Pulp Industry Perspective 2nd Quarter 2016

IP to acquire Weyerhaeuser’s pulp mills

By Jesse Marzouk

Hilco Pulp and Paper Industry Perspective Q2 2016

In the second quarter of 2016, International Paper (IP) announced its acquisition of Weyerhaeuser’s pulp business for $2.2 billion, signifying the latest company to capitalize on the growing fluff pulp market. The sale includes five pulp mills and two converting facilities. Fluff pulp is used in hygiene and incontinence products. Due to its increased use in emerging markets, demand for fluff pulp is expected to rise in the coming years.

This transaction reflects trends for both companies, as Weyerhaeuser has shifted its focus on timber and wood products, while IP is focusing on pulp and paper markets that are exhibiting growth. For Weyerhaeuser, the sale will help reduce debt, which grew significantly with its recent acquisition of Plum Creek Timber Compa-ny.

IP stated that it is willing to divest up to two mills, if neces-sary, to gain regulatory approv-al. If IP is not required to divest any assets as a condition of the acquisition, its share of the glob-al fluff pulp market is estimated to rise from 17% to 39%. Georgia-Pacific (30%) and Domtar Corporation (9%) represent the next largest players in the fluff pulp market.

The acquisition comes during a period in which many companies are expanding into the fluff pulp market, chasing in-creasing demand. In the near term, supply growth will outstrip demand growth, as three significant projects are anticipated to add nearly 1.3 million tonnes to the market in 2016, including Klabin’s mill in Parana, Brazil (400,000 tonnes), as well as machine conversions from IP in Riegelwood, South Carolina (365,000 tonnes) and Domtar in Ashdown, Arkansas (515,000 tonnes). This additional supply will likely place downward pres-sure on fluff pulp prices in the short term.

Jesse MarzoukJesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies involved in manufacturing and distribution. Jesse received his MBA in finance from Kellogg School of Management at Northwestern University, and has a degree in finance and accounting from Indiana University.