UPM Biofore Magazine 1-2018

UPM’S STAKEHOLDER MAGAZINE 1/2018

BEYOND FOSSILS – GROWTH AND INNOVATION IN RENEWABLE SOLUTIONS

The growth of global consumption drives the need to find renewable and sustainable alternatives for fossil-based raw materials. Pulp provides them. It is a renewable biomaterial unique in its versatility. In addition to paper, paperboard and tissue papers it can be used for creating durable and flexible, featherlight and even transparent materials. What’s more, pulp is suitable for new applications like 3D-printing, textile fibres and biomedical applications such as cell culturing. Pulp is a genuine powerhouse of bioeconomy in many ways. The production of pulp generates significant useful sidestreams and residues for bioenergy and sustainable materials. Furthermore, pulp plays a big role in offering jobs and economic welfare for the surrounding society. And in reducing the world’s reliance on fossil-based materials. upm.com/biofore PULP FOR GOOD UPM PULP

BIOFORE IS UPM’S GLOBAL STAKEHOLDER MAGAZINE

Edi tor ial

We believe in a future beyond fossils Look around you. In the future, almost everything you see can be made from renewable biomaterials. This development is a good way to address the challenges of growing global consumption. At UPM, we see these challenges as opportunities. It’s been ten years since we made the strategic decision to base our operations on seizing the opportunities of the bioeconomy. Biofore perfectly captures our intent of creating added value with sustainable bioinnovations. Innovations that offer competitive alternatives to fossil- based solutions. Our new brand promise – UPMBiofore Beyond Fossils — is a natural continuation to the strategy we’ve been realizing for a long time as the leader of the bio-based forest industry. The foundation of our operations is renewable, wood-based biomass that represent many long-term growth opportunities for our businesses. We constantly look for new business opportunities and end-uses of forest biomass to meet the growing global consumer demand. We promote circular economy by reusing or recycling most of our residues and side streams. We develop new innovative solutions for replacing fossil materials. Our efficient processes cover sustainable material procurement and recovery, production, as well as innovative reuse of products. Our new direction perfectly captures the way we operate as well as the exciting challenge we have ahead of us. We want to develop responsible alternatives also for new end uses where fossil materials have yet to be replaced with renewable ones. We believe in a future that’s not dependent on fossil materials and we’re committed to doing our part in building it. UPMBiofore – Beyond Fossils.

ELISA NILSSON Vice President, Brand and Communications, UPM

INSPIRED by the limitless opportunities of bioeconomy DELIVERING renewable and responsible solutions INNOVATING for a future beyond fossils

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03 EDITORIAL

30 FULL GREEN AHEAD IN NORWAY According to ZERO, a Norwegian environmental non-governmental organisation, sustainable biofuels will play an important part in future transportation and the bioeconomy. 34 THE FUTURE OF FOOD LABELS New eating habits and the rapid rise of the middle class in emerging markets are fuelling growth in food labelling. 38 FISH-FRIENDLY HYDROPOWER Hydropower is clean and renewable, but harnessing energy from running water can disrupt aquatic ecosystems. New solutions are being tested to help restore fish stocks. 42 RED FLOWER OF REMEMBRANCE Every year 45 million red paper poppies are produced as a symbolic gesture of remembrance for fallen soldiers. The pulp used in poppies comes fromUPMKaukas pulp mill and the paper is manufactured by James Cropper paper mill in Great Britain. 45 RENEWABLE CARBON – KEY TO A SUSTAINABLE CHEMICAL INDUSTRY Michael Carus, a pioneer of the bio- and CO 2 economy, writes about “Renewable Carbon Economy” in the Bioforesight column.

04 CONTENTS

08 PRESIDENT AND CEO JUSSI PESONEN: A FUTURE OF GROWTH BEYOND FOSSILS

UPM’s bioeconomy products offer sustain­ able solutions to the challenges of global megatrends. It provides an excellent spring­ board for UPM’s future expansion and earnings growth.

14 LONG-TERM COMMITMENT IN URUGUAY

Since planting its first eucalyptus seedlings in Uruguay 30 years ago, UPMhas grown into a major driver of local employment and entrepreneurship. The ripple effects travel far and wide. 18 PLANNING FOR THE FUTURE UPMplans to invest EUR 2 billion in a new mill to be located near the city of Paso de los Toros in Uruguay. The newmill would have capacity to produce about 2 million tonnes of eucalyptus pulp annually. Strong, durable birch plywood protects the growing volume of low-emission liquefied natural gas (LNG) sailing the seven seas. 24 STRONG IN CHINA FOR 20 YEARS Long-term commitment has brought UPM a strong foothold in China's growth market. Investments made over the years provide a good basis for future growth. 29 MORE EFFICIENT AND CLEANER CHANGSHU The three-year “More with Biofore in China” research programme aims to improve the energy efficiency and environmental performance of the UPMChangshu paper mill. 20 GAS SAILS SAFELY IN BIRCH PLYWOOD

EDITOR-IN-CHIEF Elisa Nilsson

MANAGING EDITORS Sini Paloheimo, Satu Peltola

EDITORIAL STAFF Heli Aalto, Veera Eskelin, Markku Herrala, Sari Hörkkö, Kristiina Jaaranen, Klaus Kohler, Anneli Kunnas,

Marjut Meronen, Marika Nygård, Maarit Relander-Koivisto, Säde Rytkönen, Annika Saari, Tommi Vanha, Päivi Vistala-Palonen.

