Ark. pulp mill makes fluff into big news

Chinese rival to IP will affect market with Arkadelphia plant

ARKADELPHIA, Ark. — Mark Hamer was two months into his new job as director of Asia business development for Arkansas’ Economic Development Commission when he attended the Southern Governors’ Association meeting in Hoover, Alabama.

He soon sat at the breakfast table with an older man and a younger woman. Hamer discovered his dining companions were Hongxin Li, chairman of Shandong Sun Paper Industry JSC Ltd., and his daughter, Lina Li.

“He’s so unassuming that I didn’t know I was sitting next to someone who heads up a multibillion-dollar corporation,” Hamer said.

The small talk that morning culminated in a deal announced in April to build a $1.3 billion pulp mill west of Pine Bluff that makes Shandong a direct rival of Memphis-based International Paper Co. Shandong recently confirmed construction is expected to begin a year from now.

In May, International Paper agreed to buy Weyerhaeuser Co.’s pulp business and seven mills for $1.9 billion. At the time, Mark Wilde, an analyst at BMO Capital Markets in New York, called IP the new global leader in fluff pulp, “well ahead” of Koch Industries Inc.’s GeorgiaPacific, in a sector expanding with the rising demand for adult-incontinence products.

In a nod to Shandong’s Arkansas venture, Wilde told IP investors their “bigger concern is apt to be the question of how the business will perform in the face of so much new fluff capacity hitting a growing, but relatively modest-sized market over the next three to four years.”

Despite Wilde’s comment, International Paper CEO Mark Sutton has played down the potential impact on the fluff business by Shandong, a company well known to IP executives.

Last October, International Paper announced it would back out of a coated

board venture in China with Shandong Sun Holding Group Co. Ltd. IP sold its 55 percent equity interest for about $23 million in cash and removed about $400 million of debt from its balance sheet.

Whether the new venture at Arkadelphia sends prices tumbling, it is one of the largest industrial projects ever announced in Arkansas. It represents the leading edge of a move by Chinese corporations to diversify into the U.S. In recent years 26 projects have been announced in Arkansas, Mississippi and Tennessee, reports market researcher Rhodium Group of New York.

Shandong’s is one of the largest in the Mid-South.

“He said he was looking for pine trees, and I said ‘You’re talking with the right person because we have a lot of those in Arkansas,’” Hamer said.

The future pulp mill site, 1,054 acres located five miles south of Arkadelphia, represents Shandong Sun Paper’s first North American project.