Impact of Kraft Mill Chemistry on Economics: a Model-Based Approach to Optimizing Mill Profitability

Impact of Kraft Mill Chemistry on Economics: A Model-Based Approach to Optimizing Mill Profitability

Richard B. Phillips

North Carolina State University, Raleigh, North Carolina

ABSTRACT

A detailed technical economic model was used to develop and determine the kraft cooking targets that optimize mill financial output, given mill production constraints and a range of raw material prices.

Traditionally kraft linerboard producers have attempted to achieve the highest pulp kappa number possible, consistent with product strength and appearance. Because kraft linerboard has a high ratio of power consumption to process steam demand, higher pulp yield aggravates the ratio, since more refining is required, and less black liquor is produced. With old corrugated containers (OCC) in common use throughout the containerboard industry, and with the extreme price volatility of this commodity, this study investigated the impact of kappa number target over the range 90-110 under nine different conditions whereby the purchased power cost ranged from $45-$70 per MWh, and OCC price varied from $88-$138 per “as purchased ton” (APT).

The linerboard mill model was built to constrain both production limitation (machine dryer capacity) and recovery boiler (solids loading), a common condition among USA producers. The model is a comprehensive user- configurable spreadsheet calculator that derives every mill cost (including major costs such as wood fiber, down to the annual cost of safety glasses at the mill). This model, named Carolina Pulp and Paper (CPP), has been used for more than 12 years to teach seniors in the Paper Science and Engineering program at North Carolina State University about mill costs, economics and strategies.

This study is entirely based on hypothetical mill model where the simulations used inputs taken from past economic data (fourth quarter of 2019 (USA)), which are publicly available [1].

INTRODUCTION

Figure 1 displays model output of cash costs by category for a typical linerboard machine for a hypothetical mill located in the southeastern United States. This one-machine mill was modeled to be representative of the 51 machines producing kraft linerboard1 in the USA. Fiber includes both wood fiber and recycled fiber, in this case old corrugated containers (OCC) comprising less than 50% of total fiber. Energy includes the cost of purchased fuels and power. The kappa number for this example is set at 100, which corresponds to a kraft pulp yield of 56.0%.

Figure 2 displays statistics related to the 19.6 million Figure 1. Cash cost distribution by category for finished short tons (FST) of kraft linerboard produced hypothetical southeastern USA linerboard mill [1]. in the USA, as compiled by FisherSolve™ [1] in the 4th

quarter (Q4) of 2018. Of the 51 machines, all but 13 were furnished with recycled fiber. The figure shows the average consumptions of the machines on a FST basis, along with the average price of the commodities consumed. Averages are interesting, but mill-specific costs and consumptions are key to the cost position of a given mill. Figure 3 shows the distribution of purchased fiber cost

1 Industry data extracted with permission from the owner of the industry database [1]. Database sets 50% maximum recycled fiber limit to define “kraft linerboard.” across each machine, Figure 4 shows the distribution of energy costs, and Figure 5 shows the total cash cost of all the USA linerboard machines (all data extracted from an industry database [1] for Q4 2018).

Purchased Fiber to Average Cost Average Cost Number Energy per Headbox of Fiber per FT per Unit Unit Machines 51 Annual Production, FST per Year 19,500,940 18,233,379 Wood Consumption, BDT per Year 30,291,551 16,963,269 $111.37 Recycled Fiber Consumption, 3,340,606 3,006,546 $30.92 Total Fiber 19,969,814 $142.29

Purchased Power, MWh per FT 19.8 Average Cost per MWh $60.59

Purchased Fuels, MMBTU per FT 9.6 Average Cost per MMBTU $3.57 Figure 2. Data from an industry database [1] for Q4 2018 (USA); ratios calculated by author.

Figure 2 shows, on average, $142 per fiber ton (FT) raw material cost; and price of purchased fuel and purchased power at $61 per MW∙h and $3.60 per MMBTU, respectively.

Figure 3. Cost of fiber per BDT. Figure 4. Cost of energy per unit purchased.

The price paid for wood at the machine level ranges from $60 to $80 per bone-dry ton (BDT); the price paid for recycled fiber is based on a regional price database, ranging from $125 to $180 per BDT, as delivered.

At any given mill, total fiber consumption and cost per FT will depend on four main factors:

1. The mix of roundwood and purchased chips; 2. The percentage of OCC included in the papermachine furnish; 3. The price at the mill gate paid for each commodity; and 4. The kraft pulp yield at the digester – which determines consumption – which is a function of kappa number of pulp out of the digester.