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46 GROWING BY DOING THE RIGHT THING

DESIGN Valve

Integrity is an asset for decision making, management and operations. Business success boils down to an individual mindset of wanting to make the right choices.

PRINTING Erweko Oy

COVER UPM Finesse Silk 200 g/m² PAGES UPM Finesse Silk 130 g/m²

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48 IN TIME

50 BRASSICA CARINATA – A NEW PROFITABLE WINTER CROP ALTERNATIVE In Uruguay, Brassica carinata – an excellent rawmaterial for the sustainable production of biofuels – is bringing additional income for farmers during the winter.

UPM-KYMMENE CORPORATION PO Box 380 FI-00101 Helsinki Tel. +358 (0)204 15 111 www.upm.com www.upmbiofore.com

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We deliver renewable and responsible solutions and innovate for a future beyond fossils across six business areas: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Communication Papers and UPM Plywood. We employ around 19,100 people worldwide and our annual sales are approximately EUR 10 billion. Our shares are listed on NASDAQ OMX Helsinki. UPM BIOFORE – BEYOND FOSSILS. www.upm.com

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INSPIRED by the limitless opportunities of bioeconomy DELIVERING renewable and responsible solutions INNOVATING for a future beyond fossils

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TEXT Matti Remes   PHOTOGRAPHY Janne Lehtinen, Tuomas Harjumaaskola, UPM

Global megatrends are reshaping the future of business, with sustainability leading the transformation. President and CEO Jussi Pesonen is confident that UPM is set for decades of solid growth as a bioeconomy innovator.

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eptember saw the launch of UPM’s new brand promise linking the phrase “Beyond Fossils” to UPMBiofore. President and CEO Jussi Pesonen sees this promise of a future based

the same thing: sustainable solutions to the challenges of population growth, urbanisation, climate change and resource depletion. “Consumer demand is primarily driven by the newmiddle classes in emerging economies. But growing consumption also highlights the need for responsibility. Manufacturing has to transition away fromdwindling fossil resources and towards renewable, recyclable rawmaterials.” As an example, demand for pulp manufactured by UPM is on the rise, drivenmainly by urbanisation and increasingly prosperous consumers who want pulp-based, biodegradable and recyclable packaging materials and personal care products. “Current megatrends indicate that pulp will remain a very interesting product in the long term.” Another great example of a megatrend feeding UPM’s business is the case of UPMRaflatac’s self- adhesive label materials. Demand for labels is increasing due to the rapid growth of online sales: adhesive labels are needed on every parcel to facilitate smooth delivery to customers. “Another growth driver is food labelling, as more andmore consumers in emerging economies are buying pre-packaged food products.”

beyond fossils GROWTH A future of

on non-fossil rawmaterials as a natural extension of UPM’s purpose to seize the limitless potential of bioeconomy. “It all begins with responsibly grown wood biomass that is processed into renewable, innovative, high-quality products,” Pesonen states. UPM’s Biofore strategy has proven to be a great success over the past ten years. The company is thriving. Its six business areas are highly competitive, and all have secured a firm foothold in their respective markets. “Nowwe have raised the bar even further. Fromnow on, we are aiming higher and shooting for continuous renewal and earnings growth.” What the world needs now Global megatrends provide an excellent springboard for UPM’s future expansion. They present numerous long-term opportunities, as everyone around the world wants

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SPEARHEADS FOR GROWTH

HIGH VALUE FIBRE

SPECIALTY PACKAGING MATERIALS

MOLECULAR BIOPRODUCTS

THE KEY FACTOR these three spearheads have in common is the deep level of knowhow required to manufacture high-quality products. What is more, there is a high threshold for potential competitors to enter such specialised markets.

Raflatac Specialty papers

Forests  Pulp

Biofuels  Biochemicals

Communication papers

Plywood

Energy

“CONSUMER DEMAND is primarily driven by the new middle classes in emerging economies. But growing consumption also highlights the need for responsibility. Manufacturing has to transition away from dwindling fossil resources and towards renewable, recyclable raw materials,” notes Jussi Pesonen.

innovation from the initial idea through R&D to a successful market launch is a long road fraught with challenges. For example, UPMbegan developing biofuels in 2006, but the decision to invest in a production facility was not made until 2012, and it took another four years for production to ramp up to full speed. Three spearheads of growth Pesonen explains that while UPM strives to grow across all its business areas, there are three strategic spearheads: specialty packaging materials, high-value fibre products and biomolecules. “In particular, we aim to invest in businesses that offer attractive long- term fundamentals for profitability and growth, as well as opportunities to achieve a sustainable competitive advantage.” The key factor these segments have in common is the deep level of knowhow required to manufacture high-quality products. What is more, there is a high threshold for potential competitors to enter such specialisedmarkets. In the case of specialty packaging materials, for instance, UPM

