Rottneros is an independent and flexible supplier of customised and high-quality pulp. Rottneros adapts its product range to meet the needs and high expectations of customers by continuously developing its products and providing a high level of security of supply, technical support and service. This business concept is based on the success factors identified by the Board of Directors and management; namely to be a company that concentrates solely on pulp production and focuses on customer needs, niche areas and efficient production. This business concept forms the basis of the strategy applied by the Group, and is characterised by specialisation, niche-thinking and customer orientation. Rottneros has invested considerable resources in product development, production, logistics, marketing and IT in order to improve profitability over the business cycle.

Rottneros is an independent and flexible supplier of customised and high-quality pulp.

Business model

Rottneros is a global supplier of bleached and unbleached long-fibre chemical pulp, mechanical CTMP pulp (using spruce, aspen and pine as raw timber) and groundwood pulp. Rottneros operates in the market for market pulp; that is, pulp freely sold to a large number of customers in the open market. Pulp is produced and sold at two Swedish pulp mills. Vallvik Mill produces and sells long-fibre chemical bleached sulphate pulp, which is primarily used for tissue, printing and writing paper. Long-fibre pulp is the element that adds strength to different grades of paper and consequently reinforcement is an important function of this pulp. Vallvik Mill also produces long-fibre chemical unbleached pulp of very high purity and with a level of quality that has made the mill a leading supplier of pulp for transformer and cable manufacturers. This pulp is also particularly suitable for filters and other absorbent products.

Rottneros Mill manufactures and sells mechanical CTMP pulp and groundwood pulp. Applications for CTMP vary depending on the timber used. CTMP made from aspen is primarily used for printing and writing paper, while CTMP made from pine and spruce is largely used by board manufacturers. Other applications for special CTMP grades include the manufacture of filters and tissue paper. Rottneros produces a number of grades of groundwood pulp that have been specially adapted for use in the manufacture of different kinds of printing paper. Board is another important application.

Objective and strategy

Most pulp mills were located in Europe and North America in the mid-1900s. However, a high rate of growth in South America and Asia has led to a number of new competitors, which has entailed a greater need for stakeholders, such as Rottneros, to focus on their core competency. The Asian and South American mills have applied pressure on their competitors in the northern hemisphere, mainly through the cheap production of high-quality, short-fibre pulp such as bleached eucalyptus pulp. Raw materials in the southern hemisphere largely comprise acacia and eucalyptus grown in plantations, in contrast to the short-fibre naturally growing timber – primarily aspen, birch, beech and maple – used in the northern hemisphere. The competitive southern timber benefits from a much higher rate of growth in easily accessible terrain located in the proximity of the pulp mills. Rottneros is thus of the view that there are significant long-term advantages for short fibre pulp to be manufactured in the southern hemisphere. On the other hand, the northern hemisphere – and Sweden in particular – is competitive for the production of long-fibre chemical and mechanical pulp. Here there is a fairly good supply of timber from pine and spruce, and the slow rate of growth in our climate, together with the fibre genetics, produces a first-rate raw timber for both sawn timber and strong cellulose pulps. This raw material is used to produce pulp at both Vallvik Mill and Rottneros Mill.

Rottneros initiated operational restructuring in 2008 to counter changes in market conditions; this has enabled the company to continue as a credible, global supplier of pulp. Production facilities with loss-making activities and short fibre production were closed down in 2008 and 2009 – Utansjö Mill and Rottneros Miranda. In addition, Rockhammar Mill, which also largely manufactured short-fibre pulp, was disposed of in 2009.

Through the new fabric of production solely comprising Vallvik Mill and Rottneros Mill, the production resources were allocated to those geographical sites that had good potential for profitability. As a result of this, Rottneros’ strategic direction is to mainly produce long-fibre paper pulp in the northern hemisphere and short-fibre paper pulp in the southern hemisphere in the future.

The operational and financial restructuring work carried out by Rottneros in 2009 has meant that it has been possible to carry out the profitable investments required, primarily at Vallvik Mill.

VISION: Rottneros shall be perceived as the market leader able to meet the needs and high expectations of pulp customers. This in turn shall result in stable profitability over the course of a business cycle.

Value drivers

The pricing mechanisms for pulp are governed by a short-term balance of supply and demand as well as by the efforts of both manufacturers and customers to offset the effects of price changes by adjusting stock levels. Price variations for pulp have been very significant over time and have recurred with some regularity. Profitability within pulp production is largely linked to the selling price. As this varies significantly, it is inevitable that there will be a fluctuation in profitability for companies like Rottneros that are entirely dependent on pulp prices. USD is the main underlying currency for paper pulp trading. The underlying exposure to USD is thus high and the USD rate consequently has a major impact on turnover at Rottneros.

Manufacturing costs also vary, primarily caused by fluctuations in timber prices and changes in electricity prices. The price of timber generally varies so that it tends to be high during periods where the price of pulp is high. The price of electricity is normally higher in winter than summer. Other significant kinds of cost, such as labour, transport and capital, follow completely different patterns. Profitability at Rottneros has consequently varied considerably in recent years. When Rottneros saw the complete collapse of the global economic situation in the fourth quarter of 2008, the financial situation became precarious and this led to a dramatic restructuring of the company, both operationally and financially, downsizing and preparations being made for new market conditions so that Rottneros could face the market as a considerably stronger stakeholder.