UPM Annual Report 2021

BUSINESSES

UPM

BEYOND FOSSILS

STRATEGY

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2021

UPM BIOCHEMICALS

NEW BUSINESS IS COMING TO LIFE

The first-of-its-kind biorefinery in Leuna is taking shape, while a robust business platform is being built and customer engagement points to a promising commercial future.

operations personnel for the biorefinery. The innovative digital twin of our biorefin ery supports the establishment of robust production processes and a competent, well-trained team. Market demand and customer interest confirmed Consumers are pushing for sustainable products globally. Global brands have embraced ambitious CO 2 reduction targets and are innovating their portfolio to offer sustainable choices for consumers. While recycled materials have become the mainstream choice for sustainable materials, UPM’s biochemicals made from renewable raw materials will offer a miss ing link to achieve a sustainable circular bioeconomy: rubber and plastics based on renewable chemicals. Our glycols and Renewable Functional Fillers (RFF) work well in existing production and recycling processes, and will support the transition away from oil-, gas- and coal-based mate rials (right). This distinct sustainability value add is reflected in the positive feedback we have received throughout our commercial engagement in 2021. We have made strong progress in opening sales channels in various glycol end-use industries, mainly in packaging, automotive and textile applications. We have started joint product de velopment with potential customers in various rubber applications to validate the technical performance of our RFFs and bring sustainable alternatives to CO 2 -heavy rubbers to the market. We also launched UPMBioMotion™, the renewable func tional fillers set to significantly reduce the

OUR DIRECTION • Establish renewable biochemicals as a premium category • Enter the renewable materials market • Open new end-use markets • Successfully launch the business to scale

OUR STRENGTHS • Unique and innovative technology concept • Sustainable feedstock • High quality products for plastics, textile and rubber applications, as well as industrial liquids, with a sustainability footprint that sets us apart • High brand appeal for many consumer products in packaging, automotive, textiles and various industrial segments • A robust, scalable business platform

CASE

RENEWABLE FUNCTIONAL FILLERS WILL BE A REAL GAME-CHANGER Today, about 15 million tons of oil-based carbon black and silica are used annually to reinforce rubbers and plastics in tyres, hoses, sealing systems and other rubber and plastic products. Industries are intensively looking for more sustainable business alternatives. The wood-based renewable functional fillers to be produced in the future biorefinery will have the same performance level as fos sil-based fillers. When they enter the market, they will significantly reduce the carbon foot print of various rubber and plastic products. According to our calculations, RFFs have an over 90% lower CO 2 -footprint than industrial carbon black. When used in combination with bio-based rubbers and plasticisers, they enable final compounds to contain up to 85% renewable substances. Wood-based fillers are also much lighter. Lightness in the automotive industry means better mileage, lower costs and a reduction of CO 2 emissions.

carbon footprint and weight of rubber and plastic applications. The possibilities of our new biochemical products are endless. This was demonstrat ed by a co-operation announcement with the Coca-Cola Company, who have unveiled their new 100% plant-based recyclable bottle, highlighting UPM’s industrial-scale biorefinery as a breakthrough for the production of a new generation of biochem icals that will help produce the sustainable packaging of the future. Our biorefinery project has also received positive external recognition. We were among the seven finalists of the prestigious German Sustainability Award and our contri bution to the sustainability transformation was recognised by the jury. We were selected as a finalist in the Chemical Week's Sustain ability Awards 2021 and climbed up to 3rd place in the European Rubber Journal’s top 10 elastomers for sustainability ranking.

After the ground-breaking ceremony in October 2020, good progress was made in building the new-to-the-world biorefinery in Leuna, Germany, which will produce bio chemicals from sustainably sourced wood. The EUR 550 million investment will open completely newmarkets for us, with large growth potential for the future. The biorefinery will produce a range of 100% wood-based biochemicals, the main products being bio-monoethylene glycol (BioMEG), bio-monopropylene glycol (BioMPG) and renewable functional fillers, with a total annual capacity of approximate ly 220,000 tonnes. In 2021, detailed engineering, procure ment and permit processes continued progressing well, and building at the site

took off. However, the pandemic materially slowed down the completion of the detailed engineering. Disruptions to global supply chains affected both the availability and costs of critical construction materials. As a result, we estimate that the start-up will take place by the end of 2023. The capital expenditure estimate will also be updated. At the same time, the business plat form was further strengthened. We have continued building a team of international experts with a strong chemical indus try background to further advance our research and development, build strong commercial operations, and then estab lish the service and supply infrastructure to meet our customers’ specific needs. We also started hiring and training the

The market size for RFF is huge — carbon black is one of the top 10 petro-based products in the world. Industrial carbon black used in tires constitutes around one third of their component materials and profiles can account for up to half. For industrial use, the composition of each rubber compound must be carefully optimised. We aim to perfect our new customised product quickly and effectively through close customer collaboration.

www.upmbiochemicals.com

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UPM ANNUAL REPORT 2021

UPM ANNUAL REPORT 2021