The Structural Change of Global Forest Industry Lauri Hetemäki Senior Researcher, Ph.D.(Econ) Finnish Forest Research Institute Lecture, Forest policy analysis course (FECP230), March 31, 2011, University of Helsinki, Viikki Metsäntutkimuslaitos Skogsforskningsinstitutet Finnish Forest Research Institute www.metla.fi Outline Motivation and background Factors affecting forest products industry The future outlook Pulp and paper industry Wood products industry (short overview) New products Conclusions Purpose: To provide a synthesis of the global forest industry markets and future outlook Motivation and background Motivation In terms of economic significance, forest industry products are clearly the most important forest products They consume annually about 45 % of the world total roundwood production (wood fuel 55 %) For many countries and regions forest products industry is important for economy, income and employment (Finland, Sweden, Canada, USA southern states, Brazil etc.) Currently, the world forest products markets are in a state of structural change: I Increasing seperation to two different types of markets (OECD vs non-OECD countries) II New forest products are emerging biorefinery Motivation What does structural change imply for global forest sector? What is the role of new forerst industry products? What is the outlook for forest products industry in various regions of the world? In order to answer these questions, let us look at the background and current state of global forest products industry Background Forest industry is usually defined to include: pulp and paper industry and wood-products industry However, in practice it also includes side products, such as energy and chemicals production Side products are becoming ever more important for forest industry companies Next, some basic statistics of the world forest industry Export Value of the World Forest Products (billion US$, in 2008) Industrial Roundwood 12.7 Wood Fuel 0.3 Forest Products 236.8 Paper & Paperboard Wood-products Wood Pulp 209.2 (88 %) Rest (Recovered Paper, MDF, etc.) Data Source: FAOSTAT 14.6 Share 69 % Printing Papers 62.9 Other Paper & Paperboard 50.0 Wood Pulp 31.7 Wood-Products 64.6 Production in 2007 6% 1% % 32% North America 30% Europe Asia Latin America Africa Oceania 30% - Three regions dominate with almost equal share Country million tons in 2007 USA 136 China 84 Canada 40 Japan 40 Finland 27 Germany 26 Sweden 24 Brazil 18 Russia 15 Indonesia 12 France 12 South Korea 11 Canada, USA, Germany, Finland and Sweden are biggest exporters share of world sawnwood and panels production in 2007 9% 2% 2% 35% Europe North America 25% Asia Latin America Oceania Africa 27% - Three important regions, but Europe dominates 10 Few Case Examples 57 Lingoboost demonstartion plant in Sweden Wermland Paper, Bäckhammar pulp mill LignoBoost demonstration plant 4000 t/a lignin by rail to Stockholm Fortum Värme power company family houses in Stockholm - This would cut CO2 emissions by about 100 000 tons /annum compared to using coal lignincake equal to coal 58 Example: Range Fuels, Georgia, USA First commercial scale forest raw material based ethanol mill in USA Investment USD 225 million / Energy Department (DOE) gave $76 mill in 2007 and Department of Agriculture $80 mill loan in 2009 Production capacity 380 mill litres/yr (in first pahse 75 mill litres/yr) Started to produce August 2010 Founder: Vinod Khosla, investor (founder of Sun Microsystems) Alochols are separated and processed to maximize ethanol yield Syngas production Forest residues from Georgia Syngas cleaning Lähde: http://www.rangefuels.com/conversion_process 59 Liquid products are collected and stored When syngas reacts over catalyst , it is turned into mixed alcohols Processed ethanol will be sold to blenders located near by to minimize transportation In the Finnish Forest Research Institute (Metla) laboratory, researchers study how hemicellulose can be refined to ethanol The reserach results can be utilized in industrial processes 60 Example of Transformation: Case Domsjö Domsjö (Sweden) sulphite pulp mill founded 1903 Produced still pulp for paper in late 1990s (appx 200 000 t) http://www.domsjoe.com/ MoDo sold mill in 2000 for investment group (6 persons) Mill was transferred to modern biorefinery Focus on products with good demand prospects Now it produces: Dissolving pulp (250 000 t), which is used for viscose (substitue e.g for cotton and nailon); lignosulfonate (used for additive in concrete); ethanol (mainly for chemicals) In 2010, started a 300 mill investment project: black liquor gasification plant to produce biofuels for heavy trucks 61 Domsjö mill in Sweden (Ưrnskưldsvik) is an example, how an old unprofitable pulp mill has been transferred to profitable biorefinery Similar developments is taking place e.g in