has developedmore advanced manufacturing technology than its competitors, helping to establish itself as a global leader on the label release paper market. “In the segment of biofuels and biochemicals, we have a lot of proprietary knowledge and protected intellectual property rights that our competitors can’t match. We are the first company to develop a process for manufacturing these products from solid wood.” Why quality always wins The pulp industry, too, is a market with a high entry threshold, because setting up production facilities requires massive investment. Pesonen believes that UPMhas a competitive edge in pulp thanks to its cost-effective, responsible production and supply chain all the way from the forest to the customer. “The pulp operators that succeed are the ones with efficient access to wood. In Finland, we have an efficient wood sourcing organisation for purchasing wood fromprivate landowners. In Uruguay, the raw material is sourced fromplantations. This presents certain challenges related

to tree cultivation that need to be managed.” Pesonen highlights the importance of impeccable product quality, which can be a competitive advantage in more traditional UPMproduct groups. In the graphic paper market, for example, buyers appreciate responsibly manufactured high-quality products. The same is also true of plywood products, where UPM’s growing customer base includes tanker manufacturers whose vessels are used for transporting LNG (liquefied natural gas). “Birch plywood has turned out to be the best product for insulating tanks that transport LNG at –163°C. Even in these extreme conditions, the plywood still retains its strength and dimensions.” Investing in tomorrow Thanks to its healthy cash flow and balance sheet, UPMhas been able to make focused investments in its spearhead growth businesses. For example, UPMhas expanded its Kymi and Kaukas pulpmills in anticipation of future growth in pulp demand. Amajor step is also planned

Building on four cornerstones Over the coming years, UPMwill continue to build on its current four cornerstones: performance, growth, innovation and responsible operations. “We can increase our earnings in two ways: by improving cost competitiveness or by increasing sales. In the latter case, new growth projects are crucial.” Pesonen emphasises that the demand for continuous improvement applies not only to financial performance, but also to employee competence and working culture. “Innovation is at the core of our strategy, as new products and technological advances generate opportunities for growth. But we also need to continuously reform our existing businesses.” Pesonen sees the biomolecule segment as particularly fertile ground for new growth. Thanks to UPMBioVerno diesel produced in Lappeenranta, new-generation biofuels are already a profitable business segment for UPM. The company’s biochemicals business is still in the early stages, but it has potential to become a substantial source of growth in decades to come. Pesonen notes that the journey of an

“Innovation is at the core of our strategy, as new products and technological advances generate opportunities for growth. But we also need to continuously reform our existing businesses.”

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for Uruguay, where the company is assessing the possibility of building a second pulpmill. The newmill would cost approximately two billion euros. “The preliminary planning and infrastructure projects are proceeding as expected, but the final decision on investment will not be made until mid-2019 at the earliest. It could even be later,” notes Pesonen. He adds that starting a large production facility is a long-term project. Planning for the newmill in Uruguay began as early as 2010, when UPM started increasing its plantation area. “There is plenty of sustainably grown wood rawmaterial available, so in that sense the cornerstone has already been laid for the new plant.” To meet rising demand, UPM is also increasing the capacity of its label material production plants. Meanwhile, removal of production bottlenecks has been the main focus of attention at the UPMChangshumill in China, while in Germany, UPM

technology that allows us to utilise different rawmaterials requires a lot of innovation.” In the biochemicals business, UPM is examining the possibility of constructing an industrial-scale biorefinery at the Frankfurt-Höchst Chemical Park in Germany. “In the preliminary technical planning phase, we are also gauging commercial interest in alternative materials to replace fossils in various end-use applications andmarkets.” Journey of transformation Pesonen has been President and CEO of UPM since January 2004. He has led the company through a challenging transformation. Today, this former traditional paper company is a recognised frontrunner in bioeconomy innovation. “All stages of the transformation have been extremely interesting.

CEO’s top two challenges UPM’s future is brimming with great opportunities, but there are also complex challenges on the horizon. Two of them are of special concern to the President and CEO, who is responsible for the organisation as a whole. The first is linked to the continuous improvement of employee competences, whether by adopting innovative production methods or understanding the ever- changing market. Pesonen believes that the CEO’s main duty is to give the personnel the tools to become the very best they can be. “As CEO, you have to know your employees and allow people to do their job efficiently. It may sound like a cliché, but the success of the company starts with its people. It’s important to ensure employee wellbeing, so that they can get inspired about their work and achieve results.” The second crucial challenge relates to focused capital allocation, an area in which UPMhas excelled in recent years. Focused growth projects have exceeded their ROI targets. “We must continue to focus our investments on exactly the right projects to ensure that they generate growth andmeet our ROI targets.” Pesonen notes that UPM’s financial standing is currently better than ever. Thanks to the company’s solid performance and balance sheet, more capital can be allocated to promote its future growth and transformation. “In the meantime, we will also strive to increase shareholder returns and create additional value for all our stakeholders.” 

A MAJOR STEP is planned for Uruguay, where the company is assessing the possibility of building a second pulp mill. The preliminary planning and infrastructure projects are proceeding as expected. The new mill would cost approximately two billion euros. JUSSI PESONEN has been President and CEO of UPM since January 2004. He has led the company through a challenging transformation. Today, this former traditional paper company is a recognised frontrunner in bioeconomy innovation.

Getting the company into shape was challenging, at times even nerve-racking.

But when our people realised that changes were necessary – and achievable – things started moving in the right direction.” Pesonen

“It may sound like a cliché, but the success of the company starts with its people. It’s important to ensure employee wellbeing, so that they can get inspired about their work and achieve results.”

