Latest / The Manufacturing Podcast with Fexingo: Factories, Supply Chains, and Industrial Business / How a Finnish Paper Mill Turned Into a Biorefinery
Transcript
- Lucas: So there is this town in central Finland called Jämsänkoski. Until about five years ago, its biggest employer was a paper mill — one of those massive, hundred-year-old facilities that basically defined the local economy. Luna: And I'm guessing that mill is no longer making paper. Lucas: Right. UPM, the Finnish forest-products giant, shut it down in 2021. Global demand for graphic papers was in structural decline — and Jämsänkoski was a casualty. But here's the twist: UPM didn't walk away. They spent roughly 200 million euros turning the site into a biorefinery. Luna: Okay, so the building stays, but the process changes completely. What are they making now? Lucas: Biochemicals. Specifically, monoethylene glycol and monopropylene glycol — industrial chemicals that are usually derived from crude oil or natural gas. You find them in polyester fibres, PET bottles, antifreeze, pharmaceuticals. UPM says its version is made from certified sustainable hardwood sourced within a hundred kilometres of the plant. Luna: So instead of shipping pulp to some chemical plant in Asia, they're basically doing the chemistry on-site using local wood. Lucas: Exactly. The facility uses a process called hydrolysis and catalytic hydrogenation to break down the wood's cellulose and hemicellulose into sugar streams, then converts those into glycols. The technology came from a partnership with a Dutch biotech firm called Avantium back in the early 2020s. UPM later bought the license outright. Luna: And this is running commercially now? Lucas: It started production late last year — fourth quarter of 2025 — and they are currently ramping up to the full capacity of about 220,000 tonnes per year. That's small by petrochemical standards — a single world-scale ethylene cracker can produce several million tonnes — but for a first-of-its-kind biorefinery, it's significant. Luna: What does the economics look like? Because renewable chemicals often struggle on cost compared to fossil-based ones. Lucas: That's the key question. UPM has not published the unit economics, but analysts I've read estimate the production cost is probably 30 to 50 percent higher than conventional ethylene glycol at current oil prices. The bet is on three things. One: carbon pricing in Europe raises the cost of fossil-based chemicals. Two: brand owners in textiles and packaging want certified bio-based content and are willing to pay a premium — think LVMH, Patagonia, L'Oréal, those kinds of customers. Three: the plant is co-located with an existing biomass power plant, so the energy cost is lower than a greenfield site. Luna: So the old paper mill's energy infrastructure is a competitive advantage. Lucas: Exactly. The site had its own combined heat and power plant running on wood residues. That's now supplying the biorefinery. UPM estimated the project created about 250 permanent jobs — not as many as the old paper mill, but in a town of roughly ten thousand people, that's non-trivial. Luna: Let's take a quick step back. The paper industry in Europe has been shrinking for over a decade. Digitalisation killed newsprint and office paper. UPM saw that coming and started diversifying early — they made stickers, labels, plywood. But this biorefinery feels like a different bet entirely. They are essentially becoming a chemical company. Lucas: Right. And that requires a different set of competencies. Selling paper is about volume and logistics. Selling specialty chemicals is about purity specifications, customer qualification, and regulatory compliance. UPM had to build a whole new sales and technical support organisation for the biochemicals business. They hired people from the chemical industry — BASF, Dow, Clariant. Luna: How long did the whole process take, from closure to first production? Lucas: About four and a half years. The mill shut in early 2021. The final investment decision came in early 2022. Construction took about three years, which included retrofitting existing buildings and installing new reactors and distillation columns. It is not easy to build a chemical plant in Europe — permitting alone can take two years — but because the site already had an industrial permit for the paper mill, UPM could modify it rather than start from scratch. Luna: So the permitting advantage is real. Now, there are other companies doing similar things — but most are smaller or still at pilot scale. Why did UPM have the confidence to go to full commercial scale? Lucas: Partly because they had already run a smaller demo plant in Germany since 2021. That facility in Leuna proved the technology at a few thousand tonnes per year. More importantly, UPM is a big company — revenue around 11 billion euros — so they could absorb the risk. And their board had a clear strategy: transform from a cyclical paper producer into a diversified renewable materials company. The biorefinery is the flagship of that pivot. Luna: I want to talk about the market. The global ethylene glycol market is about 30 million tonnes annually, growing at maybe 3 percent a year. UPM's 220,000 tonnes is a drop in the bucket. But they are targeting the premium segment — the part of the market where buyers actively seek bio-based alternatives. Lucas: Exactly. The textile industry, for example, uses monoethylene glycol to make polyester. Fast fashion is under pressure to reduce its carbon footprint. If a brand can claim its polyester is made from sustainable wood instead of oil, that's a marketing advantage — even if it costs a bit more. UPM has already signed offtake agreements with several European textile and packaging