Pollution makes papermaker see the light

UPM's R&D center in Changshu, Jiangsu province conducts research in biomass, paper, pulp and electronic labeling. Provided to China Daily

Company executive's new motto: 'We treat the air as if it were our own air'

When heavy smog in Shanghai last November caused his 2-year-old daughter to develop a bad cough, Kim Poulsen, executive vice-president of UPM Paper Asia, temporarily sent his family back to Finland.

On his own in Shanghai, Poulsen started to think about the investment plan the company had approved in 2012 and which he had been asked to analyze before the company went ahead with the project.

"Can I be the guy to go to the board and promote the idea of building a new boiler to burn coal and put more soot in the sky?" he asked himself.

He decided he could not.

He looked at the project again and decided to make the boilers more energy efficient and added the best filtration technology that money could buy.

As a result, the amount of energy used to produce 1 metric ton of paper is 65 percent lower than 10 years ago in UPM Changshu paper mill. In addition, UPM Paper Asia uses only 25 percent of the amount of water set by the industry to produce one ton of paper.

"The mills recycle 98 percent of the water taken from the Yangtze River," he said.

The cost of making the mills cleaner and more environmentally friendly is 301 million yuan ($48.9 million) and Poulsen is proud to have to have spent the money.

"We are hungry to deliver short-term profits but are not willing to do it by compromising UPM group values, policies and our long-term strategy. We don't like to come to China and take the resources, land, water and air for granted. We treat the air as if it were our own air," he said.

UPM Paper Asia started construction of a third production unit at its Changshu mill in June this year. The new unit is due to become operational in 2015 and will strengthen the company's leading global position as a high-quality supplier of labeling materials and will serve the growing Asian markets with a wide range of labeling materials and specialty products.

"UPM has set clear targets for focused growth initiatives over the next three years in biofuels, specialty papers in Asia, label materials and pulp production," said Jussi Pesonen, UPM's CEO and president.

"With these initiatives, we are targeting an additional 200 million euros ($267.8 million) in earnings before interest, taxes, depreciation and amortization when in full operation. The return on the Changshu investment is attractive and is expected to bring a significant contribution to our EBITDA growth target."

UPM Paper Asia's operation consists of the UPM Changshu paper mill in China together with the labeling and packaging materials production lines of the UPM mills in Finland. Its main customers are retailers, printers, publishers, distributors and paper converters.

Wood-free specialty papers and labeling materials in China are one of the growth initiatives the group has focused on to achieve its profit improvement targets.

The fine paper market is nearly 40 million tons in the Asia Pacific region, with China by far the largest market and offering the strongest growth opportunities, said Poulsen.

The annual growth of labeling materials is expected to rise globally by 4 percent. More than half of the global growth takes place in Asia where the most attractive markets are China, Southeast Asia and India.

Demand in the office paper sector is expected to grow by about 6 to 8 percent per year in China, he said.

"Urbanization and consumer behavior will be driving factors to the growth," he said. Poulsen.

A lot of people will be moving to the cities in China, 100 million in the next six years. When people to come to cities more paper will be used. For example, more people will visit supermarkets whose products require stickers. Demand for release paper will increase, an area where UPM is the global leader, he said.

"In the areas where we operate, there is still growth, but the growth rate is becoming smaller," said Poulsen.

Sales for UPM Paper Asia have decreased from 1.13 billion euros in 2012 to 1.11 billion euros in 2013 and operating profits reduced from 101 million euros to 80 million euros in 2013, as fine paper prices decreased in Asia.

Poulsen attributed this trend to the decline in the global printing and publishing business. The packaging materials sector has seen growth, although the growth rate is less than it used to be.

He observed that the intensified investment in paper mills in recent years has led to an overcapacity in almost all the paper grades in China.

"An increasing number of companies are exporting out of China to balance it out, but unfortunately the price level of exports is not healthy," he said.

He believes the oversupply in China will not affect UPM as strongly as other companies because of its Asia Pacific sales network, which can offset the demand and supply problem in China.

Poulsen has been doing business in Asia since 1999.He has held his position in Shanghai since 2013.

His philosophy at work is to stay humble but strong.

"We need to stay humble towards the future because we don't know what is to come. We must also stay flexible, keep our eye on the ball and work hard. Doing those things will keep us competitive," he said.

"It is my philosophy that the way you treat people on your way up is the same way they'll treat you on your way down."