UPM invests in biochemicals to drive switch from fossil materials

By UPM-Kymmene Corp. | February 10, 2020

UPM takes the next transformative growth step and enters the biochemicals business by investing in a biorefinery at Leuna, Germany. The biorefinery will produce a range of 100 percent wood-based biochemicals, which enable a switch from fossil raw materials to sustainable alternatives in various consumer-driven end-uses. The investment opens totally new markets for UPM with large growth potential for the future.

UPM will invest 550 million euros (USD$600 million) in an industrial-scale biorefinery to convert solid wood into next-generation biochemicals: bio-monoethylene glycol (BioMEG) and lignin-based renewable functional fillers. In addition, the biorefinery will produce bio-monopropylene glycol (BioMPG) and industrial sugars. The total annual capacity of the biorefinery will be 220,000 metric tons. The facility is scheduled to start up by the end of 2022.

The product range offers unique customer value and is expected to achieve a good cost position, comparable to the fossil-based alternatives. Once the facility is fully ramped up and optimized, it is expected to achieve the return on capital employed (ROCE) target of 14 percent.

“Molecular bioproducts form one of UPM’s three strategic focus areas for growth and are at the core of innovating for a future beyond fossils,” said Jussi Pesonen, president and CEO of UPM. “We have successfully entered the biofuels business and built a profitable business platform. Now we are creating a totally new sustainable business in biochemicals with large growth potential. This is another major milestone in UPM’s transformation and a great showcase of focused and efficient R&D.”

Pesonen continued, saying, “We help our customers to make their businesses more sustainable. Currently the supply of biochemicals is very limited. Due to this, high-quality sustainable alternatives are priced at a premium in the markets.”

A combination of sustainable wood supply, unique technology concept, integration into existing infrastructure at Leuna as well as the proximity to customers will ensure competitiveness of operations. The safety and sustainability of the value chain will be based on UPM’s high standards.

Attractive growth markets

Application areas for bio-monoethylene glycol include textiles, PET bottles, packaging and deicing fluids. Bio-monopropylene glycol is used for example in composites, pharma, cosmetics and detergents. The global glycols market represents more than 30 million tons in size and is expected to grow annually approximately by 4 percent. Currently the market supply is practically all based on fossil raw materials: oil, natural gas and coal.

Lignin-based renewable functional fillers are used in different rubber applications as a sustainable alternative to carbon black and silica. The global market for carbon black and silica combined is more than 15 million tons with an expected annual growth of approximately 3 percent. Besides climate benefits, UPM’s new renewable functional fillers will provide additional benefits such as lighter weight and high purity.

“We are truly excited to provide the customers world-class sustainable solutions,” said Juuso Konttinen, vice president of UPM Biochemicals. “Renewable raw material and new technologies enable significant improvement in carbon footprint compared to fossil-based products. We can also take pride in creating an entirely European value chain, thus being a sustainable local producer. Furthermore, our products fit directly into our customers’ existing processes and the recycling infrastructure. These aspects are important for brand owners and their businesses and pave the way for holistic circular economy.”

Ideal location

Being the European center for chemicals industry excellence and located in the middle of the markets, Germany provides an attractive location for the biorefinery. InfraLeuna GmbH, in the state of Saxony-Anhalt, offers very competitive conditions for constructing a biorefinery with its existing permitting processes, logistics arrangements and infrastructure for various services and utilities. UPM plans to enter service agreements related to wood handling, wastewater treatment and other utilities that will be recognized as lease assets and liabilities under IFRS 16 Leases. Depending on the final agreement the total amount of such lease assets and liabilities is estimated to be between 40 and 100 million euros.

The investment is in line with Germany’s bioeconomy strategy and supports the goal of increasing responsible utilization of the commercial forests. Availability of sustainably sourced hardwood in the region is good. Wood sourcing will be based on forest thinnings and residues of regional sawmills.

The engineering and planning is on-going and the tendering for the main equipment, recruitment for the project and permitting process will start immediately. Permitting will proceed parallel to the investment project in line with German legislation.

Following this decision UPM increased the estimate for total capital expenditure in 2020 to 1.3 billion euros.