Podcast Overview
In this episode Shaheen Chohan is joined by Randy Godet, IIR’s Senior Vice President of Research Operations for Pulp, Paper & Wood, to explore how this industrial sector is seeing record levels of capital spending across North and South America, with major new mill projects and rising investment in bio-based products and recycled fiber.
Presenters
Video Language
[Intro] (00:00):
We are more than two decades now into the digital era, and it is inarguable that the demand for paper as we know it — whether that is printing paper, newsprint, magazines and indeed traditional papers — are being used less and less. And so the big questions are: how is this affecting the paper industry, and what does the industry look like today? Where is it trending into the future? And are there any specific sectors that are specifically showing more resilience over others?
Shaheen Chohan (00:48):
Welcome to Navigating the Currents of Change. My name is Shaheen Chohan. I am the Global Head of Analytics here at Industrial Info Resources, a company recognized for over 40 years for delivering trusted industrial data, verified and constantly updated across more than 12 major industries worldwide. Now, to help me answer these questions and others, I am delighted to be joined by Randy Godet, Senior Vice President of Research Operations for the Pulp, Paper and Wood Industries here at IIR. Randy manages our global research to track major capital and maintenance projects and production capacity developments around the world, and to help keep our customers connected to the near term and long term investment trends. Welcome, Randy.
Now, Randy, for an industry with so much demand destruction due to the digital transformation, how is it that we are still seeing reasonably robust levels of capital and maintenance spending still proceeding?
Randy Godet (02:01):
That's a very good question, Shaheen. The best way that I can answer that is that we're talking about an industry that is very consumer-centric. More than 40% of paper production is attributed to the food and beverage industry for packaging, shipping containers and what have you. So there's still quite a bit of demand, regardless of the demand destruction that you and I have talked about in the past, as well as continuation of the digital era attributing more growth towards next-day shipping. You just think of companies like Amazon — on-time delivery. There's certainly a strong demand for paper products as well, as we're beginning to see more and more evolution in terms of your non-traditional legacy products. What I mean by that are things like biomaterials, biochemicals, biofuels. Some of those developments are moving rapidly from a pilot scale to commercial scale, and actually to the industrial scale. So there's quite a bit beyond your traditional paper product that would lead one to think — why is all this spending taking place? There's still quite a healthy bit of activity there.
Shaheen Chohan (03:15):
Now, there still seems to be significant investments certainly in pulp capacity. Where is all of the new pulp capacity coming from, and where is it going? What is it being used for?
Randy Godet (03:29):
So a lot of the pulp capacity is coming primarily from Latin America — from Brazil and Uruguay. One of the main reasons for that is that they have an abundance of raw material forest products. The cost to build, including labor, fuel and transportation, is much less than it is elsewhere in the world. In fact, Brazil is becoming the global supplier of pulp to markets as far away as Europe and China, and even in some instances here in the United States.
Shaheen Chohan (04:02):
Randy, just a secondary question — I actually still read newspapers. Maybe a little old school. Are we really seeing sectors like that, those very old traditional sectors, really being cannibalized or declining at the rate that perhaps we would think they are?
Randy Godet (04:21):
To some degree, yes. Obviously in certain geographical markets, printing papers are continuing to decline. On the other hand, though, you still have some areas around the world where magazines, newspapers, and specialty papers specifically are in strong demand. People still read and utilize printed papers to a large degree. So much so that we're seeing quite a bit of that activity in markets like China, where plans are to invest in new paper machines as well.
Shaheen Chohan (04:56):
Now back to where you see capital spending. I just wanted to really focus on the near term — what's going to be happening, where is it going to be over the next 12 to 24 months? Can you kind of pinpoint some of the highlights certainly for the next 18 to 24 months ahead?
Randy Godet (05:11):
So over the next 18 to 24 months, there are quite a few projects that are in the pipeline. As a matter of fact, most of the spend that takes place in this industry is based on operational efficiencies and operational excellence. But beyond that, there are several really large projects that are being planned to the tune of over $1 billion. Most of that activity is outside the United States — again, pointing back to Latin America, specifically Brazil and China, and in some instances Southeast Asia. So you have these really large projects that are mainly planned to deliver more pulp capacity. Last year, global pulp capacity was around just under 200 million metric tons a year, and with the new capacity that's in the pipeline in the next 18 to 24 months, we could see those numbers go up incrementally to just over the 200 million mark. So there's still quite a bit of activity going on there.
