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CLOQUET, MINN.-- The future of the paper industry is not necessarily paper.
Even here, where Minnesotans have made paper since 1898 and Sappi Fine Paper's white cloud of steam pours into the sky above the St. Louis River valley, industry leaders are casting about for new products to make from trees.
The South African owners of the state's largest mill have an idea: rayon.
Sappi is spending $170 million to convert the mill into one that refines wood into fiber that can be turned into thread. Come springtime, the mill will stop making its own pulp.
"Paper is declining, has been for 10 years and most likely will continue," said Rick Dwyer, the mill's manager.
Paper mills are looking hard at the chemical business, trying to figure out where trees fit into global demand for biomaterial. Researchers want to make bulletproof vests, nail polish remover, dish detergent and even airplane wings from chemical components of wood.
No product has emerged as an industry savior, but unless there is innovation, Minnesota's roughly $10 billion forest economy will continue to shrink. The effect will be similar in northern Wisconsin and Michigan's Upper Peninsula.
Minnesota's timber harvest has fallen near its lowest level in 30 years as demand for paper has sunk and the state has bid farewell to the industry that makes a product similar to plywood.
"One thing about that wood, it keeps growing up here," said Tom Welle, president of First National Bank in Bemidji. "We've got to find a use for it."
For Sappi, the strategy is textiles. Chemical cellulose will come off the line in thick white sheets just like pulp, be stacked in bales and sold to thread companies. The resulting rayon will mostly supply textile mills in Asia.
The conversion is the first of its kind for a Minnesota paper producer. Sappi will keep making high-grade paper using pulp it buys from other mills, but all its pulp-making capacity will be geared toward fabric.
"Paper's our core business," Dwyer said. "This is our new business."
Another idea is to refine wood down to its nanostructure -- tiny cellulosic crystals and fibrils that are clear, strong and lightweight.
This hasn't been done on a commercial scale yet, but the Madison, Wis.-based Forest Products Laboratory opened a $1.7 million facility this summer to kick out small batches for testing.
The goal is to blend it with other polymers, then to figure out if the business can grow enough to be profitable.
UPM-Kymmene, which owns the Blandin paper mill in Grand Rapids, is testing nanomaterials in Finland. Scientists in Sweden and Japan and at the University of Maine and the University of Minnesota are all researching the stuff.
It's attractive, said Alan Rudie, a chemist at the federal lab in Madison, because cellulosic nanomaterials from trees are stronger than fiberglass. The strength-to-weight ratio for the nanomaterials is similar to Kevlar, the polymer used in bulletproof vests, so researchers believe the materials could be used in defense products.
By mixing it with other polymers, chemists could create new composites. "The target would be to get sufficient strength for posts in a bike," Rudie said.
Films created from the fibrils could also be used in electronics, he said.
Goods made from these tiny structures buried deep in the trunk of a tree could come out within a year, Rudie said, but it could be five years before any of it translates into new demand for timber from Bemidji or Baudette.
"The market that I'm pretty comfortable is going to develop is not going to be a very high-volume market," Rudie said.
Uses for byproducts
Shri Ramaswamy, a professor at the University of Minnesota, held a jar full of a black substance that looked like crude oil. The dark goo -- called black liquor -- has been burned for fuel at paper mills for most of the past century.
Burning the byproduct for steam or power is an important way to make ends meet at a mill, where a ton of wood produces a half-ton of sugars, lignins, soaps, turpentines and other materials, as well as sodium and sulfur compounds that are used to cook the pulp, said Ramaswamy, head of the U's Department of Bioproducts and Biosystems Engineering.
Scientists in the department believe they can separate out black liquor's parts and use them to make other things.
They have discovered a new way to make plastic with extremely high tensile strength out of lignin, the parts that make up the cell walls inside trees. They think they've also found the right cocktail of enzymes to degrade lignin from cell walls so the sugars can be more effectively converted to biofuels and the lignins to plastics.
"People have been looking for these enzymes for 30 years," said one of the scientists, Simo Sarkanen.
Ramaswamy and others in his department are focusing on developing cost-effective biofuels, including ethanol, and other products from wood scraps, branches and agricultural biomass.
But even corn ethanol plants have struggled in recent years, and gasification of black liquor from pulp mills to produce other fuels and chemicals is a long way from the American marketplace. There are only a few biomass and black liquor gasifiers operating globally, mostly to produce steam and power, Ramaswamy said.
Despite years of government backing, wood-based fuels can't yet compete in Minnesota with natural gas, which is so abundant in North Dakota that oil companies burned off 30 percent of what seeped from the ground this summer.
"We remain very noncompetitive with fossil fuel resources," said Luca Zullo, a former Cargill chemist who now consults for biorefineries. "The interest right now is really focused on more added-value products so, on the biorefining side, more chemicals."
Companies can already make wood-based compounds for plastic and synthetic rubber, solvents used in nail polish remover and paint and cleaning products.
Segetis, a company in Golden Valley that announced in August it had raised $25 million in venture capital, creates solvents and plasticizers from tree and other plant cellulose. Its chemicals are used in vinyl building products. Home-cleaning goods that use the company's solvents could hit shelves in March.
A bet on clothing demand
This next generation of forest products, whether it's clothing or plastic or auto fuel, can't come soon enough for businesses in Minnesota's woods.
Today, even Paul Bunyan might have trouble finding work cutting timber, and he'd be reading anything he could about the chemical properties of wood.
Sappi is putting money on the line and giving textiles a shot, but it's far from a sure thing. The long-term market for wood-based rayon is unclear, said Paul Quinn, a forest and paper products analyst at RBC Capital Markets.
The world's rising population will need clothing that doesn't require cotton, and the market for chemical cellulose is growing more than 8 percent each year.
But the global market for all types of pulp is about 50 million tons, Quinn said, and chemical cellulose is still only 1.3 million tons within that 50 million. As more companies have started to produce the cellulose, the price dropped from $1,800 per ton to $1,000 per ton over 18 months.
"There's high barriers of entry to that, and it's a very tight market," Quinn said. "It's growing, but if you take a whole mill and you convert it to that, you could swamp that market."
Adam Belz • 612-673-4405 Twitter: @adambelz