Forest products manufacturer Resolute Forest Products Inc. RFP is well on its way to executing its growth strategy with a new contemporary manufacturing facility that will make at-home, premium private label tissue paper, including bath and towel. The new plant is focused on the lucrative private label market, and will strengthen Resolute’s foothold in the tissue business.
The new tissue paper machine and converting operations are slated to be built at the Calhoun mill in Tennessee. The project, which will cost Resolute $270 million, is the largest investment made by Resolute since 2010. The market feasibility studies, selection of technology and project engineering are almost completed, and the construction is expected to begin soon. Product ramp-up is expected to begin in the first quarter of 2017.
The facilities will be able to manufacture around 60,000 metric tons per year of at-home, premium bath tissue and towel at full capacity. The tissue machine will utilize excess slush pulp besides the extra dried market pulp capacity related to the continuous pulp digester project announced earlier.
Tissue demand has witnessed steady growth over the past two decades, and the trend is expected to continue in the foreseeable future. The premium quality tier, Resolute’s target market, will likely account for most of the area’s growth over the next decade.
The expansion will enable Resolute to capitalize on its distinctive ability to unlock synergies. Its high-quality, low-cost, excess slush pulp can be integrated to meet 100% of the tissue machine's fiber requirement, and will allow Resolute to utilize the full capacity of the tissue machine in a state-of-the-art converting operation. Additionally, the company will gain capital expenditure and fixed cost efficiencies by expanding the existing infrastructure. The project will also give Resolute access to a striking and cost-competitive fiber basket.
Resolute has continuously expanded its capacity with disciplined and financially attractive investments in markets with good prospects. In 2012, Resolute acquired Fibrek Inc., adding 60% to its market pulp capacity. The Calhoun digester project is slated to increase its market pulp capacity by another 100,000 metric tons annually as of the end of this year. Besides these, the company’s sawmill capacity initiatives are expected to add 275 million board feet to its annualized lumber capacity.
Resolute Forest manufactures a diverse range of forest products including newsprint, commercial printing papers, market pulp, and wood products. However, in recent times, the company's growth has suffered due to the decline in global newsprint demand, weaker newspaper prices, higher costs, and currency headwinds.
Resolute Forest currently has a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the paper & related products industry that are worth considering include Fibria Celulose SA FBR, Stora Enso Oyj SEOAY and Sappi Limited SPPJY, each holding a Zacks Rank #2 (Buy).
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