The cost of energy will depend on:

A. The process steam required for production – a function of mill technology and operating efficiency; B. The additional steam used for condensing – a mill-specific choice; C. The quantity of bark and sawdust recovered from debarking, chipping and screening (a function of item 1 above) and the efficiency of combustion; D. The fuel quantity and efficiency of burning black liquor solids – quantity a function of yield and efficiency a function of % solids and combustion efficiency of the boiler; E. The type of purchased fuel employed and its price; and F. The pressure and temperature of the steam generated and sent to the turbine generator(s).

There is no such thing as a typical mill or paper machine, but it is critical to mill cost management to understand how the factors listed above at any specific mill interact to set 65% of mill cash cost (see Figure 1). This study is aimed at illustrating how a single factor above – the digester kappa number of the pulp – plays such a critical role in determining mill profitability. Moreover, with the simplifying assumption that purchased power rates for a given mill are set by the utility power provider, and that recycled fiber is also a regional cost, but highly volatile price history, our hypothesis is that each kraft mill will have an optimum kappa number that produces the overall best financial outcome for the mill. With the current curtailment and possible future ban on USA exports of wastepaper and OCC to China, recycled prices in the USA southeast have reached record low prices through mid-year 2019, falling from $90 per APT (freight-on-board (FOB) Seller’s dock) to $30 in June, 2019. Our study includes a range of power price and OCC price that anticipates some mills may substitute OCC for kraft pulp, based on local specific mill circumstances.

METHODOLOGY

From FisherSolve™ extracted data [1] shown above, a mill technical financial model was created as a “Base Case”, designed along the following lines: single papermachine installed in 1985, with press section solids 45%. Liner production is limited by dryer capacity, while kraft pulp production is limited by recovery boiler dry solids processing capacity. The annual average mill production is based on “overall equipment efficiency”2.

In all 27 cases generated (Figure 6), the production and the recovery boiler solids were held constant. Thus, by way of an example description, as pulp yield increases, the process power demand increases, the wood requirement and steam from “own make” biomass and black liquor decrease. We hypothesized that a mill with a production limit from recovery capacity and papermachine drying can find an optimum kappa number target across a range of purchased power and OCC prices.

To test the hypothesis, a range of commodity prices were input to the process model to create a 3x3 matrix shown in Figure 6. The values were intended to represent the range represented within Figures 2 to 4.

Thus, by way of an example description, as pulp yield increases, the process power demand increases, the wood requirement and steam from “own make” biomass and black liquor decrease, and purchased power demand increases. These circumstances would result in lower wood cost, and in lower percentage of OCC in the furnish.

2 “Overall equipment efficiency” (OEE) is based on (% availability) x (% acceptance) x (% [average speed/maximum speed]). The latter term is defined as “speed efficiency”, a value that accounts for the reality that – even on the same basis weight – machines typically run on average lower speed than the maximum. Reasons for this are outside the normal definitions of “acceptance” and “availability”, such as worn felts, interruptions due to market conditions or pulp availability, or even operator skills. Under these conditions, one can anticipate that high OCC price would favor this condition, while high power price would not. Each of the nine conditions have either a high, low, or midpoint condition that reflects a different outcome.

Excel (Microsoft Corp.; Redmond, WA) was used Speed, FPM 2,500 for all calculations of the “Carolina Pulp and Paper” Trim, Inches 360 (CPP) model; the spreadsheet model was developed at North Carolina State University, Department of Basis Weight, gsm 176 Forest Biomaterials over the past 13 years. This Basis Weight, Pounds per 1000 Ft2 36 model has been used to instruct students in the Paper

FT per Year 538,223 Science and Engineering program. It is used for analyzing mill cost and strategy, and has undergone Overall Equipment Efficency, % 83.0% several upgrades over the years from student inputs Boiler High Pressure Steam Pressure, PSIG 1,250 on ease-of-use and tracking errors and inconsistencies. Some industry experts have o Boiler High Pressure Steam Temperature, F 907 contributed to the model as well. Figure 5 shows Digester Kappa Number 100 some of the details of inputs and outputs to the “Base case” mill. This model required less than 5 % Digester Yield 56% minutes to run, and another 5 minutes to check. Purchased Energy, MMBTU per FT 12 The Carolina Pulp and Paper (CPP) Model Process Power Consumption, KWh per FT 1,208

Black Liquor Solids, Tons per Year 478,487 CPP is a user-input driven model for calculating

