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Focus on high-margin business areas

8th March 2013

By: Chantelle Kotze

  

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A key focus for JSE-listed pulp, paper and packag- ing group Sappi this year is to return its Southern African business to profitability by implementing various interventions aimed at repositioning the paper business to be more competitive and better serve the requirements of its customers.

Although 2012 was a challenging year for Sappi, owing to tough economic conditions, changes in the business and the pursuit of new business opportunities, Sappi CEO Ralph Boëttger sees 2013 as a year of transition, in which the company becomes a leaner and more focused business.

During 2012, Sappi reviewed its business processes, product mix and cost structures. It significantly reduced its capacity and, in addition, reduced its overall cost base in Southern Africa, North America and Europe.

“In the past, Sappi invested heavily in businesses in which the current market demand is dropping, such as coated paper. To overcome this, we have embarked on optimising our paper business and are concentrating on improving our higher-margin and faster-growing business areas, specifically dissolving wood pulp, known as specialised cellulose (SC), and specialty packaging,” says Boëttger.

He notes that global demand for dissolved wood pulp is 5.7-mil- lion tons a year and is increasing by 6% each year. This figure is even higher at 8% for viscose staple fibre (VSF) as supplies of global cotton production flatten and fail to match increasing demand, creating a gap in the textile market, which VSF, an alternative to cotton, and which is made from SC, can fill.

SC is produced from eucalyptus timber in South Africa and used in a range of consumer products, mostly textiles, but also cellphone screens, pharmaceutical and household products, as well as in the food industry.

Sappi currently exports the bulk of its dissolving wood pulp to Asia, where demand is high, owing to the expected growth of its middle class from the current 1.9-billion people to 2.7-billion people by 2030. By that time, Asia will account for 43% of global consumer consumption, specifically for textiles.

“Our aim is to generate at least 60% of our operating profit within the next two to three years from our fast growing high-margin businesses, which includes SC, specialty paper and packaging and our forestry business,” says Boëttger.

Changes to Sappi’s Southern African business include reducing the costs of its Southern African businesses by about R500-million. This entailed the closure of Paper Machine (PM) 3, the mothballing of PM 4 and closing down the kraft continuous digester pulp circuit at the Tugela kraft mill, in Mandeni, KwaZulu-Natal (KZN).

Sappi also sold its Adamas paper mill, in Port Elizabeth, and some of its smaller plantations in marginal areas in Mpumalanga and KZN.

Sappi’s Enstra mill, in Springs, Gauteng, has, simultaneously, expanded the range of products it produces to enable Sappi to continue to supply customers with product, but from a more cost efficient and streamlined base.

Improving High-Margin Production
Sappi’s most notable higher-margin business investment is its $340-million investment in its GoCell SC expansion project at its Ngodwana mill, in Mpumalanga, which is on track for commissioning by June to grow its SC production.

Project GoCell, which has been under construction since 2011, will increase Sappi Southern Africa’s SC production of 780 000 t/y from its Saiccor mill, in Umkomaas, KwaZulu- Natal, by 210 000 t/y when the Ngodwana mill expansion comes on line.

“About 85% of Ngodwana’s expected capacity is already on order from international markets,” notes Boëttger.

A total of two-million tons of timber a year is consumed by the Ngodwana mill. This volume will remain much the same when Project GoCell comes on line; however, there will be a change in the tree species mix.

The Ngodwana mill has two pulping lines from which it produces unbleached and bleached softwood and hardwood pulp for newsprint and kraft linerboard. The new pulping line, which is being added, will replace the old pulping line that was erected in 1964 and commissioned in 1966.

The South Africa-based arm of international engineering and project management company Amec is undertaking GoCell’s engineering, procurement and construction management, while power and automation technology group ABB is contracted to install the project’s electrification- and instrumentation-distributed control system.

Multidisciplinary construction and engineering group Aveng Grinaker-LTA is responsible for the civil construction of the project. Industrial installation company Ferromont SA and its subcontractors are undertaking the mechanical and electrical installations of digesters, presses, tanks and other equipment in the new fibre line and they are currently fully mobilised on site.

Sappi Ngodwana mill GM SW Engelbrecht says the project entails the installation of six new batch digesters, a decanter centrifuge, an ash-leaching plant, three new concentrators, a stripper column, a reflux condenser and a feed tank, as well as the construction of the digester building, a new control room and an office complex.

Further, the erection of an oxygen reactor, an ozone reactor, the first dioxide bleaching reactor and the second dioxide bleaching reactor have been completed. Work has also started on the pulp-storage tanks and the pip- ing bridges at the new Fibre Line 3 cooking area.

A new dryer was designed and supplied by Austria-based pulp and paper technology group Andritz and is being erected by its subcontractor ECEP of Portugal. The dryer will be fully erected and ready to move into the Uptake 3 building this month. The existing dryer will be removed from the building in one piece and the new dryer will be moved in

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GoCell’s civil construction phase began in October 2011 and was completed in December 2012. Aveng Grinaker-LTA installed 1 500 concrete piles to secure the building foundations, poured 18 000 m3 of concrete and used more than 2 000 t of reinforcing steel.