Nordland’s second paper machine is being converted fromfine paper to label paper manufacturing. Significant

commends his employees for their ability to achieve results even in challenging market

investments are also in the pipeline for the biomolecule business. UPM is

currently looking into setting up a new biorefinery in Kotka to manufacture advanced traffic fuels from several biomaterials. “The production capacity of the planned facility would be fivefold compared to the UPMLappeenranta biorefinery. New production

situations. In the declining paper market, for instance, the company has successfully adapted to changes and developed new products. “Our business has been profitable even in the most challenging conditions. This is a truly commendable achievement.”

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TEXT Ella Navarro   PHOTOGRAPHY UPM

T

he year 1988 is significant for Uruguay, as it marked the advent of the new forestry law and the beginning of sustainable forest industry in the South American country. Since then, forestry has become a vital part

of Uruguay’s economy and a significant transformer of many people’s lives. This year, forestry products are forecast to be Uruguay’s top export, providing no fewer than 25,000 jobs. One of the key players bringing about this transformation has been UPM, affirms Jussi Penttilä , Vice President of UPM’s Uruguay operations: “All of UPM’s activities in Uruguay are planned with a long-term view. At present, we employ 7,000 people throughout the value chain.” UPM’s plantation and wood sourcing company Forestal Oriental supplies wood from sustainably managed local eucalyptus plantations to the UPMFray Bentos pulp mill. Two advanced nurseries ensure the availability of highly productive and locally adapted eucalyptus trees. “This guarantees that we have good knowledge of the rawmaterial we use and how it affects our eucalyptus pulp,” Penttilä says. “One of the advantages of eucalyptus is that it grows fast. The seedlings we plant today will provide wood in ten years from now,” says Penttilä. “Still, what we are doing here is long-termwork”. Fostering creative partnerships The expanding forest industry has brought new opportunities onmany fronts. Ricardo Methol , Technical Development and Planning Manager at UPMForestal Oriental, explains that forestry is an all-season operation.

Long-term commitment in Uruguay

Since planting its first eucalyptus seedlings in Uruguay three decades ago, UPM has grown into a major driver of local employment and entrepreneurship. The ripple effects travel far and wide.

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UPM FORESTAL ORIENTAL

•The company supplies the UPM Fray Bentos pulp mill daily with 320 trucks of eucalyptus wood from sustainably managed local plantations. •It manages about 250,000 hectares of land, of which 60 per cent is planted with eucalyptus. The remainder consists of natural grazing land, conservation areas, roads and other infrastructure. •The plantations are FSC ® and PEFC™ certified. •Beekeepers produce high-quality honey around UPM’s eucalyptus plantations. •In 2015, the United Nations’ Food and Agriculture Organization FAO recognised UPM’s forestry operations for its exemplary forest management practices. •A total of 85 per cent of the local communities where UPM’s plantations are located have fewer than 500 inhabitants. study of the fish population. “More than 10 years’ worth of cumulated data monitoring by national and international environmental authorities has confirmed that the mill doesn’t have a negative impact on the river or its inhabitants. We communicate transparently on environmental issues and share the study results with all our stakeholders,” Penttilä says. Motivated experts and local talent The company’s internal culture fosters continuous development. When construction of the Fray Bentos mill kicked off in 2004, there was a need to recruit engineers andmill workers with good basic skills. Today, these same people have evolved into sought-after professionals.

“Harvesting andwood transportation are run twenty-four-seven, in three shifts. This creates many jobs and opportunities for entrepreneurship all year round, which boosts the local economy,” he says. UPMForestal Oriental sources part of its pulp wood through its Fomento cooperation programme, which today includes 550 Uruguayan producers. In practice, Fomento offers local landowners the possibility to diversify their traditional production with cattle and agriculture through sustainable eucalyptus production using UPM’s high-quality seedlings. One of these contract landowners is Eduardo Alvarez fromDurazno in Central Uruguay. “Working with UPMprovides stability. We are also able to respect the environment without harming the business. The experience has been excellent. Everything is done by the book,” he says. Alvarez isn’t the only one benefiting from the trees growing on his farm. His cattle are happy too, as the eucalyptus trees provide shade and shelter from the scorching heat of the sun. Strong ties with local communities “We constantly engage with the local communities in the areas where we operate,” says Magdalena Ibañez , Manager of UPMFoundation. “This includes regular meetings, visits to the pulpmill and plantations as well as educational events”. Founded in 2006, UPMFoundation works with local stakeholders and public institutes to develop rural communities through education, training and entrepreneurship. In Uruguay, a majority of the industries and businesses and nearly half of the population are located in or around the capital of Montevideo. What makes UPM’s operations special

is that they are located in rural areas where people have less access to training opportunities. “The purpose of the UPM Foundation is to strengthen local communities by initiating development projects especially in education and training. Training opportunities and jobs are a way to mitigate rural to urbanmigration,” Ibañez says. Five-year safety streak The UPMFray Bentos mill, located on the banks of the Uruguay River in the south-western part of the country, was founded in 2007. It is still considered one of the world’s most efficient pulp mills, with annual production capacity of 1.3 million tonnes of eucalyptus pulp. Pulp bales are transported downstream from the mill aboard river barges to the port of Nueva Palmira, where they are loaded on larger ships heading to Europe and Asia. “Our mill is in great condition. People are motivated and we have good working practices. Everyone has a great attitude towards their work,” says ProductionManager Martin Gutfraind . Safety is the top priority in all of UPM’s operations. “Currently the mill is on an over five-year streak of no lost time accidents for our own employees at the site,” says Gutfraind. Since the start-up of the mill, UPMand the local authorities have been continuously monitoring its environmental performance with the help of independent researchers and experts. The monitoring has concentrated mainly around air emissions, water effluents and waste. The water quality of the river has been the focal point of these studies. A great example of this intensive monitoring is an extensive

