UPM Annual Report 2020

UPM BIOCHEMICALS

THE NEW ERA OF BIOCHEMICALS The investment in industrial-scale biorefinery and wood-based biochemicals is a major milestone in our strategic transformation and the nucleus for an entirely new and high-value growth business.

Glycols can be converted into various everyday consumer goods.

Lignin replaces fossil raw materials in plastics.

Renewable functional fillers are used in rubber applications.

has been optimised, it is expected to achieve the ROCE target of 14%. In 2020, we joined the Renewable Car bon Initiative (RCI), which promotes the goal of making chemicals more sustainable, more climate-smart and part of the circular economy in the future. Our investment was awarded as “The Bio Act of the Year 2020” by the World BioEconomy Forum. This recognition substantiates the fact that bioproducts boosting the circular economy are truly seen as fundamental in the fight against climate change.

Good cost and sustainability position A combination of sustainable wood supply, a unique technology concept and the prox imity to customers will ensure the com petitiveness of our operations. InfraLeuna GmbH, a company at the heart of European chemical industry, offers very competitive conditions for constructing the biorefin ery with its existing permitting processes, logistics arrangements and infrastructure for various services and utilities. The safety and sustainability of the value chain are based on our high standards. Rawmaterials and key services for the biorefinery will be sourced from a region that enables local value creation and enhances sustainability. Once the biorefinery is fully running and

OUR DIRECTION • Enter the wood-based biochemicals market • Opening new markets commercially OUR STRENGTHS • Competitive high-quality solutions for replacing fossil-based ingredients in various industries and solutions • Unique technology concept based on our product development concept • Climate-neutral feedstock

Spearheads for growth on page 30 www.upmbiochemicals.com

CASE

is expected globally as biochemicals are intended mainly to replace chemicals made from fossil raw materials. The products can be used to replace oil, gas or coal-based materials. Customers don’t need to make changes in their existing value chains as UPM’s biochemicals per form consistently in existing production processes and recycling infrastructure. Moreover, they will significantly reduce the CO 2 footprint of the end-use products. The renewable biochemicals have a huge number of potential industrial and consumer applications. Our go-tomarket strategy focuses on building the right partnerships with the sustainability conscious companies.

In January 2020, UPMmade the decision to invest EUR 550 million in a biochemical refinery in Leuna, Germany. The investment will open completely newmarkets for us, with large growth potential for the future. The new-to-the-world biorefinery will produce a range of 100% wood-based bio chemicals, which will enable a switch from fossil rawmaterials to sustainable alterna tives in various consumer-driven end-uses such as textiles, plastics, PET bottles, pack aging and variety of rubber applications. The total annual capacity of the biore finery will be 220,000 tonnes. The main products will be bio-monoethylene glycol (BioMEG) and lignin-based renewable

functional fillers. The biorefinery will also produce bio-monopropylene glycol (BioMPG) and industrial sugars. In 2020, detailed engineering, procure ment and permitting processes of the pro ject were proceeding at full speed. The con struction activities for the biorefinery began in October with the official ground-breaking ceremony. The biorefinery is scheduled to start production by the end of 2022. Strong market for replacing fossil based chemicals UPM’s biochemicals respond to cus tomers’ increasing needs for renewable alternatives. Strong demand-led growth

LOCALLY SOURCED, CERTIFIED FEEDSTOCK

to find use cases for hardwood, where industrial applications have so far been limited. The biorefinery will start out by using beech wood, and once the production is running stable, the aim is to look into utilising also other hardwood species. Increasing the industrial use of hardwood supports the future goals of climate adaptive forest management. The catchment area for raw material for the biorefinery will be as close to the Leuna site as possible. All feedstock entering the factory will be certified according to either the FSC ® or PEFC standards. Our dedicated wood sourcing organisation will

work with a broad range of forest owners, from major state-owned organisations in Saxony-An halt and Bavaria to private forest organisations and small owners. Regional sourcing of raw materials and other services for the biorefinery will enable local value creation and ensure compliance with high social and environmental standards. In addition, a railway connection to the mill will further help to lower the total CO 2 emissions of operations.

All the wood used in the new biorefinery is 100% certified and regionally sourced. Utilising thinnings and industrial beechwood that is cur rently incinerated, along with side streams from sawmills, the facility contributes significantly to advancing the circular economy. The Leuna plant will use hardwood trees native to Germany, where the share of mixed forests has increased, as they are more resilient to the effects of climate change and help to maintain biodiversity. The new business will now be able

58

59

UPM ANNUAL REPORT 2020

UPM ANNUAL REPORT 2020