companies, though they haven't named them publicly. Luna: There's also the regulatory angle. The European Union's Renewable Energy Directive and the upcoming regulation on deforestation-free supply chains favour bio-based feedstocks. And the EU's carbon border adjustment mechanism — the CBAM — which started its transitional phase in 2023, will gradually make imported fossil-based chemicals more expensive. Lucas: That's the structural tailwind. But let's be honest: the margin depends on the oil price. If crude drops to $50 a barrel, the economic case gets thin. UPM's CEO has said they need a long-term oil price above $60 to be competitive. As of mid-2026, Brent is hovering around $75, so the arithmetic works. But it's a risk. Luna: Honestly, if this kind of deep dive on industrial transformation is worth a coffee to you, you can support the show at buy me a coffee dot com slash fexingo. We keep it ad-free, and listener contributions are what make that possible. Lucas: It's a small way to say these conversations have value. And it genuinely helps us keep digging into stories like this one. Luna: Yeah. So back to Jämsänkoski. What does this mean for other towns that lost their paper mills? Lucas: That's the big question. Europe has lost dozens of paper mills in the last decade — in Finland, Sweden, Germany, the UK. Most sites were simply demolished or sold for scrap. Very few have been redeveloped into something completely new. The Jämsänkoski project is being watched closely by regional development agencies and other forest industry companies. Luna: Is the model replicable? Not every paper mill has access to a biomass power plant and a stable supply of hardwood within a hundred kilometres. Lucas: True. UPM's site had specific advantages. But the broader principle — using existing industrial infrastructure, permits, and a skilled local workforce to pivot to a higher-value product — that is transferable. There are projects in development: a biorefinery in eastern Finland by a company called Kaidi, another in Sweden by SCA. So the idea is spreading. Luna: What about the workforce? Paper mill workers have very specific skills — running paper machines, handling pulp. Running a chemical reactor is different. Lucas: UPM retrained about 60 percent of the new hires from the former mill. The rest came from outside. They ran a multi-year training program in partnership with a local vocational school. The skills gap is real, but it's bridgeable — especially for operators who already understand process control, safety protocols, and industrial maintenance. Chemistry fundamentals can be taught. Luna: One more angle: the feedstock. The biorefinery uses hardwood — birch, mainly. Finland has plenty of birch, but there is competition for it: pulp mills, plywood, and energy. If many biorefineries come online, will there be enough wood? Lucas: That's a real constraint. UPM's own sustainability report says the wood is sourced from certified forests and that they use thinnings and small-diameter logs that might otherwise go to energy. But the overall biomass supply in Finland is finite. The Finnish Forest Research Institute estimates that the maximum sustainable harvest of hardwood is about 20 million cubic metres annually. Right now, total use is around 15 million. So there is some headroom, but not infinite. If the biochemical sector scales, it will compete with pulp and bioenergy. Luna: Which means the industry will eventually have to look at other feedstocks — agricultural residues, maybe. Lucas: Exactly. And UPM is already researching that. They have a pilot plant in Germany that tests wheat straw and other non-wood sources. But wood is the most mature feedstock today. Luna: Let's zoom out. The Jämsänkoski biorefinery is part of a larger trend: industrial regions reinventing themselves around the bioeconomy. You see it in Finland, Sweden, parts of Canada, even the US South. Is this the future of manufacturing in resource-rich areas? Lucas: Possibly. But it's not a slam dunk. The capital costs are huge, the technology risk is real, and the market for green chemicals is still relatively small. What UPM has done is take a calculated bet. If it works, it proves that a legacy industrial site can be reborn as a high-tech chemical plant. If it fails, it will be a very expensive lesson. But the fact that they went ahead — that says something about the direction of travel. Luna: It also says something about patient capital. UPM's shareholders have accepted years of negative returns from this project before it started generating revenue. Not every public company can do that. Lucas: True. UPM's share price has been volatile — forest products are cyclical. But the company has a strong balance sheet and a long-term orientation. The CEO, Massimo Reynaudo, has been vocal about the transformation. The market is watching to see if the biorefinery delivers the promised internal rate of return of about 15 percent. Luna: So if you're a manufacturer with a shuttered facility, what's the takeaway? Lucas: First, don't scrap the site too quickly. The infrastructure — power, water, permits, logistics — is valuable. Second, think about what local feedstock you have that could be upgraded. Third, be realistic about the skills you'll need and the time it will take. UPM started planning years before the mill closed. You can't retrofit a culture overnight. Luna: And maybe the most important lesson: the bioeconomy is not just about replacing plastic with paper. It's about doing chemistry differently. Lucas: Exactly. The molecule is the same — ethylene glycol is ethylene glycol — but the carbon source is different. That shift in raw material logic is the deepest change. And it's happening, mill by mill, in places like Jämsänkoski.