UPM FRAY BENTOS •The mill was founded in 2007 and has an annual production capacity of 1.3 million tonnes of eucalyptus pulp, which goes to tissue, specialty paper as well as printing and writing paper manufacturers in Europe and Asia. •It is a significant biomass energy producer, accounting for eight per cent of Uruguay’s total energy production. •A total of 800 people work on the mill site daily in different operations ranging from production to logistics. •Fray Bentos is the first non-European mill to be certified in accordance with the voluntary EU Eco-Management and Audit Scheme (EMAS) promoting legal compliance and mitigation of environmental impacts. •With over 30,000 visitors in the past ten years, the mill is a tourist attraction in Fray Bentos.

UPM AIMS TO MAKE plantations multifunctional. In addition to pulpwood they provide shelter for cattle and eucalyptus honey during the blossom. Mushroom picking courses are arranged in the surrounding communities. A TOTAL OF 800 PEOPLE WORK on the mill site daily. Safety is the top priority. Currently Fray Bentos is on an over five-year streak of no lost time accidents for our own employees at the site.

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IN A SHORT TIME the Fray Bentos campus of the Technical University of Uruguay (UTEC) has become a modern seat of learning attracting students from all over the country.

UPM HAS AGREED with the Uruguayan government on the local prerequisites for industrial investment as well as initiatives for infrastructure development for a possible world- class pulp mill investment. A long- term industrial operation requires stable and predictable operational environment.

actions targeting the quality of the Rio Negro river. UPM is ready to support the government-led initiative to ensure the usage of best practices in the whole river basin. Boost to local economy The new pulpmill would have various positive impacts on Uruguay, providing the community with jobs, training and improved infrastructure. The mill’s location is in the least developed area of the country, potentially providing a major spur for rapid regional development similar to the earlier example of Fray Bentos. The new pulpmill is estimated to increase GDP by two per cent. It would boost the local economy and fuel the growth of hundreds of small andmedium sized companies throughout the entire value chain. It would also generate a significant number of permanent jobs in industry, plantations, harvesting, port operations and related services. Uruguay has what it takes Uruguay offers excellent natural conditions and an ideal climate for eucalyptus plantations, not to mention excellent wood quality. It also has 30 years of experience in forestry and over ten years in running pulpmill operations, which should prove extremely valuable in the new project. “Uruguay offers a strong foundation for the further advancement of the forest industry,” says Hakanen. “The education level and a stable political and social situation are fundamental assets. We have been operating in Uruguay for three decades now, so we have the experience and competences to execute a project of this size and nature,” he concludes. 

A year ago UPMand the government of Uruguay signed an investment agreement which outlines the local prerequisites for a potential pulp mill. The agreement details the roles, commitments and timeline for both parties as well as the relevant items to be agreed prior to the final investment decision. Currently UPM is carrying out technical studies and applying for the necessary permits. “A pulpmill investment of this scale requires efficient logistics to enable secure wood supply and pulp deliveries from the inlandmill to the port of Montevideo. This will require the construction of a modern railway to the port and a modern pulp terminal as well as development of the road network,” says Petri Hakanen , Senior Vice President of the UPMUruguay Development Project. The new railway would provide transport opportunities not only for forestry but also for other businesses like grain and wooden products, while also increasing Uruguay’s export competitiveness worldwide. “We need to ensure that infra­

structure development and the permit processes move forward as planned. These are the most significant requirements at this stage,” says Hakanen. Open sharing with the public UPM’s process for the planned new pulpmill takes place in three phases. After the ongoing second phase is completed, the local conditions for the decision-making process for the company's pulpmill are in place. UPMhas actively kept local stakeholders in Uruguay up to date on the progress of the project. “In September, we presented its latest status as well as the results of the Environmental and Social Impact Assessment, which we have submitted to the Uruguayan environmental authority for analysis”, notes Hakanen. The study concludes that there are solutions to mitigate all identified possible impacts of the planned new mill. These include proper planning for the construction period, compliance with best available techniques (BAT) and implementation of the planned

UPM plans to invest EUR 2 billion in a new mill to be located near the city of Paso de los Toros in central Uruguay. The new mill would have capacity to produce about 2 million tonnes of eucalyptus pulp annually. PLANNING FOR THE FUTURE

“Many mill technicians have advanced in their careers and they are now shift and day supervisors. Experts originally from the Fray Bentos mill are nowworking in UPM's various activities all over the world,” says Penttilä. To advance technical skills and engineering expertise in rural areas, UPMand the Technological University of Uruguay (UTEC) established a Regional Technological University (ITR) in Fray Bentos. Opened to students in 2016, the new university focuses onmechatronics, renewable energy, transport and logistics. “In the last recruitment call, seven out of ten resumes came from qualified people who live in this region,” says Gutfraind. “By creating new job opportunities, we are encouraging people to settle in the towns close to our operations.”

