Information on the Target

Kemira Oyj has entered into a joint venture agreement with Shandong Tiancheng Wanfeng Chemical Technology to create Kemira TC Wanfeng Chemicals Yanzhou, herein referred to as NewCo. This joint venture aims to enhance Kemira's leadership position within the global Pulp & Paper industry while simultaneously supporting the growth of water treatment solutions.

NewCo will primarily specialize in the production of AKD wax and its essential raw material, fatty acid chloride (FACL). AKD wax, predominantly derived from renewable sources, serves as a sizing chemical crucial for board and paper manufacturing, providing resistance to liquid absorption. As a global leader in sizing chemicals, Kemira’s venture into NewCo positions it to significantly bolster its manufacturing capabilities and product offerings.

Industry Overview in China

The Pulp & Paper industry in China is rapidly evolving, with increasing demand driven by urbanization and a growing middle class. China is the world's largest paper producer, necessitating sophisticated supply chain solutions to meet the rising consumption levels.

In addition to Pulp & Paper, the water treatment chemicals market is expanding significantly in China, underpinned by stricter environmental regulations and the need for clean water solutions in industrial processes. The demand for advanced coagulants, such as polyaluminum chloride (PAC), is set to increase due to these regulations.

China's chemical industry, particularly in the region where NewCo will operate, benefits from established infrastructure and a supportive regulatory environment fostering industrial expansion. The co-location of Kemira’s operations offers logistical efficiencies and cost savings while positioning the venture for growth.

Moreover, the industry's shift towards eco-friendly products aligns with global sustainability trends, enhancing the market potential for renewable-based chemicals such as AKD wax, thereby bolstering the long-term growth prospects within this sector.

The Rationale Behind the Deal

The formation of NewCo is strategically aligned with Kemira's objective to integrate vertically within its value chain. This joint venture not only secures a steady supply of the key raw material needed for AKD wax but also positions Kemira to introduce a high-quality product that achieves cost leadership in the market.

By expanding its AKD wax manufacturing capacity nearly twofold, Kemira aims to enhance operational efficiencies and deliver superior customer support through improved global delivery capabilities. This strategic move is expected to accelerate growth within the Asia-Pacific region, addressing both local and international demand effectively.

Information About the Investor

Kemira Oyj is a renowned global chemicals company that specializes in serving water-intensive industries. With a focus on improving product quality, efficiency, and resource utilization, Kemira has established a prominent market presence, particularly in the pulp & paper, oil & gas, and water treatment sectors.

In 2016, Kemira reported annual revenues of approximately EUR 2.4 billion and employed around 4,800 individuals. The company is publicly traded on the Nasdaq Helsinki Ltd, affirming its financial stability and credibility in the market. The strategic alliance with Tiancheng is indicative of Kemira’s commitment to enhancing its operational capabilities and expanding its service offerings.

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The establishment of NewCo is a compelling investment opportunity for Kemira. By securing a dominant position in the AKD wax market through vertical integration, Kemira stands to benefit significantly from reduced production costs and increased market share. The capacity expansion also positions Kemira to meet the increasing demands of both domestic and global markets efficiently.

Furthermore, the strategic location of NewCo within a chemical park alongside Kemira’s existing facility affords logistical advantages, minimizing transportation costs and optimizing manufacturing operations. This operational synergy can lead to enhanced profitability for both Kemira and its partners.

Moreover, the joint venture aligns well with global trends in sustainability, as the focus on renewable materials resonates well with environmentally-conscious consumers and industries. This alignment not only solidifies Kemira's market leadership but also mitigates risks associated with fluctuating commodity prices, as the company strengthens its supply chain for AKD wax.

Overall, the joint venture appears to be a well-calculated move that enhances Kemira's strategic posture in the Pulp & Paper market while opening new avenues for growth, thus positioning the company favorably for future success.

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