Kemira’s Chemical Island in Uruguay was the first of its kind. Due to positive experiences, the cooperation model has become an exciting alternative in long-term customer relations.
Over the current decade, Kemira has participated in developing a new kind of outsourcing model. As part of its agreement to supply bleaching agents and other chemical solutions for Finnish pulpmaker Botnia in Fray Bentos, Uruguay, Kemira decided to conduct all of its production next to Botnia’s own factory facilities. The setup, the first of its kind, is referred to as Chemical Island, and has created many distinctive advantages for both companies since its launch in late 2007.
An unforeseen investment
In the small country of Uruguay, Botnia’s EUR 750 million investment to begin pulp production at Fray Bentos was highly distinctive; in fact, the project still denotes the largest private investment in the country’s history. Uruguay’s pulp production was – and is – expected to grow notably in the decade to come, and having had no prior pulp chemicals manufacturing in the rapidly growing South American markets, collaborating with Botnia’s local branch represented a significant milestone for Kemira.
“Botnia’s factory in Uruguay produces one million tons of pulp each year, representing a large user segment in the area,” says Jarmo Savolainen, Senior Vice President of Kemira’s Pulp customer segment. “We are surrounded by an expanding market in South America, as production grows especially in Uruguay and Brazil,” he adds.
Manufacturing bleaching chemicals like sodium chlorate, chlorine dioxide and hydrogen peroxide at an on-site plant has led to several obvious benefits for both Kemira and Botnia; the two companies have been able to collaborate on new technologies and address production issues very easily, while burdensome transportation costs have been significantly reduced. In addition, one of the largest immediate benefits for Kemira has been the opportunity to utilize electric power created from Botnia’s pulp manufacturing process.
A focus on core business
“As the exclusive on-site supplier, we literally live in the customer’s house,” says Pedro Cirillo, Managing Director of Kemira’s Paper segment in Uruguay and Site Manager of the Fray Bentos project. “We’re producing here and consuming here. We have a very cooperative spirit, otherwise it would never work.”
Cirillo adds that the close proximity to its chemical supplier has also facilitated Botnia’s day-to-day operations. “Their business is to make pulp, not chemicals. Whether we at Kemira produce chemicals on-site or import them for our use, Botnia can focus on their core business,” he says.
By setting up their operations alongside one another, Kemira and Botnia have planned for a longterm working relationship. The Chemical Island model is designed for a partnership that will span several decades. As a result, the pressure to increase the client base is smaller.
“You can still go out and find other customers, but you know that you have one here for many years to come,” Cirillo says. “The kind of production that’s integrated with both the customer’s energy production and on-site operations is bound to be very efficient and thus satisfy to both parties,” adds Savolainen.
Applicable elsewhere?
Kemira utilizes a similar concept on a partial level in two Finnish locations, but does not currently operate any other full-scale facilities like Chemical Island. The current recession has prompted most pulp companies to put possible expansion initiatives on hold, but Kemira anticipates new projects after the world’s economic state improves. Savolainen foresees these developments to take place in growing markets such as Asia, Russia, and elsewhere in South America. Savolainen stresses, however, that even as these Chemical Islands present new opportunities for Kemira, the company’s focus remains on providing customized services.
“Even in the future, not all pulprelated projects are going to need a complete Chemical Island,” Savolainen says. “We may still transport some of the chemicals from elsewhere. Every project has to be approached on an individual basis.”
Text: Laura Palotie
Original article published in Kemira’s stakeholder magazine Just Add 2/2009.