Essity to try making pulp from wheat straw to stem rising costs

STOCKHOLM (Reuters) - Swedish hygiene products maker Essity said on Thursday it will build a test plant in Germany to produce pulp from wheat straw and other plant-based agricultural by-products to reduce its dependence on wood based pulp.

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Tough market conditions and rising costs for raw materials such as pulp has put pressure on Essity, the world’s biggest maker of incontinence products and hygiene solutions for businesses, since its 2017 listing.

“Essity has signed a license agreement securing exclusive rights to a new proprietary technology to produce pulp from alternative fibre that will have the same quality as conventional wood-based pulp at a competitive cost,” it said.

CEO Magnus Groth said the facility would have a capacity of 35,000 tonnes, the equivalent of about one percent of Essity’s total pulp needs. If the project is successful, others would hopefully be interested in commercial production, he said.

“We are on the lookout for additional sources for our raw materials. Because raw material prices have been so high for such a long time we, as a big player, have to try to influence developments in this area,” Groth said in an interview.

“That said, we have no ambition to become a big pulp producer ourselves.”

The company said in a statement the plant would be built at its existing factory complex in Mannheim, Germany, at a cost of 400 million crowns ($41.5 million) and that it would be up and running in the second half of 2020.

Essity produces pulp from recovered and fresh wood-based fiber, mainly in Mannheim, but buys more than nine tenths of its pulp externally.

Groth said laboratory tests indicated the alternative pulp was of good enough quality to replace virgin as well as recovered fiber in products.

This year shares in the group, which is also the second-largest supplier of consumer tissue such as wet wipes and toilet paper, have jumped 32% on the back of cost cuts and price hikes.

In a separate statement issued ahead of investor presentations in Stockholm on Wednesday, the group said its strategy and financial targets remained unchanged and forecast annual growth of around 3% percent for the global hygiene and health market through 2023.

Essity, spun off from forestry group SCA in 2017, targets organic sales growth above 3% and adjusted return on capital employed of above 15 percent. In 2018, the outcome was 2.6% and 12.0%, respectively.

Reporting by Anna Ringstrom; Editing by Simon Johnson and Niklas Pollard and Elaine Hardcastle