STOCKHOLM (Reuters) - Nordic forestry firms racing to replace paper business lost to the internet are trying to transform their pulp mill by-products into glue, biofuel and carbon fiber for aircraft and wind turbines.
A new generation of energy-efficient pulp mills are allowing the likes of Stora Enso, UPM-Kymmene, Metsa Group, SCA and Holmen to look for more profitable uses for by-products they have traditionally mostly burned to help power the mills.
Growing global demand for fossil-free materials is also helping to spur the innovation.
Much of the research is at an early stage, and many companies have not even decided which markets to target.
But after years of painful restructuring, some investors are starting to hope the industry could get a new lease of life.
"If they can develop new materials to replace fossil based materials, the market is endless for them," said Sasja Beslik, head of sustainable finance at Nordea, one of the Nordic region's biggest asset managers and Stora Enso's seventh largest shareholder.
One early success story has been Stora Enso's work with kraft lignin - a refined version of lignin, a substance which accounts for at least a quarter of wood and binds tree fibers together.
The Finnish company opened a kraft lignin plant in 2015, the first of its kind in the region, using a new technology developed in Sweden and marketed by Finland's Valmet, and decided to focus on using the material as a replacement for petroleum-derived phenols in glue.
At the end of last year, it signed its first order with a glue manufacturer, which it has not named.
"We're now in business with a glue maker and deliveries are already ongoing," CEO Karl-Henrik Sundstrom told Reuters.
Stora Enso's kraft lignin plant, which is integrated with its Sunila pulp mill in Finland, has capacity to produce around 50,000 tonnes a year of refined kraft lignin, according to Mikael Hannus, the company's head of innovation.
Kraft lignin differs from sulphonated lignin, an older-type industrial lignin which is derived from a less used pulping method, and used mainly in concrete. It's largest producer is Norway's Borregaard.
Forestry has been a pillar of the Finnish, Swedish and Norwegian economies.
Despite a 25 percent drop in European publication paper demand in the past decade, it still is a key Nordic export industry as firms have managed to refocus towards other parts of their businesses, such as packaging and hygiene products.
Seeing the potential to make more efficient use of its wood, however, companies that have traditionally put relatively little money into research are now stepping up spending on innovation, aiming to diversify further as more readers turn from newsprint and magazines to glowing screens.
Much of the lab work focuses on cellulose-based materials, such as greener textile fibers and the high-strength material nanocellulose. But projects looking at a range of applications for kraft lignin and other by-products, such as hemi-cellulose, have also multiplied.
The market for lignin-based carbon fiber, for example, is potentially large, ranging from composite parts for more fuel efficient cars and aircraft, to alternatives to the heavy glass fiber in wind turbines, enabling bigger turbines.
However, commercial production of lignin-based carbon fiber is still 5-10 years away, according to Stora Enso's Hannus.
Meanwhile SCA, which expects to have a surplus of energy after 2018 following a 7.8 billion Swedish crown ($867 million) investment in a new pulp mill, is this month launching trials with lignin-based biofuel.
That could also be a decade away from commercial sales, said Anders Hultgren, head of development of biofuel at SCA.
Others have not yet even decided which applications to target with their kraft lignin.
Metsa Fibre, part of Metsa Group which recently exited paper altogether, is building a 1.2 billion euro ($1.3 billion) pulp mill, a record investment for Finland's forest industry, able also to make a range of bioproducts including kraft lignin-based products.
Head of research Niklas von Weymarn said Metsa was closely following research on lignin for glue, biofuel and composite materials, still trying to pin down which application had the best market potential.
"What we have at this moment is an explosion of types of new materials and nobody quite knows which will survive," said Petri Vasara, head of biofutures at Poyry Management Consulting.
UPM Kymmene, also engaged in multiple "bioinnovation" projects, is minded to follow Stora Enso in building a kraft lignin factory, said Christian Hubsch, head of lignin business at UPM's biochemicals division.
Choosing the right applications and markets are vital.
"The transition from being more or less just a paper producer towards a differentiated producer of products based on renewable raw materials has not necessarily led to growth yet. The growth part needs to come from these new activities," Hubsch said.
($1 = 8.9934 Swedish crowns)
($1 = 0.9390 euros)
Editing by Mark Potter