Kraft Pulp Production, BDT per Year 418,234 both the technical and financial outputs of many different products and mill configurations. The user OCC, % of fiber to the headbox 18% selects: Figure 5. Data extract from study “Base Case” 1. The type of mill from the choices offered: bleached or unbleached; integrated or non- OCC Price, integrated); or paper, board or tissue. Kappa Power Price, $ $ per BDT Number per MWh Integrated or to Headbox Pulp Type Product Non-Integrated What Kind of Mill? Unbleached Integrated Board 90 $88 $45

2. The number of papermachines, the startup year 100 $110 $60 and the product categories are user-inputs that set a number of outputs: 110 $138 $75

Figure 6. Range of input values to CPP model

Type in Number How many machines? 1 Maximum 6 3. CPP can accommodate up to six papermachines (one in this example) and 18 different products Machine Number 1 (“liner” in this example). The startup year causes a Type In Year Startup Date 1985 speed and machine width to be called up from a LOOKUP table populated with values typical of

Press = and move cursor to the product and year of installation. A default Select Products Liner None product table (J14) basis weight for each grade is also derived from a LOOKUP table. All the Default values can be Calculated based Speed, FPM 2,500 manually changed by the user to model a specific on Starup Year mill set of parameters. The production output is Trim, Inches 360 calculated from the above inputs along with Basis Weight, gsm 176 0 product specific values for overall equipment Basis Weight, USA Convention 36 0 efficiency discussed earlier.

FT per Year 538,223 4. The fiber composition of the product can be accepted as a default (10% OCC and 90% kraft softwood in this example), though these values represent the original mill design, not the 2019 actual values. Dependent on the user -input mill production constraint, the actual values in the current (2019) year will be calculated by the program.

5. CPP uses fuzzy logic to design a pulp mill configuration, with up to four pulp lines and four recovery boilers. In the simple hypothetical example created in this study, only one of each is proposed. In some cases, the logic breaks down and an error message will direct the user to manually input the desired configuration.

Select Number Number of Pulp Lines Maximum of 4 1 1 Number of Recovery Boilers of Pulp Lines and assign Fiber Required A Pulp Mill B Pulp Mill C Pulp Mill D Pulp Mill species Fiber Produced on Pulp Line Softwood Kraft None None None

Number of: Pulp Lines 1 Recovery Boilers 1 Caustic Plants 1

Logic Default assumptions based on logic that the original Pulp Mill / Power plan

Pulp Line Startup Year 1985 None None None

Recovery Boiler Designation 1000

Oxygen Delignification? None None None None

6. Finally, the user selects the actual production constraint in the current year, as shown above. By this selection, the program knows to limit kraft pulp to the original recovery boiler capacity (plus 25% to recognize normal mill improvement over the original design). In our example, we are limited by both machine and recovery boiler, but we select “option 2” to keep kraft pulp production at its limit. The user can re-configure the pulp lines, recovery boilers and caustic plants to a different set of values.

Mill is limited by recovery boiler black liquor firing capacity. USER MUST INPUT A YEAR IN CELL B39 1 TO INDICATE A YEAR PRIOR TO THE CURRENT YEAR TO ESTABLISH WHEN THE CONTRAINT OCCURRED Mill is limited by recovery boiler black liquor firing capacity, but PURCHASED FIBER can be used. 2 USER MUST INPUT A YEAR IN CELL B33 TO INDICATE A YEAR PRIOR TO THE CURRENT YEAR TO ESTABLISH WHEN THE CONTRAINT OCCURRED

3 Mill is limited in the current year by the machine speed capability, but has excess recovery capacity.

Mill is limited in the current year by the machine speed capability, but has excess recovery capacity. 4 USER MUST ENTER THE PERECENTAGE OF PURCHASED FIBER OR ACCEPT THE DEFAUT INPUT

7. Figure 7 plots the hypothetical papermachine output from startup in 1985 to 10 years past 2019 (i.e., the base year). The kraft pulp capability is shown to top out in 1990, five years after startup. The balance of fiber is made up by OCC, with the current year values labeled on the graph.

With only the preceding five steps, 90% of the hypothetical mill cost has been defined by mill defaults in the spreadsheet. For example, a forest model within CPP describes a wood drain area and a wood supply cost curve that tracks the cost of stumpage and transportation distance (by 10-mile increments) from the mill. A wastepaper model sets a supply curve for OCC that tracks the procurement distance and freight cost of four different types of wastepaper. Mill mixed costs are each represented by separate worksheets with varying levels of details.

