Bulgaria is likely to lose its largest pulp and paper producer, Mondi Stamboliyski. At the end of October the UK owner, Mondi Group, announced the permanent closure of its plant in the country, following a fire the month before that caused significant damage but fortunately led to no injuries.
The decision was both drastic and unexpected, given the company's active investment in production modernization in recent years. The future of the plant remains uncertain with the possibility of Mondi selling the business still on the table. However, the UK group will undoubtedly remove Bulgaria from its map of operational locations.
The scale of the damage
A month after the incident at the plant on September 24 Mondi issued a brief statement to shareholders, declaring its decision to close the plant in the town of Stamboliyski. "The fire caused extensive damage to the 100,000 tonne per annum brown kraft paper machine and stopped production at the site. [...] After evaluating the options for repairing the mill and the ongoing investment required for the mill to remain competitive into the future, Mondi has concluded that closing the mill and serving customers out of its network of other kraft paper mills is the best course of action overall," the statement reads.
The extent of the damage is still unclear but Mondi estimates that the net closure costs are expected to be approximately 100 million euro. The group apparently prefers to bear these costs rather than repair the damaged machine. In response to an inquiry by the Capital Weekly Mondi's headquarters clarified that the insurance review process was still ongoing and it was not yet clear what portion of the damages would be covered by insurance.
The future of the Stamboliyski facility itself also remains uncertain with a potential sale of the Bulgarian company or its assets still under consideration. "We are evaluating various options and no decision has been taken yet," Mondi told the Capital Weekly.
A challenging business environment
Industry experts commented that the period is generally difficult for paper and paper product manufacturers, as the market has contracted and demand has decreased following the COVID-related boom and recent declines in consumption. The fire was likely the final straw.
The latest financial report of Mondi Stamboliyski reveals a drop in production volumes of unbleached (kraft) paper to 79,300 tonnes in 2023 from 105,900 tonnes in 2022 and below the 2021 levels of97,800 tonnes. Additionally, there was no kraft linerboard production at the plant in the last two years. As a result revenues in 2023 decreased by 34% to 191.6 million levs (95.8 million euro) and the company reported a loss of 3.1 million levs, compared to a profit of 35.1 million levs the year before. Mondi Stamboliyski primarily exports to Europe and Turkey, with additional markets in South Africa and the Middle East. A significant portion of sales (80%) is to related enterprises.
Out of the blue
Until Mondi's announcement at the end of October there were no indications that halting production was under consideration. Just last year the company acquired fixed assets worth 10.3 million levs with nearly 23-million-lev worth of assets under construction by the end of the year, primarily related to the modernization of production facilities. The 2023 report explicitly states that the company's management has no plans or intentions to discontinue or significantly limit operations in the foreseeable future.
Furthermore, the company projected an increase in kraft paper production to 110,000 tonnes by 2025-2026. This year 13 million levs was planned for investments in improving the chemical recovery processes and a total of 53.9 million levs was earmarked for the 2024-2026 period for facility upgrades, infrastructure projects and compliance with environmental protection standards.
A company source told the Capital Weekly that the announcement came as a complete surprise to the entire team, despite recent challenges. Mondi Stamboliyski is the largest employer in the municipality and the closure will affect approximately 300 employees. Alternatives for the laid-off workers are likely to be found, given the labor shortage in the region and the entire country. Some employees even received job offers on the same day the plant's closure was announced.
Bulgaria is likely to lose its largest pulp and paper producer, Mondi Stamboliyski. At the end of October the UK owner, Mondi Group, announced the permanent closure of its plant in the country, following a fire the month before that caused significant damage but fortunately led to no injuries.
The decision was both drastic and unexpected, given the company's active investment in production modernization in recent years. The future of the plant remains uncertain with the possibility of Mondi selling the business still on the table. However, the UK group will undoubtedly remove Bulgaria from its map of operational locations.
