On Wednesday, Truist Securities expressed concerns about International Paper Company's (NYSE:IP) future prospects following Fastmarkets RISI's announcement that Fibre Excellence plans to add fluff pulp capacity in France.
This development could pose a challenge for International Paper's Global Cellulose Fibers business, which exports roughly 45% of its volume to Europe.
Fibre Excellence, a French pulp producer, is set to invest approximately €150 million in a new fluff pulp production line at its Provence mill, which currently produces about 270,000 metric tons of unbleached kraft pulp annually.
This move is aimed at meeting the growing fluff pulp demand within France and the broader European market, which has seen a yearly increase of about 2.5%.
Notably, Europe's fluff pulp supply is primarily met through imports, with the United States accounting for about 75% of the continent's consumption.
The introduction of local production capacity by Fibre Excellence could potentially reduce Europe's reliance on imported fluff pulp, particularly from the United States.
This shift may result in an "incremental negative" for International Paper, given that its Global Cellulose Fibers division, with a production capacity of approximately 2.8 million metric tons of fluff and specialty pulps and 0.6 million metric tons of market pulp, is significantly dependent on the European market.
The situation is further complicated by International Paper's focus on finalizing the DS Smith transaction. Truist Securities mentioned the possibility of International Paper considering the sale of its Global Cellulose Fibers business to Suzano post-acquisition, as a strategic move to enhance its global fluff pulp scale. However, the exact strategic rationale behind Suzano's offer remains unclear at this time.
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