Canada 62 Before 2020, the most promising outlook is for wood fiber based energy products Chemicals in the longer run (nanopulp, etc.) 63 The higher the price of oil, the higher the demand for wood to energy 64 The more the politics supports renewable energy use, the higher the demand for wood to energy Kyoto (2013?) EU energy policy 2020 National energy policy Regional & agricultural policies Energy security policies (e.g OPEC, Russia) production & consumption 65 Value Added in Finnish Pulp and Paper industry vs Energy Industry* Vertical axes is either billion euros or ratio 9 8,8 8 7 7,0 6 5 4 In 2000, pulp and paper industry value added was 8.8-times higher 3 3,2 In 2009, it was 1.7times higher 1,7 1 0 94 96 98 00 02 04 06 Ratio =pulp & paper / energy Pulp & Paper Energy 08 10 Economic interest in energy production is going to increase furthermore *The selected energy industry covers sectors, which can potentially use wood in energy production (as a substitute for coal, oil, gas, peat) Thus, it does not include nuclear, water or wind power industries 66 The Long-Term Outlook for Biorefineries There will be a number of different forest biorefinery concepts, which vary according to local conditions, policies and markets 2011-2013: pulp & paper industry integrated biorefineries producing biofuels or biogas are still mainly at the demonstration/pilot stage 2013-2015: first large scale forest industry biorefineries come to operation (e.g 100 000 - 300 000 t/a biofuel units) 2015-2020: forest biorefineries investment boom? 2015 impact on forest sector and local bioenergy markets, but realtively small impact on global energy markets To what extent forest biorefineries will be located in SouthAmerica, Asia, Russia vs Scandinavia and North America? 67 Conclusions 68 Conclusions The structural change in the global forest products markets is still in its early stages Pulp & paper production in OECD-countries declines, and increases rapidly in non-OECD countries (e.g China, Brazil) Wood Products production may still increase in OECDcountries (climate issue, multi-story buildings, etc.) product sector in the next decade (chemicals in the longer run) Energy sector and forest sector become ever more integrated This is an opportunity also for the wood products industry, which has possibilities to increase energy production 69 Thank you! 70 Metsäntutkimuslaitos Skogsforskningsinstitutet Finnish Forest Research Institute www.metla.fi Background literature General background FAO 2011 State of the World Forests 2011, Chapter 2: Developing sustainable forest industries http://www.fao.org/docrep/013/i2000e/i2000e00.htm Statistics: http://faostat.fao.org/ Paper markets and information technology Hetemäki, L 2008 The structural change in the communication paper markets and its implications In: The effects of a revision of the emission trading directive for the period starting in 2013 on the European pulp and paper industry Pellervo Economic Research Institute Research Reports 207 38-50 Download here:http://www.ptt.fi/dokumentit/edt_rap207_fin_2801081342.pdf Hetemäki, L 2006 Changing paper markets and prices Bank of Finland Bulletin, No 1., 79-83 Download here:http://www.bof.fi/NR/rdonlyres/3CCA75CE-32C3-4CAE-AA9E-8D3E402E9CD4/0/06b1_CPMP.pdf Hetemäki, L 2010 Information and Communication Technology (pdf), p.159-165, in Mery, G., Katila, P., Galloway, G., Alfaro, R.I., Kanninen, M., Lobovikov, M & Varjo, J (eds.) 2010 Forests and Society Responding to Global Drivers of Change IUFRO World Series Volume 25 Vienna 509 p Download here:http://www.iufro.org/science/special/wfse/forests-society-global-drivers/ Biorefineries and new forest products Hetemäki, L 2010 Box 9.1 Forest biorefinery: an example of policy driven technology (pdf), p 160-161, in Mery, G., Katila, P., Galloway, G., Alfaro, R.I., Kanninen, M., Lobovikov, M & Varjo, J (eds.) 2010 Forests and Society Responding to Global Drivers of Change IUFRO World Series Volume 25 Vienna 509 p Download here: http://www.iufro.org/science/special/wfse/forests-society-global-drivers/ Söderholm, P & Lundmark, R 2009, "Forest-based biorefineries: Implications for Market Behavior and Policy", Forest Products Journal, vol 59, pp 6-16 71 ... affecting forest products industry The future outlook Pulp and paper industry Wood products industry (short overview) New products Conclusions Purpose: To provide a synthesis of the global forest industry. .. imply for global forest sector? What is the role of new forerst industry products? What is the outlook for forest products industry in various regions of the world? In order to answer these questions,... for forest industry companies Next, some basic statistics of the world forest industry Export Value of the World Forest Products (billion US$, in 2008) Industrial Roundwood 12.7 Wood Fuel 0.3 Forest