Many of the mill calculations are based on “design experience inputs” that the author has accumulated from over 48 years of experience in mill project work. Other computer simulation models, such as WINGEMS and MASSBAL, are material and energy balance calculators, and from the author’s personal experience, are excellent predictors of first principles results of both user-input and assumptions. CPP accounts for the impact of mill configuration and technology (example of the papermachine capability), along with product definition and input prices (largely taken from an industry database [1]), and with Figure 7. Papermachine and pulp fiber for additional user-Inputs that set “class of reliability” and hypothetical example mill. “mill productivity” parameters. Figure 7 shows papermachine production increasing annually, based on the assumption that the “default mill” will find a way to increase output by 0.2% per year through optimization without major capital investment(s). The blue curve shows reaching the recovery boiler limit for virgin kraft pulp production; in this case, the levels of OCC in the papermachine furnish increases based on the constraints and assumptions to reach output targets.

The exception to the “design experience inputs” is the power plant. CPP currently accommodates a mill running its power plant at two different high pressure steam headers, as is the case in many USA mills. With the example presented in this paper, the hypothetical mill requires a single power plant, including a double extraction condensing turbine. With the specification of steam high pressure header pressure and the calculated values of process steam demand, a power plant output, as shown in Figure 8, is calculated through the tracking of isentropic steam expansion and power production from thermodynamic first principles.

The CPP 2019 spreadsheet model (version 11)3 was used to generate the results to be discussed in the next section. The nine cases generated required less than four hours of modelling effort and eight hours of checking and generating graphs.

RESULTS

The model was based on a hypothetical production of 538,223 FST per year. The 27 cases described in Figure 8 differ mainly in fiber cost (driven by virgin pulp kappa number/pulp yield, OCC content, and price) and energy cost (driven by kappa number/black liquor solids per BDT kraft pulp; purchased power quantity and price). There are some very small differences in chemical costs, which will not be discussed.

Figure 8. Output from CPP power plant model

Figures 9A to 9C show the results: in essence, kappa number (x-axis), OCC price and power price interact to provide a range of from $195 to $218 cost per FST, equating to $10.7 million per year. While interesting, the insights gained from interpreting the data are important to truly understand the cost drivers:

Low OCC ‐Low Power Cost Low OCC ‐Mid Power Cost Low OCC ‐High Power Cost $250 $250 $250 $195.36 $195.02 $198.28 $201.37 $201.18 $204.88 $207.37 $207.34 $211.47 $200 $200 $200 $81.69 $150 $71.08 $71.48 $75.10 $150 $77.08 $77.64 $83.08 $83.80 $88.28 $150 Energy Energy Energy $100 Fiber $100 Fiber $100 Fiber $124.29 $123.54 $123.19 $50 $50 $124.29 $123.54 $123.19 $50 $124.29 $123.54 $123.19

$0 $0 90 100 110 90 100 110 $0 90 100 110 Figure 9A. Low OCC = $88 per APT; low power = $45 per MW∙h; mid power = $60 per MW∙h; high power = $75 per MW∙h

3 Carolina Pulp and Paper (CPP) model (version 11) or newer updates, along with basic instructions, are available upon request from the author (e-mail: [email protected]) at no cost. Mid OCC ‐Low Power Cost Mid OCC ‐Mid Power Cost $250 $250 $200.53 $199.58 $201.03 $206.54 $205.75 $207.63

$200 $200 $71.08 $71.48 $75.10 $77.08 $77.64 $81.69 $150 $150 Energy Energy $100 Fiber $100 Fiber $129.46 $128.10 $125.94 $129.46 $128.10 $50 $50 $125.94

$0 $0 90 100 110 90 100 110 Figure 9B. Mid OCC = $110 per APT; low power = $45 per MW∙h; mid power = $60 per MW∙h; high power = $75 per M∙Wh

High OCC ‐Low Power Cost High OCC ‐Mid Power Cost High OCC ‐High Power Cost $250 $250 $250 $207.12 $205.48 $204.59 $213.12 $211.55 $211.13 $219.12 $217.80 $217.78 $200 $200 $200 $71.08 $71.48 $75.10 $77.08 $77.64 $81.69 $83.08 $83.80 $88.28 $150 $150 $150 Energy Energy Energy $100 Fiber $100 Fiber $100 Fiber $136.04 $133.99 $129.50 $136.04 $133.91 $129.44 $136.04 $133.99 $129.50 $50 $50 $50

$0 $0 $0 90 100 110 90 90 100 110 Figure 9C. High OCC = $138 per APT; low power = $45 per MW∙h; mid power = $60 per MW∙h; high power = $75 per MW∙h

The 110 kappa number case reflects a double penalty on energy: the process consumes more power and generates less electricity from black liquor solids. When power cost is low, the penalty compared to lower kappa is smaller. There is little difference between the energy cost at 90 and 100 kappa.

