste-Marie and Val d’Or sawmills in Quebec, as well as the Sullivan manufacturing facility, which is also in Val d’Or. Combined, the sawmills have approximately 4.8 million m3 of annual harvesting rights and a production capacity of roughly 1.1 billion board ft.

In May, Domtar warned of possible layoffs after reporting a first quarter profit of US$49 million, which came on the heels of an announcement of a decision to merge with the paper business of Weyerhaeuser earlier this year.

West Coast Paper to Raise $40mn

The West Coast Paper Mills Ltd (WCPML), a manufacturer of paper and paper board, is raising $40 million (about Rs 182 crore) from the International Finance Corporation (IFC), the private lending arm of the World Bank.

The money will be used to fund the company's expansion and modernisation at its paper mill in Dandeli in Karnataka.

The company proposes to increase its paper making capacity from around 1.64 lakh tonnes per annum to 3.2 lakh tonnes per annum. It also plans to modernise its fibre line to make paper pulp. The modernisation will be completed by March 2009. The company aims to improve the plant's efficiency and enhance competitiveness with the modernisation.

“We are planning to invest Rs 1,100 crore on our modernisation and expansion. We are also in talks with the State Bank of India (SBI) and ICICI Bank for a syndicated loan of Rs 725 crore and we hope to conclude the deal in about a month,” company sources told Business Standard.

It aims to pool in another Rs 175 crore from the internal accruals to fund the project, while the remaining Rs 200 crore will come in the form of equity, he said.

West Coast Paper Mills Ltd reported a net profit of Rs 64.84 crore for year-ended March 31 last, a growth of 102 per cent compared to the previous year. Its turnover marginally went up by 4.5 per cent during the year.

Neenah to Close Ohio Paper Mill

Neenah Paper Inc. plans to close its fine paper mill in Urbana, Ohio, which would affect about 180 people, a company executive said.

Vice President for financial analysis and investor relations, Bill McCarthy, said that it is unlikely the company would sell the mill to a paper manufacturer after the closure. "We are open to all alternatives at this point. But it will be unlikely that we would sell it to another paper manufacturer. There is excess capacity in the market already. But we will listen to all options that come our way," McCarthy said.

Neenah, a maker of pulp and paper products, said it sees one-time cash costs of $4 million through severance and other charges related to the closure. McCarthy noted that the costs associated with the closure will also be taken over the next 12 months. Operations at the mill, which has a capacity of about 39,000 tons per year, will also be phased out over the next 12 months.

Savings would be realized through the elimination of fixed costs at the Urbana site, Neenah said in a statement.

The mill was obtained by Neenah along with three other fine paper mills when it acquired Fox River Paper in March, 2007. Apart from the Urbana plant, Neenah also closed another mill in March from the Fox River acquisition. With the shutdown of the two mills, the company expects to maximize cost efficiencies by shifting fine paper manufacturing at its other existing mills.

Metso Wins EU150 Million Order From Brazilian Papermaker VCP

Metso Oyj, the world's largest maker of rock crushers and paper mills, won an order valued at 150 million euros ($200 million) to supply boilers and other gear to Votorantim Celulose e Papel SA, Brazil's third largest pulp and paper producer.

The equipment will be used at VCP's new Tres Lagoas pulp mill, which will start production in the first half of 2009, Helsinki-based Metso said today in a Hugin newswire release.

The order was placed by the Brazilian arm of Finnish engineering company Poeyry Oyj, which is building the plant. The mill will produce 1.25 million tons of eucalyptus pulp a year.

Stora Enso Investing to Improve Board Quality and CTMP Production at Fors Mill in Sweden

Stora Enso announced that Stora Enso will upgrade and modernise the two board machines (BM 2 and BM 3) and chemi-thermomechanical pulping (CTMP) plant 2 at its Fors Mill in Sweden to improve quality and pulp production. This project, costing a total of EUR 29 million, is scheduled to start in 2007 and be completed in January 2008 for BM 3 and the CTMP investment, and in January 2009 for BM 2.

This investment will improve the quality of the board manufactured at the mill in order to meet customers' changing quality needs. It will moderately increase the mill's production capacity.

Stora Enso is investing in packaging-derived fuel combustion at its Anjalankoski Mill in Finland

Stora Enso is investing EUR 16.8 million to reduce energy costs by increasing packaging-derived fuel (PDF) and biofuel combustion capacity at its Anjalankoski Mill. The project, which is scheduled for completion in autumn 2008, will reduce dependence on fossil fuels and increase the utilisation of recovered materials and biofuels. PDF combustion capacity will be increased from 50 000 to 135 000 tonnes per year.

The main investments will be in additional equipment for the existing power plant. Packaging for use as fuel at Anjalankoski Mill includes paperboard, wood and plastic packaging collected separately from small-scale businesses and wholesalers. Anjalankoski Mill has been utilising PDF since 1996.

EU Approves 106 mln eur Aid for Portuguese Pulp, Paper Sector Projects

The European Commission has allowed Portugal to grant 106 mln eur in aid to two separate investment paper and pulp sector investment projects in Figueira da Foz.

Altri SGPS' Celulose Beira Idustrial (Celbi) will receive 59.32 mln eur for the extension of its plant, and Portucel - Empresa Produtora de Pasta e Papel SA's Soporcel unit can count on 46.5 mln eur in funds for the extension and modernisation of its plant.

