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‘Biggest growth area for liquid packaging is southeast Asia’

BillerudKorsnäs to build ‘world’s largest’ packaging board machine for $622m

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By Jenny Eagle+

14-Dec-2016
Last updated on 14-Dec-2016 at 14:34 GMT2016-12-14T14:34:02Z

Picture credit: BillerudKorsnäs
Picture credit: BillerudKorsnäs

BillerudKorsnäs, which manufactures confectionery, snacks and beverage packaging, is investing  SEK 5.7bn ($622.25m) in a KM7 (Karton Machine) to produce liquid board, cartonboard and liner at its factory in Gruvön, Sweden, to start operations in Q1, 2019.

The company claims the machine, which has an annual capacity of 550,000 tonnes of board, is one of the world’s largest machines and the biggest investment in the history of the company.

Consumer behavior driving change

Announcing the project, Per Lindberg, president/CEO, BillerudKorsnäs, told shareholders, it has taken two years of discussions to bring the project to fruition.

We want to grow the company 3%-4% and several mega trends support this growth including demographic shifts, people moving into cities who consume smaller packaging sizes and sustainable trends where people favor paper or board-based materials. Consumer behavior is changing and this drives sustainable packaging needs,” he said.

The liquid packaging board, cartonboard and craft liner that we produce has a good growth scenario going forward. This is why we intend to make this investment. We want to capture all these opportunities and keep a dominant position in primarily ambient liquid packaging board, as well as developing premium cartonboard segments and maintaining our position in craft liner.”

Lindberg said the biggest area of growth for liquid packaging is SE Asia and this machine will be targeted towards the needs of those markets.

The machine will have implications on all our production units in Sweden, leading to more streamlined operations. We have selected a larger machine better suited for targeting the intended markets which provides even better returns,” he added.

The machine will start up in 2019, and be fully utilized by 2023. We will close down an existing paper mill in Gruvön and finalize redundancy costs of SEK325m. It will take a long time to ramp up production of the machine, the facility will finally produce over 900,000 tonnes of capacity on two machines.”

As a result of the construction and installation of KM7 paper production at the mill will be transferred to its units in Skärblacka, Gävle, Frövi and Karlsborg, in Sweden and Pietarsaari in Finland.

Gruvön’s fluting production not affected

The intention is to offer customers a satisfactory alternative,” said Lindberg.

We will make sure no customers suffer throughout this process. Plus we have the possibility to interchange products between the other locations. Gruvön’s fluting production is not affected by the investment.”

FACTBOX

BillerudKorsnäs announced this month, it was moving ahead with full scale trials adding microfibrillated cellulose, MFC, to its paperboard products thanks to a partnership with Borregaard.

For a paper and board maker, adding microfibrillated cellulose, MFC, in the production process opens up opportunities for new functionality and further improved resource efficiency.

The company will start full scale trials in 2017 testing the same properties of its paperboard, but with less material. MFC could possibly be a way to replace thin barrier layers of plastics or aluminium added to renewable fibre based packaging.

Borregaard has used more than 10 years to develop the Exilva MFC technology and is the first company in the world to commercialize MFC through its 1.000 ton plant which started in Q3 this year.  

The firm believes demand for sustainable packaging is growing around the world as brand owners, food retailers and consumers make more conscious choices.

Lindberg said at its current capacity, BillerudKorsnäs’ production units are not sufficient to meet future demand and access to renewable raw materials from sustainably managed forests in the Nordic region was a key factor when evaluating different alternatives.

Next year we estimate over 100,000 tonnes of pulp production in Gruvön. When we install this machine that exposure will go down to zero which means given the volatility in the pulp market this will contribute further towards stability,” he added.

The (financial) return is well above our target of 13% so despite the size of the investment it does provide a good return on investment (ROI).

We don’t intend to move any machines at this stage. We are evaluating how the paper mill and existing machines will be utilized during the ramp up of the board machine and make sure our customers receive the quality service they expect.”

He said the product mix of KM7 will initially be small volumes of liquid packaging board and cartonboard, liner and food service boards. It expects to increase the liquid packaging board production to 50% of the machine by 2023 and stay at that level and the rest of the mix depends on the popularity of those products.

The most significant area of growth is in Asia, 6%-7% - this is the driver of volume growth, there is also growth throughout the world in smaller percentage terms. The markets for liquid packaging board tends to be very stable and predictable in terms of growth. This means we can relatively, safely predict the demands going forward, we have done this analysis and used several institutes to assess the market and listened to our customers,” added Lindberg.

Our estimate is that, if no-one builds capacity there will be a gap of a million tonnes in 2025. This capacity will be fulfilled one way or another and we want to be a part of that. Our competitors probably see the same gap depending on where they are globally. This is most likely what others see as well.

We are convinced this is the right way forward and so now the work begins to ramp up production.”

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