Shaheen Chohan (06:10):
It's been widely reported that pulp and paper mills in particular are one of the biggest polluters and certainly contribute to climate change due to deforestation and emissions from the energy-intensive pulp process. Is this a concern for the industry, and how are companies addressing these ESG concerns — certainly to try and meet and build more sustainability into their processing?
Randy Godet (06:36):
Yeah. So let me just take a step back from that. We're talking about an industry that, decades ago, has always faced environmental challenges — going back to the cluster rules some 20 years ago, and boiler MACT standards. They've always had to invest heavily in order to maintain their operations and meet environmental compliance. So this round of climate change mandates specifically geared towards greenhouse gases — they're taking that head on as well. Within the next 18 to 24 months, we could begin to see some of those projects actually go into construction, mainly around carbon capture technologies. So there are a few of those that are in the pipeline that likely will actually happen here in the next 18 to 24 months.
In terms of governance — that's, in my opinion, often an issue of public relations, around how they relay what they're doing or what they're not doing, especially around deforestation. One of the other things that they're actually doing to mitigate those challenges are water conservation, electrification of the process, and using less energy.
Shaheen Chohan (07:55):
Now, Randy, I want to keep with this theme around electrification. Would it be right to say that mills typically would use their own waste product — I guess biomass — to power their onsite power generation?
Randy Godet (08:07):
Yes. In those instances where you have a mill that actually produces pulp from virgin fibers, they're absolutely using the biomass where possible. They're also using alternative fuels like black liquor to power boilers for power generation and electrical generation. So there are some challenges though, because quite often the landscape of pulp and paper facilities are dominated by paper mills alone — meaning that those facilities don't produce pulp and don't have the wherewithal to produce energy, because the biofuel of the residual products of the process is simply not there.
Shaheen Chohan (08:46):
Randy, I want to sort of shift gears a little bit and talk about, I guess, innovation. Forgive me, but I wouldn't assume that innovation is a big theme within the pulp, paper and wood industry. But conversations that you and I have had in the past, you have actually talked a lot about automation and new technologies. Can you just share a little bit about what types of projects you're seeing, and how is this theme of spending improving production efficiencies and operational performance?
Randy Godet (09:19):
So in terms of automation — automation at a mill or at a manufacturing facility is mainly implemented to address some key strategies. The key issues being addressed are, number one, safety, quality of product, as well as operational efficiencies. So what that means in terms of actual CapEx or project spend really involves optimizing operations by installing controls, instrumentation and equipment that will actually reduce the manual labor input in the facility or in the process.
Shaheen Chohan (10:02):
Finally, Randy, we cannot end the discussion without talking about the current status and scope of the tariffs. Have tariffs in fact made any impact on planned spending levels within your industry?
Randy Godet (10:17):
So this recent round of tariffs hasn't really materialized in terms of influence on CapEx. Now, obviously the most talked about tariffs on steel in terms of new construction — there could be some impact there. Obviously, you know, you're building a new factory, it's quite a bit of steel involved with that, and so that could influence the price or even in some instances whether or not that project will move forward. But I'd like to just go beyond the tariffs. I think the industry will work within the current tariff status.
I think what may be a bigger concern may be recent events that are evolving in terms of geopolitical things that have occurred just recently. I think beyond the tariffs, the conflict in the Middle East could open the doors to higher fuel prices. And fuel prices are actually something that impacts all industries, but especially the pulp and paper industry, which is very energy intensive. They do produce energy internally, but quite a few operations — as a matter of fact, most operations — are dependent on outside sources for fuel. So we could see some impact on the input cost, the cost to build, and the cost to produce product, which may ultimately impact the end product in the consumer market. So in terms of CapEx, maybe to a lesser degree in terms of tariffs, and perhaps to a larger degree in terms of fuel prices, based on the current events that are evolving right now.
Shaheen Chohan (11:51):
Thank you very much, Randy. So that, folks, brings us to the conclusion of our podcast. A very big thanks to you, Randy, for sharing your insights and perspectives today. If any of you have any further questions about any of the points discussed today, then please do reach out to myself or to Randy via the contact details you can see here. And finally, a big thanks to all of you who've joined us today. I hope we have helped you all better navigate some of the currents of change that we are seeing. Thank you.
