Metsa Board Eyes Next Big Investment as Capacity Nears Ceiling
(Bloomberg) -- Metsa Board Oyj’s giant stacks of long-fiber pulp hold more raw material than its board machines can use -- but not for long.
As sales of its packaging materials surge, the Finnish company has room to expand production at its board mills in Finland and its production facility in Husum in Sweden for just three more years before hitting its capacity ceiling.
“We’re able to grow over the market growth this year and next, and probably also in 2020 but then Husum capacity has been fully utilized and Finnish mills are running full,” Chief Executive Officer Mika Joukio said in an interview at the company’s headquarters in Espoo. “We are calculating different options where we could have new capacity and what would be the price tag.”
Sales at Metsa Board, which makes paperboard used to package everything from chocolate, cheese and wine to toiletries, perfume and consumer electronics, have surged in recent years as companies increasingly replace plastics with fiber-based materials and move toward lighter packaging to reduce freight costs. Its total paperboard deliveries jumped 15 percent to 1.8 million metric tons last year, approaching its total capacity of 2.0 million tons.
It’s safe to say the new production facility will be in Europe, and “most probably” at one of the company’s three integrated sites: Finland’s Kemi or Aanekoski or Sweden’s Husum, Joukio said. An integrated facility means all the steps in the production take place at the site, from raw material to finished product. A U.S. production site is almost certainly ruled out as Metsa Board wants to be close to the source of its pulp: Finland’s and Sweden’s forests.
The timing of the investment decision needs careful consideration and Metsa Board wants to avoid adding capacity at the same time as any of its competitors, as that could put pressure on prices, Joukio said.
In the meantime, the company is making a good buck selling the 550,000 tons of pulp it’s not using. Being controlled by the cooperative Metsaliitto Group, which is made up of more than 100,000 Finnish forest owners, is a competitive advantage and ensures that Metsa Board has an unending supply of raw material and doesn’t need to buy from external sources.
“Higher pulp prices benefit us because we are a net seller in market pulp,” Joukio said.
Metsa Board spent the last 12 years transforming itself into a pure paperboard company by divesting and shuttering unprofitable paper assets as global demand declined (back in 2005, some 80 percent of its sales were paper-related). As part of that process, it spent some 200 million euros ($248 million) turning its paper mill in Husum into a board mill. The company is now focused on premium fresh-fiber paperboard such as linerboard and lightweight folding boxboard.
Its metamorphosis shows in the stock: Metsa Board shares have climbed more than 3,700 percent from an all-time low of 19 euro cents nine years ago.
The company expects to see its biggest growth rates in the near term from expanding the sales of that lightweight packaging in the U.S. (its product is about 30 percent lighter than that of rivals, while retaining the same level of stiffness). It’s aiming to lift total paperboard deliveries to the Americas to 500,000 to 550,000 tons, from last year’s 400,000 tons.
“The biggest growth will come from the Americas, from North America specifically,” Joukio said. “Last year we were able to grow 23 percent. This year we will grow again, and then maybe after next year we’re at the target level.”
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