Mercer to defer converting two of its NBSK mills to swing mills capable of producing dissolving pulp
August 3, 2011
– Mercer International Inc. has decided to defer converting two of its northern bleached softwood kraft (NBSK) mills to swing mills capable of producing dissolving pulp (DP).
In the company’s earnings statement released Aug. 2, president and CEO Jimmy S. H. Lee said the company had completed its feasibility studies concerning the possible conversions and that they were generally favorable and did not identify any material technical impediments.
“However, we have determined that, as a result of significant new dissolving capacity coming online, certain ongoing technical and equipment developments and other available opportunities, including for enhanced power generation, to defer proceeding at this time,” Lee said. Mercer will continue “to closely monitor developments and the opportunity,” he added.
Commenting on the announcement in a research note today, RBC Capital Markets paper and forest products industry analyst Paul Quinn said, “Given the collapse in DP prices (from ~$2,600/mt to ~$1,500/mt in the last 2 months), the decision to defer a dissolving pulp swing strategy and pursue additional energy producing opportunities, seems wise.”
Mercer announced on Feb. 22 that it had completed a preliminary feasibility analysis toward the conversions of its mills near Castlegar, British Columbia (the Celgar mill) and Stendal, Germany, for an investment of US$30 million to US$40 million that would allow the mills to respectively produce an estimated 400,000 tonnes per year and 500,000 tonnes per year of dissolving pulp.
In the Feb. 22 statement, Mercer said that it would maintain its core NBSK business and its commitment to customers and that it would only adjust some of its production to dissolving pulp in order “to realize enhanced margins.”
Mercer’s Aug. 2 earnings report cited a second quarter net income increase of 31% year-over-year to $20.7 million, with total revenues up 3.9% to $332.9 million, driven by strong NBSK pulp prices and output.
On July 19, Mercer announced that it would drop its Aug. 1 NBSK list prices by $30/tonne in North America, to $990/tonne, and in China, to $830/tonne. Other producers have also dropped their prices to these levels, in response to current market conditions.
Mercer produces NBSK exclusively and has a total capacity of approximately 1.5 million tonnes/year at mills located near Castlegar, Stendal, and Blankenstein, Germany.