ESCANABA, Michigan (From news reports) -- The planned conversion of the Escanaba paper mill to produce cartonboard has stalled due to economic conditions, according to company officials.
"The Transformation Program remains the company's most important strategic growth opportunity," said President, General Counsel for Billerud North America Kevin Kuznicki in a statement issued Wednesday. "Given that the macroeconomic environment and operating conditions have changed dramatically over the past 12+ months, we need more time to evaluate alternatives for the most cost-effective way to manufacture Cartonboard products at our Escanaba Mill. As a result, we will not decide on the complete Transformation Program investment by the end of the year as previously announced and will revert when ready."
According to Billerud's Interim Report for January-September 2023, which was published Oct. 25, the company began implementing cost reduction measures to address weak market conditions for most of its product categories. This included changes to production output and the elimination of up to 350 positions.
"We continue to navigate through challenging demand and customer destocking by adjusting our production output. We do not foresee strong recovery near-term, and will continue to adjust to the new conditions, aiming to improve our long-term competitiveness," Billerud Acting President and CEO Ivar Vatne said in the report.
In late 2022, Gov. Gretchen Whitmer and the Michigan Economic Development Corporation (MEDC) announced that the Billerud paper mill had been approved to be designated a "Forest Products Processing Renaissance Zone." Billerud's approval for the FPPRZ, which will be valid for a period of 15 years, was expected to result in approximately $1.96 million worth of abated property taxes annually to support the expansion project. Over the course of the FPPRZ period, this will result in a savings for the mill of $29.4 million.
Further tax abatements by the county and Wells Township and Escanaba Township through the Plant Rehabilitation and Industrial Development Districts Act (Public Act 198 of 1974) were also approved, expecting to result in $657,000 over 12 years, based on a 50% property tax abatement to support the plant's revitalization.
The largest boost to the project, however, came from Whitmer and the state legislature, which approved $200 million to support the project in the state budget for 2023. The funds were part of the Michigan Economic Development Corporation (MEDC) appropriations for the year. A celebration kicking off the project was held at the mill on July 11, during which the $200 million grant agreement between Billerud and the MEDC was signed.
"It is imperative that any project delivers strong financial upside, creates shareholder value and achieves the company's strategic objectives," said Kuznicki. "Billerud plans to maintain the same goals from the onset of the project, including investing in North America over the next several years in support of the Transformation Program's strategic objectives, which includes converting the Escanaba Mill's No. 4 paper machine from making graphic papers to making Cartonboard, saving hundreds of jobs and securing the future of the Escanaba Mill, and benefitting the company's stakeholders."
Cartonboard, also known as "paperboard," is a common but more technologically advanced paper product than the paper currently produced by the mill. It is composed of multiple layers, with two stiff, coated outer plies sandwiching a bulky middle layer. Paperboard is used in a variety of packaging applications from cosmetics and healthcare to food packaging, like cereal and pasta boxes.
The most critical component to produce the right board stiffness, bulk and caliper is a high-yield pulp used for the middle section known as Bleached Chemi-ThermoMechanical Pulp or "BCTMP." Billerud has a history of working with the product, as it operates one of the largest board machines in the world at a mill in the company's home country of Sweden. The company planned to bring the same technology to the Escanaba mill.
Without the transformational project at the mill, MEDC said the plant would eventually close due to market conditions, resulting in the loss of $3.6 billion of direct economic activity over a 10-year period in the local community and regionally in the Upper Peninsula.
2023 has been a difficult year for the Escanaba mill for other reasons. Earlier this year 118 cases of blastomycosis, a fungal disease that causes a type of pneumonia, were reported among mill employees and contractors who worked at the mill, resulting in 14 hospitalization and one death. The outbreak was unprecedented, as there had never been an industrial outbreak of the disease, which typically only infects about 26 people per year in Michigan.
The mill was idled for three weeks in April and early May for deep cleaning in response to the outbreak.
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