Sappi's dissolving pulp conversion at its Cloquet, Minnesota, mill to provide future business growth with new ability to supply to textile, home goods markets for products including baby wipes, toothpaste, lipstick

Kendall Sinclair

MINNEAPOLIS , March 15, 2012 (press release) – The Sappi Fine Paper mill in Cloquet is flipping its page.

The northern Minnesota mill has produced pulp for its own line of high-gloss paper used in brochures and annual reports and has supplied pulp to other paper producers. Now as the digital age and the recession have cut demand from those customers, the 113-year-old facility will shift its attention to a new market: textiles.

Sappi will continue to make paper but it has embarked on a $170 million project that will convert its mill from one that makes paper pulp into one that produces cellulose pulp, which is used in textiles. The conversion is the first of its kind for a Minnesota paper producer and will give Sappi the capacity to supply the pulp to mills in China, Indonesia and India, nations where textiles are booming.

Based in South Africa, Sappi already is the world’s largest producer of chemical cellulose. The Cloquet conversion, along with another project that will expand cellulose production in South Africa, will further boost its capacity.

“It’s definitely a growth business,” said Wayne Brandt, executive vice president of Minnesota Forest Industries, referring to the chemical cellulose market. The product can be used to satisfy the demand for rayon, now used as a low-cost substitute for cotton in apparel and home goods. It also can be processed to make baby wipes, toothpaste, lipstick, cellphone screens and even some food products like ice cream and puddings. “There’s more than one leg to the stool of demand for the product,” he said.

Brandt said it’s unlikely other paper makers in Minnesota will do similar conversions because their pulpmaking processes are different and because they only make pulp for their own use. In general, it’s rare for paper mills to undergo such conversions.

After Sappi’s project is complete next year, the company will buy paper pulp for the Cloquet mill, said Mike Schultz, a manager who is overseeing the project. He said the project was prompted not only by declining demand but by the growing number of new mills in South America that have begun producing paper pulp, flooding the market.

“We saw a shrinking base of demand, more supply — it just didn’t put us in a good position,” Schultz said.

A recent report by RISI, a Massachusetts-based paper industry research firm, sketches a grim outlook for companies that produce paper. The advent of e-readers and tablet computers is expected to reduce paper use for newspapers, magazines and books by more than 20 percent between 2010 and 2025.

Sappi isn’t the only paper company with operations in Minnesota that’s felt the double-barreled impact of the recession and the explosion in digital media.

Citing reduced demand and rising costs, Verso Paper Corp. cut about 175 employees, about 40 percent of its workforce, last year at its plant in Sartell, near St. Cloud. Executives of the Memphis-based company declined to comment on the downsizing, which also included 125 layoffs at another facility in Maine. This month, the company reported a 2 percent drop in unit volume for 2011 and expects no growth in coated paper sales this year.

UPM, a Finnish paper, timber and energy company whose operations include Blandin Paper in Grand Rapids, announced plans last year to sharply reduce newsprint and magazine paper production at several European facilities. Joe Maher, Blandin’s general manager, declined to comment on operations at the facility.

Meanwhile, Ohio-based NewPage Corp., whose 16 mills include one in Duluth, is in the midst of reorganizing under Chapter 11. The September bankruptcy filing cited heavy debt, raw material inflation and a sharp decline in demand for coated paper. Matt Christenson, a spokesman for the Duluth mill that employs about 285 people, said he doesn’t expect changes at the facility.

Outlook isn’t all bad here

Still, Minnesota paper facilities are in a decent position compared with the rest of the nation because they are among the most up-to-date, Brandt said. Many underwent extensive upgrades in the early 2000s, making it easier for them to weather today’s market upheaval.

Other than the cutbacks at Verso, statewide employment in paper manufacturing has been fairly stable, Brandt said. Schultz said the workforce of 750 at Sappi’s Cloquet facility has remained stable. Lori Lyman, a spokeswoman for Boise Paper Solutions in International Falls, said employment has remained steady at about 850.

Conversely, the nationwide production workforce in the industry has fallen by 16 percent in the last five years, according to the Bureau of Labor Statistics.

Unlike producers elsewhere that have converted outdated pulp mills, Sappi’s Cloquet pulp facility is only about 12 years old, Brandt said.

“They will have some advantages because they are starting with a relatively modern facility,” he said.

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