EU competition commissioner Neelie Kroes said the financing will contribute to the regional development and job creation in a disadvantaged region of Portugal.

Analysts said that the approvals for Altri were in line with expectations, but noted that it is still uncertain how much of the 175 mln eur granted in state aid to Portucel actually requires European Commission approval.

They also said that there are still doubts as to whether the state aid approved refers to the real value of the aid or the NPV (Net Present Value).

In March, Brussels approved a 38 mln eur Portuguese government subsidy for the modernisation of Portucel's pulp and paper mill in Setubal.

The aid will be paid over the next 10 years in the form of a tax reduction.

Hong Kong’s Lee & Man to Build Paper Mills in Hau Giang

HAU GIANG — Hong Kong-based Lee&Man Paper Manufacturing Ltd on Wednesday received licences from Hau Giang Province to build two paper mills totalling US$600 million at the Song Hau Industrial Park.

Provincial leaders granted the investment licences to Lee&Man Viet Nam Paper Co Ltd and Lee&Man Viet Nam Wood Pulp Co Ltd. The two projects will cost a combined $630 million and run for 50 years.

The Lee&Man Viet Nam Paper will build a $280-million factory producing high-quality cartons and packages. The facility will cover 200ha and produce 420,000 tonnes of product a year.

The factory is expected to be operational next year and employ about 2,000 people. Construction will begin on August 5, say authorities.

The Lee&Man Viet Nam Wood Pulp will build a $348-million wood pulp factory covering 70ha with an annual capacity of 330,000 tonnes.

Lee&Man plans to invest up to $1.2 billion in Hau Giang.

Currently, officials are reviewing two more licences for the third and fourth phase of the company’s investment plan, says Ong Phuoc Hai, head of business registration at the provincial Department of Planning and Investment.

SCA to Build New Corrugated Board Plant in France

SCA, Stockholm, Sweden, has announced it will invest EUR 46 million in a new corrugated board plant outside of Nantes in France. The new production plant will go into operation in 2009 and replace an existing plant in the area. The new facility will offer customized packaging solutions including high-quality printing.

SCA noted that the decision to invest in a new plant in Nantes is necessary to meet increasing demands from its customers, but John Williams, president of the company’s Packaging Europe business area, also pointed out other important factors behind the investment. “We see opportunities to grow in the France Atlantique region with an important customer group within the food industry. The new plant will meet the stringent hygiene standards in the production environment, which are crucial for this customer group. We are creating a highly flexible plant that will also comply with SCA’s high sustainability requirements and offer our employees an improved working environment,” Williams said.

The investment in Nantes includes new equipment that will reduce the company's carbon dioxide and other emissions. The new plant will also provide a major improvement in wastewater treatment. SCA’s packaging plant in Nantes has approximately 180 employees.

Weyerhaeuser Sells Oregon Plywood Mill to Pacific States

Weyerhaeuser announced today it has signed a purchase and sale agreement to transfer ownership of its plywood mill in Springfield, Ore., to Pacific States Industries of San Jose, Calif. Due to market conditions, the Springfield facility has been closed since December 2006. At the time, it employed 87 people and had the capacity to produce 114,000 million ft2 of 3/8-in. plywood annually.

"We are pleased to reach mutually agreeable terms with Pacific States Industries," said Cathy Slater, VP of Weyerhaeuser's veneer technologies. "We anticipate that the sale will be completed within the next 30 to 45 days.”

Operating through its Redwood Empire division, Pacific States Industries operates two sawmills in Northern California and distributes those dimension wood products throughout the country. In addition, Redwood Empire's Wholesale group distributes decking, fencing, hardwood, landscaping items, panel products, pre-built panels, softwood, and treated lumber.

South America Forest and Paper Sector a New Player on Global Scene

South America is emerging as a major global player in the forest, paper and packaging industry, presenting opportunities for producers as a supply base and as a growing market for forest, paper and paper-based packaging products. According to PricewaterhouseCoopers (PwC) in a new report titled Risks and Rewards: Forest, paper and packaging in South America, producers in Brazil, Chile, Argentina, Columbia and Uruguay posted a combined Return on Capital Employed (ROCE) of 9.3% in 2006, compared to a global average of 5.3% and 1.7% in Canada. Projections indicate that by 2011, five of the top ten pulp producers will be based in South America, compared with two at the end of 2006.

Regionally, Brazil dominates the sector. Its total industrial roundwood harvest of around 120 million cubic metres annually represents almost 70% of the region's total. Chile follows with almost 20%. Highly competitive wood costs, combined with advanced fibre technology and the latest processing technologies, have built strong wood product and pulp industries. Data from Resource Information Systems Inc (RISI) shows that in Q4 2006, Brazil ranked second to Indonesia as the lowest cost producer of bleached hardwood kraft pulp, with Chile in third place. Brazilian hardwood pulp manufacturing costs were some 22% lower than those in the US.

A few non-South American companies - such as Stora Enso, Botnia and International Paper - are looking to share in these advantages. McIntyre noted that, "With high costs and other constraints in traditional Northern Hemisphere producing regions, and with a fibre shortage expected to continue in Asia, more of the largest pulp and paper companies should consider investing in pulp production in South America to remain competitive. Foreign investment is welcome in the region."

McIlvaine Company

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Tel: 847-784-0012 Fax: 847-784-0061

E-mail: editor@mcilvainecompany.com

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