We are more than two decades now into the digital era, and it is inarguable that the demand for paper as we know it — whether that is printing paper, newsprint, magazines and indeed traditional papers — are being used less and less. And so the big questions are: how is this affecting the paper industry, and what does the industry look like today? Where is it trending into the future? And are there any specific sectors that are specifically showing more resilience over others?
Shaheen Chohan (00:48):
Welcome to Navigating the Currents of Change. My name is Shaheen Chohan. I am the Global Head of Analytics here at Industrial Info Resources, a company recognized for over 40 years for delivering trusted industrial data, verified and constantly updated across more than 12 major industries worldwide. Now, to help me answer these questions and others, I am delighted to be joined by Randy Godet, Senior Vice President of Research Operations for the Pulp, Paper and Wood Industries here at IIR. Randy manages our global research to track major capital and maintenance projects and production capacity developments around the world, and to help keep our customers connected to the near term and long term investment trends. Welcome, Randy.
Now, Randy, for an industry with so much demand destruction due to the digital transformation, how is it that we are still seeing reasonably robust levels of capital and maintenance spending still proceeding?
Randy Godet (02:01):
That's a very good question, Shaheen. The best way that I can answer that is that we're talking about an industry that is very consumer-centric. More than 40% of paper production is attributed to the food and beverage industry for packaging, shipping containers and what have you. So there's still quite a bit of demand, regardless of the demand destruction that you and I have talked about in the past, as well as continuation of the digital era attributing more growth towards next-day shipping. You just think of companies like Amazon — on-time delivery. There's certainly a strong demand for paper products as well, as we're beginning to see more and more evolution in terms of your non-traditional legacy products. What I mean by that are things like biomaterials, biochemicals, biofuels. Some of those developments are moving rapidly from a pilot scale to commercial scale, and actually to the industrial scale. So there's quite a bit beyond your traditional paper product that would lead one to think — why is all this spending taking place? There's still quite a healthy bit of activity there.
Shaheen Chohan (03:15):
Now, there still seems to be significant investments certainly in pulp capacity. Where is all of the new pulp capacity coming from, and where is it going? What is it being used for?
Randy Godet (03:29):
So a lot of the pulp capacity is coming primarily from Latin America — from Brazil and Uruguay. One of the main reasons for that is that they have an abundance of raw material forest products. The cost to build, including labor, fuel and transportation, is much less than it is elsewhere in the world. In fact, Brazil is becoming the global supplier of pulp to markets as far away as Europe and China, and even in some instances here in the United States.
Shaheen Chohan (04:02):
Randy, just a secondary question — I actually still read newspapers. Maybe a little old school. Are we really seeing sectors like that, those very old traditional sectors, really being cannibalized or declining at the rate that perhaps we would think they are?
Randy Godet (04:21):
To some degree, yes. Obviously in certain geographical markets, printing papers are continuing to decline. On the other hand, though, you still have some areas around the world where magazines, newspapers, and specialty papers specifically are in strong demand. People still read and utilize printed papers to a large degree. So much so that we're seeing quite a bit of that activity in markets like China, where plans are to invest in new paper machines as well.
Shaheen Chohan (04:56):
Now back to where you see capital spending. I just wanted to really focus on the near term — what's going to be happening, where is it going to be over the next 12 to 24 months? Can you kind of pinpoint some of the highlights certainly for the next 18 to 24 months ahead?
Randy Godet (05:11):
So over the next 18 to 24 months, there are quite a few projects that are in the pipeline. As a matter of fact, most of the spend that takes place in this industry is based on operational efficiencies and operational excellence. But beyond that, there are several really large projects that are being planned to the tune of over $1 billion. Most of that activity is outside the United States — again, pointing back to Latin America, specifically Brazil and China, and in some instances Southeast Asia. So you have these really large projects that are mainly planned to deliver more pulp capacity. Last year, global pulp capacity was around just under 200 million metric tons a year, and with the new capacity that's in the pipeline in the next 18 to 24 months, we could see those numbers go up incrementally to just over the 200 million mark. So there's still quite a bit of activity going on there.