Jump start for sleepy town Fray Bentos has undergone a drastic transformation in the past few years. Just over ten years ago, it was a sleepy town seemingly stuck in a time warp, with a declining population and only a few basic services. “The biggest challenge for Fray Bentos was survival,” says Walter Latapie , the 70-year-old owner of a local tyre shop. When the mill project was The economic impact of the mill is apparent everywhere: “It brings jobs, increases people’s buying power and enhances the wellbeing of the whole community,” states Penttilä. Latapie agrees: “The mill exceeded all our expectations. Demand for work started to increase and we had to work hard to keep up!”  announced, the local economy received a welcome jump start.

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TEXT Satu Peltola   PHOTOGRAPHY UPM

In 2017, LNG was transported by LNG TANKERS WORLDWIDE 439 This is equal to one tenth of Finland’s annual volume of energy consumption. 258 In 2017, the total volume of LNG shipments was MILLION TONNES = 3,525 TWh

Gas sails safely in birch plywood Strong, durable birch plywood used in insulation components protects the growing volume of liquefied natural gas sailing the seven seas.

mid growing global demand for low-emission energy, the use of liquefied natural gas (LNG) is increasing rapidly. LNG usage is predicted to catch up with pipeline gas within the next few years. Already today, there are nearly 450 tankers sailing the world’s seas to deliver LNG to remote places beyond the reach of the pipeline network. Yet gas shipments involve certain challenges. Natural gas is first liquefied by cooling it to a temperature of -163ºC, which condenses it to 1/600th of its original volume. Throughout transport, the LNGmust be kept at the same steady

temperature, no matter howwildly external weather conditions might vary. To pull off this feat, the tank trunks must be well insulated, usually with components made from birch plywood or steel. UPM is currently the leading supplier of birch plywood for large tankers. 2,500 cubic metres per tanker LNG plywood is manufactured by only a few suppliers in the world, and the process is strictly certified. “The requirements are strict, because the end-use conditions for the plywood insulation are very demanding. Birch is ideal not only because it’s tough, but also because it’s able to maintain its original dimensions even when the surrounding temperature conditions vary widely,” explains UPMPlywood Area Sales Director Mikko Iso-Kuusela .

MORE THAN 180 LNG TANKERS with WISA birch plywood are sailing on seven seas. To be the leading supplier requires knowledge and expertise, but also commitment to this niche sector.

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• The first LNG shipment was from USA to UK in 1959. • UPM supplied the first LNG ship plywood insulation in 1969. • In 2017, LNG was transported by 439 LNG tankers worldwide. • LNG tankers can be insulated with plywood or steel structures. • In 2017, the total volume of LNG shipments was 258 million tonnes, which equals 3,525 TWh in energy output. This is equal to one tenth of Finland’s annual volume of energy consumption. SAILING STEADY industry, sea and land transport, and for heating private and public real estate. • A total of 114 LNG terminals were in operation in 2017, 55 in Asia. Nine more are planned. • Asia accounts for 70 per cent of LNG trade. • LNG usage has increased 5 per cent annually in the last three years. • LNG is liquefied natural gas cooled to a temperature of –163◦C for transportation by ship or lorry. • It is used in applications such as LNG FAST FACTS

“LNG is fast becoming a competitor for pipeline gas and a noteworthy alternative,” states Jari Kostama.

Insulating one tanker requires around

UPMmanufactures LNG plywood at three mills: at Joensuu in Finland, Chudovo in Russia and Otepää in Estonia. Eachmill utilises local birch logs, and the finished LNG plywood components are shipped to China and South Korea, where the majority of LNG tankers are built. “Insulating one tanker requires around 2,500 cubic metres of plywood. That’s a massive amount. The construction of plywood components for one tanker takes around one month,” explains KimmoWilska , Mill Director of the Joensuu plywoodmill. What’s in the pipeline? Although LNG currently accounts for only ten per cent of gas usage against 90 per cent pipeline gas, its use has increased five per cent annually in the last three years. “LNG is fast becoming a competitor for pipeline gas and a noteworthy alternative,” states Jari Kostama , Director of Finnish Energy, the representative organisation of Finnish energy producers. Amid growing demand for LNG, new terminals are being planned and built at an increasing pace. “In 2017, there were 114 finished terminals, 18 under construction, and nine more being planned. All three LNG terminal projects in Finland have been initiated in the last five years. That’s a good

indication of the rapid pace of growth,” Kostama notes. The use of LNG is growing constantly all over the world. This growth is especially rapid in Asia, which accounted for 70 per cent of global LNG trade last year. The fastest growing Asianmarkets are Japan, South Korea and China. “The main reason is the low energy reserves in these countries, but also high population growth and efforts to curb massive emissions, especially in China,” Kostama explains. environmental issues have been high on the agenda for many years, 82–83 per cent of the fuels used in the world are still fossil-based. Natural gas is a significantly better alternative to oil or coal, but it is still not entirely emission-free. “Even though natural gas is free fromparticle and sulphur emissions, and its nitrogen emissions are controllable, it’s still a source of carbon dioxide emissions, though considerably less pollutive than traditional energy sources,” Kostama affirms. While natural gas is a low-emission energy source compared to traditional alternatives, Kostama predicts that completely emission-free alternatives are on the horizon. “They’re still decades away, but I believe they’re coming.” Emission-free horizons Kostama notes that although

CUBIC METRES OF PLYWOOD 2,500

WISA BIRCH PLYWOOD COMPONENTS for LNG carriers are always manufactured and delivered according to the specific requirements of each customer. The finished LNG plywood components are shipped to China and South Korea, where the majority of LNG tankers are built.