The 90 kappa number case, where less kraft pulp can be produced due to the lower pulp yield, more OCC is required. Fiber cost is highest for all the 90 kappa cases. The cost difference is lowest at the lowest OCC price.

Overall, when OCC price is high, the highest kappa number is lowest cost; otherwise, the 100 kappa is the best target.

(Raw Material Fiber + Energy) Costs and Cumulative Production 300 Q1 (4.88) Q2 (9.75) Q3 (14.63) Vi rg i n & Rec y c l ed In teg rated Virgin Integrated 250

200 196 185 186 187

150

100 Cost, USD per FST per USD Cost,

50

0 0 2 4 6 8 10 12 14 16 18 Cumulative Production, FST per Year (x1,000,000) © 2006-2019 Fisher International, Inc. Source: FisherSolve™ Figure 10. Cost curve from industry database [1] for virgin and integrated kraft linerboard mills during Q4 2018. In terms of competitive cost position, Figure 10, overlaid by the author from the industry database [1], shows lowest cost case - $195.36 per FT, lies comfortably in the 2nd quintile of the 51 machines. The highest cost case - $219.12 per FT – takes the case to the mid-4th quintile.

Figure 11 displays the key CPP program outputs Kappa Number 90 100 110 that help the understanding of the financial results. Kraft Pulp Yield, % 54.1% 56.0% 57.8% As kappa number and pulp yield increase: BLS,Tons per Year 478,487 478,487 478,487 BL, HHV, BTU per Pound 6,146 6,121 6,034  Heat value of the black liquor (per pound of BLS BDT Kraft Pulp per Year 410,404 418,234 445,488 and tons per BDT kraft pulp decrease); BDT OCC Pulp per Year 114,728 101,257 53,822  Power consumption increases, but power BLS, Tons per Ton of Kraft Pulp 1.166 1.144 1.074 generation increases due to additional purchased Power Consumption, MW 76.4 77.2 80.2 fuel; and Power Production, MW 50.8 50.9 52.1  Net power purchased increases % OCC in the Purchased Power, MW 25.6 26.2 28.1 furnish increases.

% OCC 22% 19% 11% Figure 11. Key outputs that drive the financial results

The program integrates these technical outputs with the commodity price ranges to produce the net economic results.

The title of this paper originates from a lecture presented to students who seem to have an above-average interest in understanding how pulp and paper mill parameters impact mill financial performance. With their background in pulping, they understand pulp yield and kappa number, but do not necessarily appreciate the connection between these points and the how they might impact the total output of the mill. Figure 12 below is partly derived from published studies on southern hardwood and southern pine, and partly from extrapolation by the author so that wood composition and pulp kappa number/yield and composition values are available as a LOOKUP table in the spreadsheet program.

Figure 12A. Wood, pulp yield and pulp compositional analysis as a function of kappa number for mixed southern hardwoods.

Figure 12B. Wood, pulp yield and pulp compositional analysis as a function of kappa number for loblolly pine.

SUMMARY AND CONCLUSIONS

Containerboard mills are generally constrained financially by either or both papermachine drying capacity or speed, or by recovery boiler capacity. Use of OCC is common practice in the USA, and is likely to become more so as traditional export markets in China are constrained by government edicts.

This study demonstrates that kappa number – the only main operating decision within the mill – plays a critical role in mill economics, given that each mill has power purchase price that is relatively fixed and a wastepaper price that is historically volatile but also fixed by regional demand/supply forces. Mills need to make decisions and allocate priorities based on analytical data, best generated by a mill-specific spreadsheet calculator, such as the example presented in this paper.3

REFERENCES

[1] FisherSolve™, a Business Intelligence Automation System supplied by Fisher International, Inc. (Norwalk, CT USA). www.fisheri.com .

Gateway to the Future

Impact of Kraft Mill Chemistry on Economics

A Model‐based Approach to Optimizing Mill Profitability

Richard B Phillips, PhD Adjunct Professor of Forest Biomaterials North Carolina State University Raleigh, NC 27695

[email protected] Three key points

1. Kraft mills are far too complex and interactive for mere mortals to optimize financially • Intuitive decisions cannot accurately track manufacturing costs that can change rapidly with daily changes in input costs

2. A comprehensive mill model has been developed and used for instructing students at North Carolina State for the past 13 years • Tracks every element of cost (to the level of annual cost of safety glasses), allocates costs to product cost centers, and forecasts mill profitability and free cash flow for years into the future

