R.R. Branstrom Daily Press Billerud’s Escanaba paper mill is shown. The Swedish company announced plans to convert the mill to produce cartonboard have been scraped for financial reasons.

ESCANABA — A planned conversion of the Escanaba paper mill to produce cartonboard, a packaging material found in items like cereal boxes, was scrapped Tuesday, Billerud announced.

“We have decided on a new direction to transform our production in the U.S. towards packaging materials, and one part of that means that we will not move forward with the planned and original cartonboard conversion in Escanaba,” said Ivar Vante, president and CEO of Billerud, during a conference call with media and financial analysts.

The reasons for the expansion being canceled were financial, according to Vante, who said the investment level needed for the conversion for the mill was significantly higher than the Swedish-based company’s ingoing projections. When asked to elaborate on the cause of the financial pressures, Vante said it was primarily an issue of inflation raising the cost of equipment and services needed for the project but confirmed the weakness of the Swedish krona to the U.S. dollar also played a factor.

Vante stressed that Billerud would continue to shift the to producing packaging materials in North America, but would do so incrementally, at a different pace, and with more modest investments than the original plan for the Escanaba mill.

Billerud’s stock, which is traded on the Stockholm Exchange, jumped more than 12% Tuesday, following the announcement.

“For us, there’s not even an option to talk about Billerud moving forward without Billerud North America (as) part of this. We’ve been so impressed since we took over two years ago how the cultural fit has been, performance that we’ve been able to see quarter after quarter, and also the access to cost-competitive fiber we see in that very good, central U.S. location,” said Vante.

Vante was unable to provide a detailed plan of how the company would transition to packaging materials or a when those transitions would take place. However, he was able to provide some idea of how the company’s North American assets might be used towards that goal.

“I think you need to at this point start looking at the different assets, you know, machine for machine. I think Quinnesec mill, for us that’s the flagship, it’s the crown jewel of our North American business. That is a very, very good machine,” said Vante.

Currently, the Quinnesec mill produces coated graphic papers. Vante said having exposure to the graphic maket was still a “good match” for Billerud, but that the company was exploring how to make specialty papers on that machine to compensate for the decline in the graphic paper market. Early test runs on that machine of uncoated papers that could be used for packaging liners has resulted strong customer feedback, according to Vante.

The three Escanaba paper machines — known individually as E1, E3, and E4 — could have different applications under the new plan. E3, which currently produces specialty paper, is the most likely machine to continue in its current use.

“Speciality, I think, fits our portfolio like a hand in a glove. That is in a growing market, and we have good plans, and definitely that is in our strategic sweet spot going forward,” said Vante.

Vante suggested the smaller E1 could be used for graphic paper, low-grammage cartonboard, or some form of kraft paper. The future of the E4 machine is less certain, but it may receive modifications to allow it to produce container board in combination with graphic papers.

“We just need a bit more time to review all the options on how the plan and the sequence will pan out on the E4,” said Vante.

The original expansion plan was highly subsidized by both state and local governments.

In late 2022, Gov. Gretchen Whitmer and the Michigan Economic Development Corporation (MEDC) announced that the Billerud paper mill had been approved to be designated a “Forest Products Processing Renaissance Zone.” Billerud’s approval for the FPPRZ, which was to be valid for a period of 15 years, was expected to result in approximately $1.96 million worth of abated property taxes annually to support the expansion project. Over the course of the FPPRZ period, that would have resulted in a savings for the mill of $29.4 million.

Further tax abatements by Delta County, Wells Township and Escanaba Township through the Plant Rehabilitation and Industrial Development Districts Act (Public Act 198 of 1974) were also approved, and were expected to result in $657,000 over 12 years, based on a 50% property tax abatement to support the plant’s revitalization.

The largest boost to the proposed project, however, came from Whitmer and the state legislature, which approved $200 million to support the project in the state budget for 2023. The funds were part of the Michigan Economic Development Corporation (MEDC) appropriations for the year. A celebration kicking off the project was held at the mill on July 11, 2023, during which the $200 million grant agreement between Billerud and the MEDC was signed.

Vante did not mention the county or township tax abatements during his call Tuesday, but said Billerud’s change of direction likely took the state’s subsidies off the table.

“It’s very reasonable to assume that this grant or the discussions that we’ve had in Michigan state is off the table. We are very thankful for all of the support and the, let’s call it, very, very good discussions that we’ve had with all of the Michigan state over the years, but I think that the base assumption is that this is off the table with our new plan,” he said.

While Vante spoke highly of its North American operations since it first purchased the mills formerly owned by Verso two years ago, the Escanaba mill has had a rough few years. In 2023, 118 cases of blastomycosis, a fungal respiratory infection, were identified in mill workers or contractors. Fourteen people were reported to have been hospitalized by Public Health Delta and Menominee Counties as a result of the outbreak; one person, a contractor at the mill, died from the disease; and the mill was idled for three weeks for deep cleaning.

“Although we have not found a direct link to the worksite, many fell ill and we are deeply saddened by the death of a person who worked as a contractor at the mill,” the company wrote in its 2023 annual report.

Later in 2023, the mill was subject to short-term layoffs, which occurred at multiple mills across Billerud’s holdings, including in Europe. The layoffs in Escanaba were attributed to reduced paper demands and a need to manage inventory levels efficiently.

Currently, only two North American mills are in Billerud’s portfolio, the Escanaba and Quinnesec mills. The company divested of its mill in Wisconsin Rapids, Wis. in March. That mill had been idled since 2020 but was once in contention for the expansion that was planned in Escanaba.

Despite selling the mill land and equipment to a private equity firm, Billerud has kept an active conversion facility in Wisconsin Rapids.