Engelbrecht says up to 2 500 contract employees were employed on the project when construction peaked in February. A further 4 500 employees joined them during the yearly shut- down, undertaken in the same month, when many of the piping and electrical connections to the mill expansion were completed.

Upskilling
Sappi, as the project funder, initiated a Job-Skills Readiness Training Programme together with Amec in 2011, which will continue beyond the end of Project GoCell.

Since the start of the programme, 590 local labourers have been trained in skills, including steel fixing, scaffolding, formwork, concreting, brick laying and tiling.

On completion of the training programme, the labourers received Construction Education and Training Authority-accredited training certificates, with the possibility of being hired to work on the project, says GoCell training centre project head Louis van der Merwe.

Ten local labourers who have completed their initial training courses in construction-related disciplines have been offered an additional 45-day training programme in welding.

The programme entails completing theory-based and practical tasks and assessments and requires the labourers to job shadow an artisan in the working environment and, in turn, learn how to weld.

Environmental Aspect
Project GoCell will also decrease Sappi’s environmental footprint and improve its energy efficiency. Ngodwana’s mill odour will be reduced through improved efficiencies, while the mill will burn 61 000 t/y less coal, compared with its current coal consumption of 500 000 t/y. Less water will also be used, owing to the requirements of the SC process.

The Ngodwana mill will also increase its bark, black liquor and biomass use to produce its own energy. The mill already produces most of its own power and sup- plies electricity to the national grid.

Sappi Southern Africa’s renewable-energy use is at 38%, of which 95% comprises black liquor – a by-product of the pulp production process – and 5% bark. The black liquor is concentrated into an evaporator and burnt in a recovery boiler to generate the electricity and steam required to run a paper mill.

Meanwhile, in 2012, the amount of energy bought by Sappi from State-owned power utility Eskom decreased significantly, as the manufacturing efficiencies at the Saiccor mill improved as a result of new tech- nology installed during its Amakulu expansion project, while the mill also generated a greater volume of renewable fuel, owing to the enhanced use of pulping liquids.

The partial curtailment of pulping operations and the complete mothballing of PM 4 at the Tugela mill also contributed to the decrease in bought energy.

An additional environment-friendly operation undertaken by Sappi is its ReFibre business, which provides about 200 000 t/y of recovered paper and fibre, mainly corrugated board, for its operations in Southern Africa.

Over and above the two-million tons of timber a year that is consumed by the Ngodwana mill, Sappi ReFibre provides about 46 000 t/y of recycled fibre to the mill. About 8 000 t of the recycled fibre is collected in Mpumalanga alone.

Sappi Forests
Sappi Southern Africa has 554 000 ha of owned, leased and managed timber plantations, of which 228 000 ha is in Mpumalanga. Of Sappi’s total planted hectares, 400 000 ha, comprising eucalyptus and pine timber plantations across Southern Africa, supply more than 70% of its timber requirements in the region.

About 85% of Sappi’s 154 000 ha of unplanted land is set aside and maintained by the company as a means to conserve the natural habitat and bio- diversity, indigenous forests and wetlands found in Mpumalanga and KZN.

Sappi’s forestry operations also improve water consumption by delineating riparian zones and wetlands and by ensuring that these are kept free of trees, while also regulating drainage and limiting soil erosion to prevent water runoff into streams and rivers.

“To date, Sappi has voluntarily removed about 8 000 ha of alien trees from sensitive areas to conserve biodiversity and water,” says Sappi Mpumalanga regional forestry manager Duane Roothman.

Meanwhile, Sappi Southern Africa plants about 20-million seedlings each year, or 12 000 ha/y. This process goes a long way towards increasing the amount of carbon stored in Sappi’s plantations, which is about 260-million tons of carbon at any given time.

In Southern Africa, the planting of pine and eucalyptus trees is carefully matched with soil type and climatic conditions and, therefore, they grow six to ten times faster than commercially grown trees in the northern hemisphere, notes Roothman.

“Pine, however, still takes between 16 and 20 years to mature, while eucalyptus takes about ten years.”

Sappi’s tree improvement research and breeding programmes, using tree cuttings to create hybrid species, have enabled the manufacturer to increase its fibre yield for each planted hectare and decrease its water use, as well as increase the drought and disease resistance of its trees. The breeding programmes have also achieved a 60% improvement in eucalyptus plantation yield over the last 15 years.

All Sappi mills have also achieved ISO 9001 certification for quality management and ISO 14001 certification for environment management. The mills have also been awarded the OHSAS 18001 occupational, health and safety management system standard.

All the timber grown on Sappi-owned, -leased or -managed land is Forest Stewardship Council (FSC) certified, while about 87% of the timber supplied to Sappi by growers is FSC certified. The remaining 13% is sourced in line with FSC-controlled wood sources requirements, which are incorporated into Sappi’s purchasing specifications and contracts. These requirements are also in line with Sappi’s purchasing policy, making it a sustainable undertaking.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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