3. Will use model to illustrate how common mill operating setpoints impact profitability

2 Even a simple linerboard mill with bottlenecks is not simple to optimize financially

Caustic Effluent Woodyard Lime Kiln Plant Treatment

Recovery Digester Power Turbo Boiler Boiler Generator

Washers Evaporation Wastepaper Water Plant System

Papermachine Finishing & Screening Papermill Furnish Shipping 3 Wood Fiber and Energy Price Volatility requires frequent re‐optimization

Caustic Effluent Woodyard Lime Kiln Plant Treatment

Recovery Digester Power Turbo Boiler Boiler Generator

Washers Evaporation Wastepaper Water Plant System

Papermachine Finishing & Screening Papermill Furnish Shipping 4 It gets a lot more complicated than that …

Debarking Roundwood Chip Drum Screens

Woodyard Purchased Chips

Biomass Purchased Boiler Biomass

5 Source: FisherSolve Average of 51 USA linerboard Machines

6 Source: FisherSolve ~ 15% of total purchased fiber is recycled ~ 25% of machine furnish is recycled pulp

7 Source: FisherSolve Fiber and Energy costs for USA virgin liner mills

8 Source: FisherSolve Wood fiber, OCC, Purchased Power, Fuels represent greatest cost inputs and greatest variability

Fiber Cost Energy Price

9 Carolina Pulp and Paper Mill Model Base Case Mill

Speed, FPM 2,500 Digester Kappa Number 100 Trim, Inches 360 % Digester Yield 56% Basis Weight, gsm 176 Purchased Energy, MMBTU per FT 12 Basis Weight, Pounds per 1000 Ft2 36 Process Power Consumption, KWh per FT 1,208 FT per Year 538,223 Black Liquor Solids, Tons per Year 478,487 Overall Equipment Efficency, % 83.0% Kraft Pulp Production, BDT per Year 418,234 Boiler High Pressure Steam Pressure, PSIG 1,250 OCC, % of fiber to the headbox 18% Boiler High Pressure Steam Temperature, oF 907

Mill Design Conditions Base Case Pulp Mill Conditions

10 Prepared 3 x 3 x 3 Model Inputs to develop range of Price inputs and Cash Cost Outputs

OCC Price, $ Kappa Power Price, per BDT to Number $ per MWh Headbox

90 $88 $45

100 $110 $60

110 $138 $75

11 Discussion of Carolina Pulp and Paper Mill Model

• Taught seniors at NCSU Paper Science and Engineering program for 12 years • Introduced a class in 2006 that went deep into the financial aspects of pulp and paper manufacture ‐ Cost and cost management ‐ Investment economics • Taught from a comprehensive User‐configured technical / economic model that allows complete understanding of mill cost • Over – arching teaching point: much of the mill cost is due to design and marketing decisions: work on things that you control ‐ In the end, chemistry and physics will dictate consumption ‐ Prices are outside your control but they will dictate operating choices

12 Carolina Pulp and Paper Mill Technical Economic Model • A User‐Configurable model that integrates Material & Energy Balances with Financial Outcomes • Can model most USA pulp and paper mills with six or fewer papermachines and four or fewer kraft pulp lines • Model results go to a cost level of detail down to the annual cost of safety glasses • Considers mill technological age to produce a Default level of analysis that can be manually over‐ridden by the User to model a specific configuration • Provides analysis of the past, present and forecast mill performance

• Useful for Benchmarking and Capital Investment analysis 13 Concept

• Belief that all mills have a cost structure defined by: • Configuration –how many papermachines? How many boilers? How many pulp lines? • Technology –Batch versus Continuous? Low odor versus DCE recovery boiler? High pressure steam temperature and pressure? Bleaching sequence? Press section? • Product –Paper versus Board versus Pulp versus Tissue • Price –What does the mill pay for commodities? • Productivity – manning levels, annual improvement with no/low capital investment? Performance of papermachines? Performance on use of cost reduction capital • Reliability –What do I pay to be reliable? What results do I get? • Different from WINGEMS • WINGEMS based on theoretical Material and Energy balances –not easily adapted to considering asset quality and operating efficiencies • CPP based on “Fuzzy Logic” largely based on design and operating experience 14 Carolina Pulp and Paper Mill Model Unique outputs

15 Carolina Pulp and Want more detail on cost? Paper Mill Model

Return to Financial Summary Mill Design PM1 PM2 PM3 Total Cost per FT $453 $445 $634 $0 $0 $0 $563

Production, FT per Year 354,094 245,393 955,259 0 Before Tax Profit $168 $153 $303 $0 $0 $0 $249 Liner Medium White Top Liner None Product Tax $59 $54 $106 $0 $0 $0 $87

