Sappi is shifting its South African timber resources into the production of dissolving wood pulp to meet growing demand for viscose fibre in the Far East, as traditional paper markets decline.

The woodyard at Sappi-Saiccor mill at Umkomaas, KwaZulu-Natal's south coast. The mill requires 2,8 million tons of hardwood a year to sustain current production of specialised cellulose.

With the recent completion of major expansion and conversion projects at its Ngodwana and Cloquet mills and the ramp-up of production of dissolving wood pulp, Sappi has re-positioned itself to take advantage of growing markets for this versatile product.

This strategy is a response to weakening demand around the world for fine paper, driven by the rise of digital media, which has resulted in the closure of production lines at Sappi operations in North America, Europe and South Africa. In Europe alone, demand for fine paper is down 30%.

"The group has invested substantial money in South Africa and North America into the production of specialised cellulose," said Alex Thiel, Sappi SA's CEO. "We need to move Sappi's traditional paper business into areas of more long term, sustainable growth."

He pointed out that this does not mean that Sappi is walking away from its traditional business of producing paper pulp and fine paper.

"There's limited growth potential for graphics paper because people are moving into the digital space, so we are adjusting our capacity," said Alex. "We supply according to the market demand but there is no huge growth. We will optimise our production and sustain our market share."

Alex also sees a bright future for the packaging business and Sappi is ramping up production for packaging grades, which are manufactured at the Tugela and Ngodwana mills, utilising softwood fibre.

"We're the only virgin container board producer in South Africa, and this business has a great future," said Alex. Sappi is fully committed to this market.

Sappi is the world's biggest producer of dissolving wood pulp, which is marketed under the name 'Specialised Cellulose', and enjoys a number of competitive advantages in this market.

The Saiccor mill has been manufacturing dissolving wood pulp since 1955 – it was bought by Sappi in 1989 – so there is a wealth of expertise and experience, both in terms of production and marketing. Sappi owns extensive plantations in South Africa that are well suited to growing the hardwood fibre required to supply the mills. Sappi plantations in KwaZulu-Natal and Mpumalanga are already being converted from softwood to hardwood to meet the growing demand.

The company does not own plantations in North America, but has access to sufficient hardwood timber resources to supply the Cloquet mill with its raw material requirements.

Sappi's specialised cellulose product is marketed mainly in the East, where it is used to produce viscose fibre used in the clothing and textile industries. Alex says that Sappi SA has a competitive advantage through technical expertise as well as economies of scale in that Saiccor is the biggest single-site producer in the world and the timber supply is close to both the Saiccor and Ngodwana Mills. There is also a logistical advantage in exporting to the East from South Africa, he said.

This re-positioning has implications for Sappi's South African forestry operations.

Once it has reached full production, Ngodwana will require two million tons of timber a year, 900 000 tons of which will be hardwoods. Sappi- Saiccor requires 2,8 million tons a year, all hardwood. Wattle makes up 10% of this raw material, with Eucalyptus making up the rest.

Sappi's total timber requirements in South Africa are 5.5 million tons a year, 70% of which comes from its own plantations and the balance from private timber growers, small growers and community forestry projects.

Alex said Sappi had sufficient resources in the ground in KwaZulu-Natal to provide for the Saiccor expansion, and a surplus of hardwoods for Ngodwana. Softwood plantations in both regions are being converted to hardwoods to ensure a sustainable supply of raw material to the mills.

Sappi is also investing significant resources in research and development to improve planting stock. The company is significantly expanding its clonal programme with the development of the Clan nursery, so that they can get more of the right trees in the ground, improving productivity and providing an opportunity to bring costs down. Thus, there will be a big shift in planting stock over the next few years.

Sappi has consolidated its forestry operations in southern Africa, selling its Usutu softwood plantation and mill in Swaziland. It has also withdrawn from northern Mozambique where it was running a Eucalyptus trial with a view to establishing a plantation resource and processing plant.

"In 2009, we started a feasibility study in the Zambezia province in Mozambique where we wanted to establish a processing plant, but we have decided that it couldn't be done as there are too many social issues and unencumbered land is not available," said Terry Stanger, GM Sappi Forests. "But we are keeping a watchful eye out for opportunities elsewhere in southern Africa."

Sappi has strong links with numerous small growers through its Project Grow programme, which supplies some 2% of its overall fibre requirements. Sappi has also engaged with several community forestry projects in the Eastern Cape, located within the Saiccor catchment, where they have established themselves as strategic partners and play a developmental role. They are already involved with communities with access to 14 000 to 16 000ha, and are targeting 30 000ha in this region over the next 10-15 years.

Around 20% of Sappi's plantation land in South Africa is subject to land claims, which is a potential threat to the company's access to fibre. However, MD of Sappi Forests, Hendrik de Jongh, says that they have made a lot of progress with land claims, especially in KwaZulu-Natal, where 38 out of 40 claims have been settled. Hendrik says Sappi is strategic and technical partners with the claim- ant communities, but stressed that ownership of the land stays with the communities, with whom they have timber supply agreements. However, Mpumalanga remains problematic and progress in settling claims has been slow, admits Hendrik.

The 56% minimum wage increase for forestry workers that came into effect in April 2013 has inevitably had a big impact on the cost of fibre delivered to the mills. Hendrik said that Sappi has mechanised 70-75% of its harvesting operations over the past decade, so there are no big changes in employment anticipated here. But he said that there will be a lot of mechanisation taking place in silviculture operations over the next 12-18 months, which will inevitably mean reduced employment opportunities.

"A line has been crossed and it is now imperative to mechanise. There are a lot of jobs that should never have been done by hand anyway, like de-barking with an axe," said Hendrik.

"The only way to survive in this business is to improve productivity," commented Alex. "The reality is that we need to deliver value for money, otherwise it won't work."

Alex explained that increasing production of specialised cellulose is a first step into the development of exciting new markets for Sappi.

"There's growing value in timber resources for packaging materials, while its chemical properties can be used in many different applications. Cellulose is a sustainable, renewable raw material alternative for a wide range of products. Plus there's the potential to produce byproducts for energy. We're looking for ways to get more value from the trees," he concluded.

Sappi's timber resource is already making a huge impact on the company's energy efficiency. Ngodwana is energy self-sufficient, and is selling energy back into the grid, while Saiccor is 55% self-sufficient.

Published in October 2013