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Consolidation time

It has been 18 months since the £400m Palm Paper newsprint mill in King’s Lynn, Norfolk, began operating during uncertain economic times. Owned by German paper maker Papierfabrik Palm Group, it was billed at the time as being the largest newsprint machine in the world. The UK paper market braced itself for the 400,000 tonnes of paper the Lynn PM7 would demand each year for its ‘jumbo’ rolls.

But the company has kept itself out of the spotlight as it steadily builds the foundations for its operations, intriguing others within the industry.

“When we first said to our customers that we were going to build a mill in King’s Lynn, they were concerned about the road networks and whether we could make deliveries on a ‘just in time’ basis,” Palm Paper managing director Derek Harman says. “But we recently calculated that we have a 99% on-time delivery success rate.”

In fact, Palm came to the rescue of customers who were short of paper during the winter, when heavy snow prevented competitors making deliveries from Chatham and Tilbury.

Last year, following the demise of Bridgewater Paper Company, Palm bought its paper collection division, Cheshire Recycling, to secure supply to its own mill. Now trading under the name Palm Recycling, it supplies 40% of the mill’s needs, with Palm competing on the domestic market for the remaining 60%. Newsprint made at the mill is supplied to UK publishers.

Harman says: “We’ve been very pleased with the quality of material that we are getting from Palm Recycling, which is collected from local authorities through kerbside segregated collection systems. We also get a lot of material from publishers as over-issues [newspapers and magazines that do not get sold in shops], which is extremely clean.

“Unfortunately, commingled collections do not meet the high quality standards we require for our production. We enforce the higher standard by rejecting all loads that do not meet the specification.”

Sourcing good-quality fibre is becoming even more important because prices being paid at the moment are rising due to competition. Harman explains that in 2010, the price of newsprint declined because of reduced advertising and a drop in demand, as the public bought fewer newspapers and magazines. At the same time, the price of recovered fibre increased considerably meaning that, during the past year, newsprint manufacturers experienced a big squeeze on their margins.

He adds: “As the economy recovers, advertising levels should come back [which will produce more pagination], but declining circulation figures remain a concern.”

Worries about the quality of recovered fibre has caused many companies involved in the paper making process, such as mill owner UPM and recyclers SCA Recycling and Ideal Waste Paper, to diversify by operating MRFs. This secures recovered paper supply and earns revenue from the other materials. High energy costs have also added pressure on paper mills, which are intensive energy users. Palm does not have its own energy-generating mill like UPM or a partnership with a combined heat and power plant plant, as Aylesford Newsprint does.

For a start-up business such as Palm, these are options for the future. Harman adds that strengthening the core of the business - collection of material and newsprint production - is key: “The acquisition of Palm Recycling has been strategically good for us because it has ensured we have security of supply.”

It is the company’s strong belief in its operations, despite the many uncertain factors within the recovered paper market, which makes Palm such an interesting case in the sector. It has me wondering what the next 18 months will bring for the company.

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