Finished Product Rolls Rolls Rolls After Tax Profit $109 $100 $197 $0 $0 $0 $162

Net Sales per Ton $618 $598 $934 $0 Depreciation $45 $26 $45 $0 $0 $0 $42 By Product Sales per Ton $3 $1 $3 $0 Cash Flow $213 $180 $348 $0 $0 $0 $291

Cash Costs $408 $419 $588 $0 $0 $0 $521 Freight $40 $40 $40 $0 Cash Cost, FOB Mill $368 $379 $548 $0 $0 $0 $481 Fiber $128 $139 $304 $0 Cash Costs, FOB Mill, less OH $344 $356 $512 $0 $0 $0 $449

Chemicals $26 $37 $34 $0 Cash Costs, FisherSolve Basis $311 $325 $476 $0 $0 $0 $415

Energy $75 $82 $73 $0 EBITDA $213 $180 $348 $0 $0 $0 $452,325,423 Finishing Materials$8$8$8$0 % EBITDA Margin 34.5% 30.1% 37.3% 0.0% 0.0% 0.0% 35.5%

Direct Costs $278 $306 $459 $0

Maintenance $29 $25 $19 $0

Labor (ex repair) $31 $20 $24 $0

Operating Materials $15 $15 $15 $0

Other Fixed Costs $33 $31 $36 $0

Depreciation $45 $26 $45 $0 16 Carolina Pulp and Want more detail on cost? Paper Mill Model

2019 PM1 Manufacturing Cost per Finished Ton

354,094 Liner Cost per Unit Units per Ton Cost per Ton

Freight $40.00

Fiber 325,412 Fiber Content -> 91.900% $128.18

Own Make Hardwood Kraft BDT $0.00 0.000 $0.00

Own Make Softwood Kraft BDT $143.87 0.827 $118.99

Bamboo Kraft BDT $0.00 0.000 $0.00

Purchased Hardwood Pulp BDT $863.13 0.000 $0.00

Purchased Softwood Pulp BDT $886.27 0.000 $0.00

Semichem Pulp BDT $139.69 0.000 $0.00

NBSK BDT $968.09 0.000 $0.00 ,

BEK BDT $0.00 0.000 $0.00 PM1 Fixed Costs 354,094

Market Deinked Pulp BDT $0.00 0.000 $0.00 Total Indirect Costs $175.32

Mixed Paper BDT $0.00 0.000 $0.00 MaintenanceSee "Design"" Worksheet $10,100,217.29 $28.52

Sorted Office Papers BDT $0.00 0.000 $0.00 Labor (Excluding Repair)See "Labor" Worksheet $10,799,958 $30.50

Sorted White Ledger BDT $0.00 0.000 $0.00 Operating MaterialsSee "Operating Materials" Worksheet $5,179,711 $14.63

OCC BDT $100.00 0.092 $9.19 Other Mill Fixed CostSee "Other Mill Fixed Cost" Worksheet $11,525,163 $32.55

Chemicals $26.36 Paper Chemicals $11.83 $4,189,139 DepreciationAllocation based on Total Machine Tons $15,939,752 $45.02

Pulp Mill Cost $ per Ton Pulp/Bleach Chemicals $14.53 $5,145,622 Business Unit Overhead Allocation based on Total Machine Tons $15.45

Retention Aids Tons $2,522.00 0.00294 $7.42 Sector Overhead Allocation based on Total Machine Tons $0.00

Sizing Chemicals Tons $2,374.00 0.00000 $0.00 Corporate Overhead Allocation based on Total Machine Tons $24.10 $8.65

Alum Tons $76.00 0.00294 $0.22 $8,534,249

Biocide Tons $1,200.00 0.00294 $3.53 Price per Ton $617.99

Titanium Dioxide Tons $2,300.00 0.00000 $0.00 Total Cost per Ton $453.08

OBA Tons $1,276.00 0.00000 $0.00 Cash Cost per Ton $343.96

Dyes Tons $5,590.00 0.00000 $0.00 Total Profit per Ton $164.91

Wet Strength Tons $3,882.00 0.00000 $0.00 Cash Profit per Ton $274.03

Creping Aid Tons $2,066.00 0.00000 $0.00

Dry Strength Tons $6,590.00 0.00000 $0.00

Release Agent Tons $2,368.00 0.00000 $0.00

Filler Tons $150.00 0.00000 $0.00

Starch Tons $496.00 0.00125 $0.62

Water Thousand Gallons $0.01 4.00 $0.04

Energy $75.49

Energy $75.49

Finishing Materials $7.72

Finishing and Packaging Materials $7.72 Total Direct Costs $277.76 17 599,487 Carolina Pulp and Paper Mill Model Want more detail on steam?