LIQUEFIED NATURAL GAS (LNG)

LNG PLYWOOD INSULATION STEEL COVER

–163°C

DOUBLE TRUNK OF THE SHIP

0°–+25°C

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TEXT Matti Remes

PHOTOGRAPHY Tuomas Harjumaaskola

20 years strong in China

UPM celebrates its 20th anniversary in China this year. Ongoing investment over the past two decades has secured a firm foothold for future growth in Asia’s emerging markets.

n 1998, UPMbought a majority stake in the Changshu paper mill in China. This marked the start of a determined growth strategy under which UPM has invested over two billion US dollars in China over the last two decades. “The continuous investments we have made at the Changshumill site demonstrate our strong, long-term commitment to China,” states Bernd Eikens , Executive Vice President, UPMSpecialty Papers. In 2005, an uncoated fine paper machine was installed alongside the existing coated fine paper machine, followed by a third paper machine which started producing specialty papers in 2016. “The launch of specialty paper and label release liner production was an important milestone. Nowwe are able to offer a wider selection of high-quality products that are produced on site in China,” says Eikens.

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UPM HAS A LONG TERM COMMITMENT TO CHINA

APAC Supply Chain Centre in Changshu established

UPM Paper invests in China

UPM Raflatac starts in Shanghai

Changshu mill second PM start-up

Fibre United starts to represent Canfor in China

Changshu mill third PM start-up

2008

UPM Asia R&D Centre established

1998

2000

2005

2007

2014

2016

2018

1997

2007

2011

2017

2019

UPM Plywood’s direct sales to China

Raflatac Changshu factory starts production

UPM Pulp APAC sales organisation set up in Shanghai, direct sales start

Investment of 100,000 t office paper cutting line China becomes the biggest market of UPM Timber Pulp sales hits 1 million tonnes through China team

2008

2015

UPM Raflatac capacity expansion

UPM Timber China Sales Team established

their groceries mainly from street markets. Now they increasingly prefer supermarkets and choose packaged and labelled groceries for their shopping baskets. Growing together with customer The rapid change of the Chinese economy and paper market has been witnessed first-hand by Eddie Chan , Vice President, Sales for UPM Specialty Papers in China. He has been selling UPMproducts in China for 20 years. “Two decades ago, no one would have believed the rapid, stable growth of China’s economy, which is clearly visible in paper products, too. Working in sales is rewarding and exciting here, since we can grow together with the customer,” says Chan. He believes that the demand for paper products will continue to grow further in step with China’s economic

growth and improved living standards – though the competition is also growing fiercer. Chan recalls that 20 years ago, China had only a few local paper producers in addition to UPM. Since then, other big international operators have established a foothold on the market. “The quality of the competition is increasing, too. UPMhas provided high-quality products to its Chinese customers ever since the outset, but over the last decade, local competitors have also raised their product quality,” Chan explains. He believes environmental performance gives UPMa special competitive advantage, as there is rising environmental awareness among Chinese customers. Foreign companies operating in China already see the value of paper products made from certified rawmaterials.

Selective strategy The UPMChangshumill site is also home to UPMRaflatac’s labelstock factory, the Asian research and development centre, and the APAC Supply Chain Centre. Hand in hand with its production investments, UPMhas placed a strong focus on sales andmarketing in China. In addition to paper and label, UPM sells pulp, plywood and sawn timber in China. According to Eikens, UPM’s strategy is to achieve a strong market position by focusing on carefully selected product segments. A good example is high-end office paper, in which the company enjoys a significant market share in China. “The demand for high-end office paper continues to grow, but its consumption in China is still much lower than in Europe, for example,” Eikens notes.

The changing Chinese shopping basket UPM is preparing for future growth by making further investments at the Changshumill. The production capacity of paper machine 3 will increase when the second supercalender is ready early in 2020, making UPM one of the biggest label release paper producers in Asia. “Demand for label materials is growing strongly in China — it’s a big opportunity for us,” notes Eikens. The demand for label materials is drivenmainly by online sales, which is especially strong in China. Packaging labels are essential to assure smooth customer delivery. “Forecasts indicate that China will represent 60 per cent of global online sales by 2020,” observes Eikens. Another area of growth for label materials is the food industry. In the past, Chinese consumers bought

“Forecasts indicate that China will represent 60 per cent of global online sales by 2020,” observes Bernd Eikens.

