October 31, 2020

High pulp prices encourage Ence | Economy

High pulp prices encourage Ence | Economy

The flames of a fire declared in the factory of Ence peeked to the highway that borders the estuary of Pontevedra this Wednesday. Despite its spectacularity, it was extinguished in half an hour and the matter was not over. In the same way, the company's failed bets have also been extinguished – and have caused reflection – the large producer of eucalyptus pulp and renewable energy with biomass. Its new strategic plan 2019-2023 aims at two directions: diversify production and reduce costs, but with processes that will be very gradual and add up to a total investment of 1,200 million euros.

The trick of the paper group is in the good moment that lives the international market of cellulose. The European index NBSK, of reference, has been revalued by 20% this year, with prices per metric ton of pulp that exceed one thousand euros, compared to a cost of production recognized by the company of 325 euros. That is why their forecasts distill optimism: they project that by 2023 their exploitation result will almost double for that product and go from the current 245 million to 400. In energy, the Ebitda would go from 45 million today to 150. "We are not going to play this game number to a single letter, nor are we going to invest everything at once. The strategy is to do it little by little. If they come badly given or twists, we can always stop or stop, "says Ignacio de Colmenares, vice president and CEO.

Ence has learned that pharaonic projects are not the best way to face the future. The most important of its history was about to ruin the company in 2008, when it started a factory in Uruguay with which it contracted a debt of 1.075 million and had to liquidate before the project's infeasibility. Some muds that have not ended in mud. Ence has learned that pharaonic projects are not the best way to face the future. The most important of its history was about to ruin the company in 2008, when he set up a factory in Uruguay with which he incurred a debt of 1,075 million and had to liquidate before the project's infeasibility. Some muds that have not ended in mud. With more than 1,000 employees at present, in 2017 the turnover reached 740 million euros, with a net profit of 119 million. Until last October sales have been 619 million and the profit of 92 million.

The bulk of the investments will go to stop to improve the production of its plants in Navia (Asturias) and Pontevedra. They will also allocate between 60 and 115 million to avoid the release of water vapor and improve emissions of noise and odors. Ence has been complaining for decades about the impact of its factories and this week, after the fire, the Association for the defense of the Ría de Pontevedra called for the end of its activity, "because of the danger that it poses for the population to coexist with a polluting factory that destroys economic resources ".

They will start producing viscose for textile and cellulose for hygiene products

Hygiene market

"The world demand grows around 1.5 million tons every year, due to the increase in population and a greater consumption of diapers, absorbents … But above all it grows in Asia, where the urban middle classes increase exponentially and where the rural population when he arrives in the city, he demands diapers, toilet paper or they buy packaged foods ", explains De Colmenares. A demand to which China can not provide coverage because it is deficient in wood (raw material from which cellulose is obtained). "Therefore, it will continue to grow and supply is stagnant. In addition, at present, there is only one pulp mill under construction in Chile that will be operational by mid-2021. "

In the Navia factory, 305 million will be invested, between 2019 and 2021, to adapt it to the new production of absorbent sanitary towels; the expansion in 80,000 tons of cellulose production, in addition to the diversification in viscose, a natural textile material from wood that has long been eating the land to cotton, with a flat consumption for more than 15 years. Meanwhile, Pontevedra will receive 195 million to expand its capacity in more than 120,000 tons.

Although they will benefit from the global pull of demand from China, for now their markets will remain in Europe. With a production capacity of 1.07 million tons per year, the company takes 11% share of the European market, to which it allocates 90% of its production.

For the employers of the paper industry, "the Spanish pulp industry in general and that of Ence in particular have a good position in the European context, with positive prospects, especially in high-quality products such as absorbent, tissue or the special papers (for floors and furniture), with an upward demand, "says Carlos Reinoso, Aspapel's CEO.

In turn, the Spanish plan has been well received by the analysts of Bankinter, Caixabank, GVC Gaesco-Beka, and more skeptically by those of Sabadell. This latest diagnosis considers the projections of cellulose prices very optimistic and gives 50% chances that pulp production for absorbent hygienic products will be, as the company says, underway in 2020. According to Íñigo Recio, of GVC Gaesco-Beka, "until 2020 it is likely that prices will even rise to 1,100 dollars, but it is possible that from 2022 they go down to 900". A deviation that, for De Colmenares, would not pose any problem, "even so, our leverage would be controlled and we would go ahead with the plan." The company thus guarantees that it would maintain a 50% distribution of the dividend benefit, continuing with the debt below the operating result during the entire period.

Along with cellulose, Ence is committed to the business of electricity generation with an investment of up to 615 million euros (in biomass, solar thermal and photovoltaic). The construction of a biomass factory in Huelva and the purchase one year ago of another in Puertollano (Ciudad Real), joins the recent acquisition, in this same town, of a solar thermal property owned by Iberdrola Renovables for 140 million. Between 2019 and 2023 they will start up a new biomass plant in Almeria, with an investment of 125 million. "It is the ideal place to manage the waste that comes out of the crops under plastic and which is now burned."

It's another way to diversify the business. "Cellulose is cyclical against this [energía] which is stable and regulated. With it we can count on a permanent flow of cash and filing the vagaries of cellulose. " A business that the company will encourage. "It's a safe bet because [la biomasa] it does not depend on the sun or the wind. And when coal and nuclear thermals are closed, energy support will be needed. It also has a positive impact on rural areas: it creates jobs, it takes care of the forest, it increases the population … ", says De Colmenares.


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