Shaheen Chohan (06:10):
It's been widely reported that pulp and paper mills in particular are one of the biggest polluters and certainly contribute to climate change due to deforestation and emissions from the energy-intensive pulp process. Is this a concern for the industry, and how are companies addressing these ESG concerns — certainly to try and meet and build more sustainability into their processing?
Randy Godet (06:36):
Yeah. So let me just take a step back from that. We're talking about an industry that, decades ago, has always faced environmental challenges — going back to the cluster rules some 20 years ago, and boiler MACT standards. They've always had to invest heavily in order to maintain their operations and meet environmental compliance. So this round of climate change mandates specifically geared towards greenhouse gases — they're taking that head on as well. Within the next 18 to 24 months, we could begin to see some of those projects actually go into construction, mainly around carbon capture technologies. So there are a few of those that are in the pipeline that likely will actually happen here in the next 18 to 24 months.
In terms of governance — that's, in my opinion, often an issue of public relations, around how they relay what they're doing or what they're not doing, especially around deforestation. One of the other things that they're actually doing to mitigate those challenges are water conservation, electrification of the process, and using less energy.
Shaheen Chohan (07:55):
Now, Randy, I want to keep with this theme around electrification. Would it be right to say that mills typically would use their own waste product — I guess biomass — to power their onsite power generation?
Randy Godet (08:07):
Yes. In those instances where you have a mill that actually produces pulp from virgin fibers, they're absolutely using the biomass where possible. They're also using alternative fuels like black liquor to power boilers for power generation and electrical generation. So there are some challenges though, because quite often the landscape of pulp and paper facilities are dominated by paper mills alone — meaning that those facilities don't produce pulp and don't have the wherewithal to produce energy, because the biofuel of the residual products of the process is simply not there.
Shaheen Chohan (08:46):
Randy, I want to sort of shift gears a little bit and talk about, I guess, innovation. Forgive me, but I wouldn't assume that innovation is a big theme within the pulp, paper and wood industry. But conversations that you and I have had in the past, you have actually talked a lot about automation and new technologies. Can you just share a little bit about what types of projects you're seeing, and how is this theme of spending improving production efficiencies and operational performance?
Randy Godet (09:19):
So in terms of automation — automation at a mill or at a manufacturing facility is mainly implemented to address some key strategies. The key issues being addressed are, number one, safety, quality of product, as well as operational efficiencies. So what that means in terms of actual CapEx or project spend really involves optimizing operations by installing controls, instrumentation and equipment that will actually reduce the manual labor input in the facility or in the process.
Shaheen Chohan (10:02):
Finally, Randy, we cannot end the discussion without talking about the current status and scope of the tariffs. Have tariffs in fact made any impact on planned spending levels within your industry?
Randy Godet (10:17):
So this recent round of tariffs hasn't really materialized in terms of influence on CapEx. Now, obviously the most talked about tariffs on steel in terms of new construction — there could be some impact there. Obviously, you know, you're building a new factory, it's quite a bit of steel involved with that, and so that could influence the price or even in some instances whether or not that project will move forward. But I'd like to just go beyond the tariffs. I think the industry will work within the current tariff status.
I think what may be a bigger concern may be recent events that are evolving in terms of geopolitical things that have occurred just recently. I think beyond the tariffs, the conflict in the Middle East could open the doors to higher fuel prices. And fuel prices are actually something that impacts all industries, but especially the pulp and paper industry, which is very energy intensive. They do produce energy internally, but quite a few operations — as a matter of fact, most operations — are dependent on outside sources for fuel. So we could see some impact on the input cost, the cost to build, and the cost to produce product, which may ultimately impact the end product in the consumer market. So in terms of CapEx, maybe to a lesser degree in terms of tariffs, and perhaps to a larger degree in terms of fuel prices, based on the current events that are evolving right now.
Shaheen Chohan (11:51):
Thank you very much, Randy. So that, folks, brings us to the conclusion of our podcast. A very big thanks to you, Randy, for sharing your insights and perspectives today. If any of you have any further questions about any of the points discussed today, then please do reach out to myself or to Randy via the contact details you can see here. And finally, a big thanks to all of you who've joined us today. I hope we have helped you all better navigate some of the currents of change that we are seeing. Thank you.
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