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Over recent years, UPMChangshu has made a concerted effort to improve its energy and resource efficiency and reduce emissions. This ongoing work is set to continue. The ‘More with Biofore in China’ programme aims to improve environmental performance and energy efficiency at the Changshu production facility through the use of new technologies. Energy and Utility Director Wang Yue describes the

distribution terminal in South Korea, which offers improved service in label materials across the local market. “With our new terminal, we can offer world-class service to our customers and help them achieve their goals. The centre is an investment in the future that demonstrates our long-term commitment to the Koreanmarket,” says AdamNaga , Director, Supply Chain, APAC fromUPMRaflatac. “Furthermore, it provides a safe work­ space for our employees,” he adds. The distribution terminal is located in the city of Suwon-si, near Seoul. Logistically, the location is excellent, as it is only a short drive from customers in the capital area. “Roughly 70 per cent of our customers are located in the metropolitan area, but we can easily reach customers elsewhere in Korea, too,” says Naga. The majority of UPMRaflatac’s The new distribution terminal allows UPM to provide evenmore personalised service, as the label materials can be cut to customers’ individual needs and delivered quickly.  Korean customers are small or medium sized printing houses

Trust in UPM UPM’s customer base in China consists mainly of wholesale dealers of paper products. Inmany product groups, products are also sold directly to end users such as printing houses. Chan interacts with customers on a daily basis, and he knows exactly what they expect from their paper product suppliers. He takes pride in sharing that UPM receives praise for its consistent product quality, reliable service and comprehensive logistic solutions. Chinese customers also value long- term commitment – and long-term business relationships are indeed at the core of UPM’s business in China. Many customers have remained loyal for 20 years. “A good customer relationship is comparable to a goodmarriage. Everything is based onmutual trust and in-depth knowledge about your partner. So why change your partner if it all works?” Korean synergies Investment in China also supports UPM’s growth in nearby markets. A good example is UPMRaflatac’s new

programme as a pilot project that provides a blueprint helping UPM’s other production facilities to improve their environmental performance. There are two separate research projects underway in Changshu. The first aims to improve water efficiency of the three paper machines. “We have already reduced water consumption at our

More efficient and cleaner Changshu

“With our new terminal, we can offer world-class service to our customers and help them achieve their goals. The centre is an investment in the future that demonstrates our long-term commitment to the Korean market,” says Adam Naga, UPM Raflatac.

TEXT Matti Remes   PHOTOGRAPHY Tuomas Harjumaaskola, UPM

mills by 60 per cent in the last decade. However, our results show that we might be able to do even better,” says Wang Yue. The second goal is to improve the energy efficiency of the power plant, which would also decrease nitrogen oxide, sulphur dioxide and particulate emissions. “Our goal is to achieve very low emissions. We are working together with equipment suppliers and researchers in this area,” states Wang Yue. She points out that the ‘More with Biofore in China’ programme also complements the strict environmental policy advanced by the Chinese authorities, who have recently introduced new limits for airborne and waterborne production emissions. Inmany cases, these are stricter than in Europe. “The emission limits are very strict, but I am confident that we canmeet the targets.” 

THE THREE-YEAR “MORE WITH BIOFORE in China” research programme aims to improve the energy efficiency and environmental performance of the paper mill. THE UPM CHANGSHU MILL AIMS TO decrease water consumption by 50 per cent per paper tonne. The mill is currently piloting new solutions and technologies to recycle the water after it is released from the wastewater treatment plant.

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Norway is on an ambitious path to reduce transport emissions. According to ZERO, a Norwegian environmental non-governmental organisation, sustainable biofuels will play an important part in future transportation and the bioeconomy.

TEXT Saara Pakarinen   PHOTOGRAPHY UPM; courtesy of the interviewee

O ver recent years, Norway –Western Europe's biggest oil and gas producer – has taken strong actions to reduce its carbon footprint. The new government platformplaces emphasis on energy transition and investments in new technologies. “We need to decrease the use of fossil fuels quite fast. There’s no time to waste and we have to do a lot of things at the same time. Using sustainable biofuels is an important part of the solution in the transport sector. The other parts are using electric vehicles that run on batteries or hydrogen. These alternatives should not compete with but support each other,” says Head of Policy and Research, Kåre Gunnar Fløystad from the Zero Emission Resource Organisation (ZERO). ZERO is a Norwegian non-governmental organisation focusing on climate solutions. It has been active in promoting new

Full green ahead

They see biofuels as a part of the solution and want to increase sustainability in biofuels,” Fløystad says. The biofuel market is growing in Norway andmentioned in several parts of the country’s new government programme. “In the existing policy, Norway has a 20 per cent target for 2020 in the road transport sector, and the aim is to increase the use of biofuels to 40 per cent by 2030, depending on technology development and other alternatives. There is a strong support for the use of sustainable biofuels in the national transport plan as well, and at the moment we’re waiting for the hearing on a 1 per cent obligation for the aviation sector. The implementation will take place on 1 January 2019.” Norway will favour sustainable advanced biofuels Biofuels have had their “ups and downs” in Norway, but in 2015 a more ambitious new policy promoted biofuels to reduce transport emissions, leading to an increase in biofuel usage. Some biofuels have turned out to be more environmentally sound than others, and the most sustainable of these are favoured. According to Fløystad, there are hopes and expectations about Norway using more forest-based advanced biofuels. Although forest-based biomass is a great

technology that enables emission-free solutions in all sectors. Biofuels are one important alternative to fossil fuels. “We have been working on the policy side and among decisionmakers for a more sustainable transport sector. The decisionmakers see eye to eye on the subject and they are well informed on the reasons for using biofuels.

UPM BIOFUELS AND ENVIRONMENTAL ORGANISATION ZERO cooperate to promote green shift in transportation and petrochemical industry. The work focuses on creating a predictable long term operating environment for sustainable, advanced biofuels to enable climate change mitigation in transport with renewable fuels.

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Kåre Gunnar Fløystad

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