Jul 04, 2008
Weaker rand, strong demand offers sound start-up platform for chemicals-cellulose expansionBack
DURBAN|Engineering|Natal|Africa|PROJECT|Resources|Sappi|Southern Africa|Waste|Water|Africa|Americas|Asia|Europe|South Africa|USD|Chemical-cellulose|Chemical-cellulose Facility|Chemicals|Elemental Chlorine-free Chemical Cellulose|Energy|Food|Pharmaceuticals|Plastics Industries|Pre-eminent Manufacturer|Product|Headache|Environmental|Jan Labuschagne|Power|Waste|Water
© Reuse this The $460-million expansion of the Sappi Saiccor chemical-cellulose facility, in KwaZulu-Natal, was over 90% complete, and once ramped-up to its full nameplate production of 800 000 t/y would entrench the group's position as the world's pre-eminent manufacturer of dissolving pulp. It would also further enhance Sappi's ranking as one of the world's lowest-cost producers, Southern Africa CEO Jan Labuschagne tells Engineering News in an interview.
The biggest single consuming industry remains the garment trade, where chemical-cellulose is being employed increasingly to give fabrics a silky shimmer and feel, not only for use in high fashion items, but also in day-to-day garments.
However, the product is also used as an input in the food, pharmaceuticals, chemicals and plastics industries in applications as diverse as headache tablets, through to the handle on a screwdriver.
Labuschagne says that the expansion, dubbed ‘Amakhulu', also represents a ‘step change' for the industry, given that most of Saiccor's competitors, such as Rayonier, are still producing at rate of between 300 000 t/y and 500 000 t/y.
But the facility's cost advantage does not come exclusively from these economies of scale. Its access to the low-cost, renewable fibre resources of KwaZulu-Natal, which is a fast-growing timber region, is also a material benefit.
Sappi is also convinced that the demand trajectory, underpinned by robust garment-sector growth in Asia, will be more than adequate to absorb the additional output it plans to place into the market.
"The market is still very tight," Labuschagne reveals, adding that Sappi is inundated with requests from customers for additional tonnages.
This said, rising interest rates and slowing consumer demand worldwide could have a short-term impact. There has already been a softening in the viscose market, which has precipitated a fall in spot prices from around $1 500/t to around $1 000/t. But current price levels are still well above historical trends.
"We think that the markets were running too hot, and actually see the recent decline as positive for the long-term health of the market," Labuschagne asserts, noting that the investment decision was based on far more modest trend prices.
Sappi is still forecasting average yearly growth of four per cent, and Labuschagne discloses that the group has already secured offtake orders for more than 80% of the expanded production.
The timing of the ramp-up also offers something of a ‘sweet spot', particularly given the rand's recent weakening against the dollar.
"This will substantially shorten the pay-back period," Labuschagne confirms, revealing that, at current exchange rates and pulp prices, there could be a 25% to 30% reduction when compared to the payback period initially budgeted.
Commissioning is due to begin late in the current quarter and the facility is expected to be running at full capacity from the middle of the Sappi's next financial year. And, while the actual expansion is for 300 000 t/y, Sappi has decided to close 75 000 t/y of existing high-cost capacity.
The project should also improve Saiccor's environmental impact through the reduction of air emissions, improved waste-water quality and increased energy efficiency.
In fact, the project will result in the production of an additional 40 MW of electric power, which in South Africa's current power-constrained environment is a significant advantage.
A key challenge, though, is the rise in some of Saiccor's own inputs, particularly some of its chemicals inputs.
Sulphur prices, for instance, have surged tenfold over the last 18 months, while caustic-soda prices have gone up by about 50% over the last six months. But these prices have been offset by strong increases in pulp price, which underpins the chemical-cellulose price.
"Therefore, the financial model for the project is more robust today than it was when we completed the feasibility study," Labuschagne enthuses.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Other Agriculture News
Updated 7 hours ago JSE-listed Illovo Sugar on Thursday announced that its chairperson Don MacLeod would retire with effect from the close of the company’s one-hundredth annual general meeting on July 15, 2015. The Illovo board thanked MacLeod, who had been a board member since 1983,...
Agricultural and agroprocessing group Tongaat Hulett’s Mozambique-based sugar mill and sugar cane estates’ subsidiary Acucareira de Moçambique (Mafambisse) ran a nonprofit technical organisation the Southern African Institute of Welding (SAIW) training course for its...
Updated 6 hours ago Despite apparent legitimate reasoning behind State-owned power utility Eskom’s electricity tariff increases, increased costs would undoubtedly hurt those in the lower portion of South Africa’s income distribution, consulting firm Frost & Sullivan Africa energy and...
Updated 6 hours ago The detailed feasibility study into a $4.5-billion, two-phase steel project planned for development by the Hebei Iron and Steel Group, of China, and South Africa’s Industrial Development Corporation (IDC) should be completed in the first quarter of 2015, IDC CEO...
Updated 6 hours ago Infrastructure development on the continent has gained momentum, with a special office to be set up soon, to champion this cause. Cabinet on Thursday announced that it has approved the establishment of the Project Management Office for the African Union Presidential...
Recent Research Reports
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
This Week's Magazine
The board of UD Trucks Southern Africa (UDTSA) has announced the resignation of MD Jacques Carelse. Long-time UD employee, corporate planning and marketing GM, Rory Schulz, has been appointed as acting MD while the process started to appoint a new MD. The Japanese...
There is a need to start planning another pumped storage scheme in South Africa. Much work has already been done at a site in the Limpopo province and the project was very close to being put out to tender at one stage. In 2008/9 the National Energy Regulator of South...
The Coega Development Corporation (CDC) is preparing to leverage its strategic coastal position to develop the Eastern Cape economy through proposed aquaculture development zones (ADZs), with a proposed R2-billion project aiming to contribute $278-million to the...
Completion of the ongoing construction of the 102 km Zomba–Jali–Phalombe–Chitakale road, in southern Malawi, has been extended from June to December 15 because of persistent rains and difficulties in paying the contractor. The project is being undertaken by Kuwait's...
The Malawi government has awarded South African firm Fischer Consortium the contract to upgrade the Malawi Road Traffic Information System. The Directorate of Road Traffic and Safety Services at Malawi's Ministry of Transport and Public Works says Fischer...