UPM takes the next transformative growth step and enters the biochemicals business by investing in a biorefinery at Leuna, Germany. The biorefinery will produce a range of 100% wood-based biochemicals which enable a switch from fossil raw materials to sustainable alternatives in various consumer-driven end-uses. The investment opens totally new markets for UPM with large growth potential for the future.
UPM will invest Euro 550 million in an industrial scale biorefinery to convert solid wood into next generation biochemicals: bio-monoethylene glycol (BioMEG) and lignin-based renewable functional fillers. In addition, the biorefinery will produce bio-monopropylene glycol (BioMPG) and industrial sugars. The total annual capacity of the biorefinery will be 220,000 tonnes. The facility is scheduled to start up by the end of 2022.
The product range offers unique customer value and is expected to achieve a good cost position, comparable to the fossil-based alternatives. Once the facility is fully ramped up and optimized, it is expected to achieve the ROCE target of 14%.
Being the European center for chemicals industry excellence and located in the middle of the markets, Germany provides an attractive location for the biorefinery. InfraLeuna GmbH, in the state of Saxony-Anhalt, offers very competitive conditions for constructing a biorefinery with its existing permitting processes, logistics arrangements and infrastructure for various services and utilities. UPM plans to enter service agreements related to wood handling, waste water treatment and other utilities that will be recognised as lease assets and liabilities under IFRS 16 Leases. Depending on the final agreement the total amount of such lease assets and liabilities is estimated to be Euro 40-100 million.
The investment is in line with Germany’s bioeconomy strategy and supports the goal of increasing responsible utilisation of the commercial forests. Availability of sustainably sourced hardwood in the region is good. Wood sourcing will be based on forest thinnings and residues of regional sawmills.
The engineering and planning is on-going and the tendering for the main equipment, recruitment for the project and permitting process will start immediately. Permitting will proceed parallel to the investment project in line with German legislation.
Following today’s decision UPM increases the estimate for total capital expenditure in 2020 to EUR 1.3 billion.
