Dive Brief:

• Swedish pulp and paper company Billerud announced it’s investing in upgrades worth 1.4 billion Swedish kronor, about $127 million, at its U.S.-based production facilities. The majority, worth about $109 million, will go toward its graphic paper mill in Escanaba, Michigan, where earlier this year the company canceled a project to convert the plant into a cartonboard production facility.
• The company said the Escanaba investment and an approximately $18 million investment in its pulp and paper mill in Quinnesec, Michigan, will enable it to transition to paperboard production in North America.
• Billerud also announced new financial targets as part of its updated “Way Forward” strategy. They include a return on capital employed greater than 11% and cash conversion greater than 80%.

Dive Insight:

Although Billerud stated in a news release that it remains committed to its North American market positions for graphic paper and specialty label paper, it reiterated the goal to “gradually evolve toward packaging materials to optimize capacity utilization.” The Michigan mill investments are intended to enable this transition to paperboard production.

The company also strives to strengthen its performance in Europe with its strategy updates.

“The premises for pulp, paper and packaging production in Europe have changed since the beginning of 2022,” Ivar Vatne, president and CEO of Billerud, said in the news release. “Going forward we will prioritize profitability over growth and drive performance. We will leverage the growing demand for fiber-based packaging.”

The previous plan to spend more than $1 billion to convert the Escanaba plant into a cartonboard production facility, which Billerud announced in December 2021, also aligns with the packaging materials production goal. That project would have created Billerud’s first U.S. packaging site. The company cited changing economic conditions and return on investment analyses for the course reversal.

Billerud acquired the Escanaba facility when its purchase of Verso closed in March 2022. In addition to the two Michigan production facilities, Billerud also has a paper converting facility in Wisconsin Rapids, Wisconsin.

The newly announced investments at the Michigan mills will be carried out in phases, according to the company. The upgrades will align with scheduled maintenance outages to minimize production disruptions. Upgrades to the wood yard at Escanaba will begin immediately, but most of the work is slated for the second half of 2025.

Billerud’s total investments in 2024 are expected to reach about $227 million, and that number is expected to grow to about $309 million next year.

Billerud specifically aims to gain market share in the Midwest, according to a Monday note to investors from Michael Roxland, senior paper and packaging analyst at Truist Securities. He pointed to the mills’ proximity to customers in the competitive Chicago market and converters’ willingness to buy from independent, instead of integrated, board producers. Billerud estimates that independents represent about 36% of capacity in folding boxboard and almost 60% of capacity in food service, Roxland said.

Still, “we believe [Billerud] is unlikely to disrupt the broader U.S. containerboard market as it is only aiming for a less than 1% kraftliner market share by 2030,” Roxland’s note said. Even so, Truist views Billerud’s updates as incrementally negative for competitors like Graphic Packaging International and Greif, considering new boxboard capacity will increase pressure on supply and demand dynamics in the medium term.

“It could also reignite some investor concerns around new supply, which first emerged when [Billerud] announced this conversion in late 2021, in addition to forthcoming new supply from Sappi” in Somerset, Maine, which is slated to come online early next year, Roxland said.