Steam Demand (#/Hr) Steam Produced (#/Hr)

Pressure #/Hour Steam MMBTU per FT Boiler #/Hr Steam MMBTU per FT

Bypass Turbine 450 16,728 0.12 Recovery Boiler 225,027 1.76 24.1%

160 253,706 1.75 OM Hog Fuel 53,548 0.42 5.7%

60 643,570 4.23 Purchased Hog F 28,708 0.22 3.1%

Condenser 20,000 0.11 Coal Boiler 0 0.00 0.0%

Total Steam 934,003 6.2 Gas 626,720 4.90 67.1%

Total Steam Demand (Pounds per FT) 5,061 Oil 0 0.00 0.0%

Steam Demand Before Condenser, Pounds per Hour 914,003 914,003 Total 934,003 7.3

18 Carolina Pulp and Paper Mill Model Want more detail on power? Own Make Steam 307,283 Pounds per Hour Consumption 214.8 MW MMBTU per Hour out of T

Own Make Power 59.3 MW Production 140.9 MW ❺ 20,000

Purchased Power 74.0 MW 0.982 PSIA

623,091 MWH 101 Temperature, oF

Cost per Year $37,385,471 69 Enthalpy, BTU per Pound

1.986 Entropy, BTU/pound - oR

0.895 Quality of the steam Condenser ❶ 934,003

465 PSIA ❹ 20,000

16,728 74.700 PSIA

101 Temperature, oF

253,706 997 Enthalpy, BTU per Pound

1,265 PSIA 1.986 Entropy, BTU/pound - oR

❷ 917,276 Generator 59.3 MW Temperature, oF 907

Enthalpy, BTU per Pound 1,442

Entropy, BTU/pound - oR 1.584

❸ 253,706 643,570 ❹

Pressure, PSIA 175 75

Temperature, oF 498 362

Enthalpy, BTU per Pound 1,270 1,212 19 Entropy, BTU/pound - oR 1.640 1.664 Carolina Pulp and Paper Mill Model Want detail on caustic plant? Na = 0

S = 0 ClO2 Spent Acid to Sewer Inputs

Na = 0 Na S Total S = 0 9,907 2,161 Mill Chlorine Dioxide Tall Oil Acidulation Makeup Chemicals Generation

Na = 654 Na = 0 Na = 9,253

S = 455 S = 0 S = 1,706

Na = 248,739 Na = 244,348 Na = 243,780 Na = 240,729 Na = 248,739 Na = 248,739 Digester and Oxygen Digester Washing Evaporation Recovery Caustic Plant Delignification S = 46,330 S = 45,512 S = 45,740 S = 44,856 S = 46,330 S = 46,330

Na = 4,391 Na = 1,222 Na = 3,051 Na = 1,244

S = 818 S = 228 S = 884 S = 232 Losses

Na S

9,907 2,161

20 Carolina Pulp and Paper Mill Model Want detail on wood supply?

21 Carolina Pulp and Paper Mill Model Want detail on capital structure?

22 Carolina Pulp and This Study Paper Mill Model Pulp Mill Outputs at constant recovery boiler solids

23 Low OCC Price ‐ $88 per APT (Delivered)

Energy cost per FT Energy cost increases with Kappa Number Fiber Cost per FT Fiber cost flat with Kappa Number at Lowest OCC Price Total cost relatively flat with Kappa Number 24 Mid OCC Price ‐ $110 per APT (Delivered)

Energy cost per FT Energy cost increases with Kappa Number Fiber Cost per FT Fiber cost decreases with Kappa Number at Medium OCC Price Total cost relatively flat with Kappa Number 25 High OCC Price ‐ $138 per APT (Delivered)

Energy cost per FT Energy cost increases with Kappa Number Fiber Cost per FT Fiber cost decreases with Kappa Number at Highest OCC Price Total cost relatively flat with Kappa Number 26 Extremes can mean difference in competitive costs

‐ Low OCC Price ‐ High OCC Price ‐ Low Power Price ‐ High Power Price ‐ Low Kappa Number ‐ Low Kappa Number

27 Summary and Conclusions • Containerboard mills generally constrained financially by either or both papermachine drying capacity or speed, or by recovery boiler capacity. • Use of OCC is common practice in the USA,…likely to become more so as traditional export markets in China are constrained by government edicts. • Kappa Number – the only main operating decision within the mill plays critical role in mill economics, • Each mill has power purchase price relatively fixed and wastepaper price historically volatile • Mills need to make decisions and allocate priorities based on analytical data best generated by a mill-specific calculator

28 Carolina Pulp and Paper available at no cost from author

[email protected]

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