Kruger uses the best technology to produce high-end tissue
It's an open secret in the industry that Joseph Kruger II is particularly fond of Quebec. Some will say his affection stems from the $1 billion in public funds that started flowing to the company in 1993; $440 million since the Liberals and the Couillard government came to power in 2014.
Kruger has made some wise financial investments of its own. During the financial crisis of 2008, the company effectively shielded its Quebec assets by focusing on profitable business segments, namely specialty papers, cellulose, and sanitary paper, skirting the need to shutter any of its operations.
Michel Manseau, Senior Vice President and General Manager, Consumer Products - Canada, Kruger Products, characterizes his company's decision to remain loyal to Quebec, noting, "Kruger had the choice to invest in Maine and New York State. But we decided to make the most important investment for Kruger here in Quebec and implement a plant with the latest technology. This unprecedented project for Kruger Products will give us the additional production capacity we need to continue our future growth," he said. "The new plant, combined with our TAD (Through Air Dry) machine in Memphis, TN, will allow us to rebalance our production capacity in the niche of ultra premium products to better serve our North American clientele."
The new plant carries a $575 million price tag, and will sit adjacent to the company's existing specialty paper mill. The facility will churn out roughly 70,000 tonnes of toilet paper and paper towel every year. This capacity will allow Kruger not only to expand its product offering in the 'ultra premium' arena, it will mark the addition of yet another innovative product to be sold under the Cashmere, SpongeTowels and Purex brand, products that target a clientele in search of soft, thick paper that uses less fibre than its counterparts.
The new tissue will be produced on a machine equipped with the most efficient and advanced TAD technology in Canada. TAD is the most advanced technology in the world for the manufacture of ultra premium paper products. The process makes it possible to use less fibres to obtain a larger and more resistant product, which offers exceptional softness and increased absorption capacity.
Although Kruger Products has operated a Valmet TAD machine at its Memphis, TN plant since 2013, the TAD 2 machine will be the first of its kind in Quebec. Kruger is negotiating with vendors for the paper machine. Valmet's representative Éric Tétreault did not comment on the project, confirming only that no announcement has been made by Valmet or Kruger on this project. Voith and Andritz also supply TAD paper machines.
TAD technology, booming markets
Although "the high price of pulp puts some pressure on profitability," says Mr. Manseau, the high-end tissue market has boomed in recent years. While the current 10-12 month cycle of falling prices is coming to an end, many paper producers are showing no hesitation in migrating to tissue paper and TAD technology, particularly in Canada.
TAD technology came on the scene in the 1960s, through patents owned by Proctor & Gamble, Kimberly-Clark and Georgia-Pacific. For 30 years, these companies worked on this technology and made their mark, with the launch of several paper machines. When these patents began to expire in the 1990s, the market opened, and companies such as Kruger increased their share in the tissue market, which now stands at 36% in Canada.
Since 2011, new production has appeared on the market. In Canada, Cascades took the lead in 2011 with the launch of a new Voith ATMOS paper machine at its Candiac plant in Quebec. On the Valmet side, the first TAD machine was commissioned in 2013 in Mexico and in Natchez, Missouri in October 2016. Irving Consumer Products also obtained a Valmet paper machine this year. As for Resolute Forest Products, the $270 million investment in Calhoun, TN, for a Valmet NTT machine was designed to meet the demands in the U.S. market.
The TAD process is simpler and more flexible than the first generation of tissue paper machines. Its ability to achieve softness and thickness (in the case of toilet paper) and absorption (paper towels) is unparalleled. TAD also avoids the destructive effect of wet pressing on the sheet's bulk by removing water, using a vacuum effect and then passing through the sheet with hot air. The process uses two independent TAD dryers on the majority of paper machines. The first is generally hotter, since the web moisture protects the fibre from any heating effect. The bulky, structured sheet then goes through several press sections, producing a smooth, flexible, thicker and stronger final sheet.
The construction of the facility is expected to begin in early 2019 and the paper machine is scheduled to start up in early 2021. The project will represent an economic boon for the province, generating positive spin-offs in the form of roughly $250 million worth of investment in Quebec, and approximately 1 million man-hours of work during the project.
The new plant will be 40% equity financed and 60% debt financed, under a wholly-owned indirect subsidiary of Kruger Products S.E.C.
At the project's unveiling, Dominique Anglade, Minister of the Economy of Quebec, said that Investissement Québec should finance equity by subscribing to a convertible debenture of $105 million, while Kruger Products intends to obtain financing for the remaining capital.
The Convertible Debenture has a fixed interest term of 10 years, maturing at a rate of 3% and will be repaid on a monthly basis by Kruger S.E.C. Products within 36 months from the date of issuance.
The announcement was well-received by KP Tissue shareholders, of which 15% of the value is listed on the stock market. While the project's $575 million price tag represents a significant sum of the company's $ 1.3 billion capitalization, Michel Manseau notes that all parties involved understand the long-term benefits of the project. "And it will create added value in a buoyant, job-creating business segment, "he concludes. One thing remains certain, the relationship between Kruger and Quebec is longstanding, and on solid footing for the future.