The largest paper mill in Minnesota is now churning out a type of pulp used to make textiles.

In a hopeful sign for the state’s forest industries, Sappi Fine Paper in Cloquet announced this week that its $170 million conversion to making pulp for clothing has been successful. The mill in September reached its daily goal of producing 1,050 tons of what’s known as chemical cellulose.

The pulp, which is the hottest forest industry product on the market, is generally sold to textile mills in Asia, blended with other materials and made into thread. Fast-growing demand for the product has outlined one possible future for a forestry industry struggling with the terminal decline of the paper market.

“What it really is is a new beginning for Minnesota forests,” said Rick Dwyer, Sappi’s plant manager in Cloquet. “It’s something that clearly is headed in the opposite direction of paper.”

Worldwide demand for chemical cellulose is projected to increase 50 percent by 2017, according to RBC Capital Markets, and plants around the world are adding capacity as demand for paper continues to sink.

Work on the project in Cloquet began in 2011 and the plant’s customers first started receiving chemical cellulose — also called dissolving pulp — in August. The mill will continue to make high-end paper using pulp from other mills. It could still swing back to producing kraft pulp for paper if the market shifts dramatically, but has no plans to do so, Dwyer said.

At peak construction, 1,100 workers were working on the mill’s conversion, with 41 contractors totaling more than 550,000 man hours, the company said.

City, county and business leaders in Cloquet toured the plant Wednesday, once Sappi’s fiscal year had ended and company officials felt comfortable announcing that the conversion had been a success.

Commodity dissolving pulp can be used to make rayon and yields a fabric used in dresses, for example, or the lining of suit jackets.

“The clothing companies have gotten very good at making blends,” Dwyer said. “That’s what we’re going to see a lot of.”

The shrinking amount of land available for agriculture has capped the amount of cotton that can be produced worldwide. Sappi and other paper companies are counting on a growing middle class in the developing world to drive demand for clothing made in part from trees.

UPM-Kymmene, the Finnish company that owns the historic Blandin paper mill in Grand Rapids, Minn., has pilot projects in Europe working on alternative products made from wood.

Scientists in Sweden and Japan and at the University of Maine and the University of Minnesota have all been researching nanomaterials made from wood — with applications as broad as bulletproof vests, nail polish remover, dish detergent and even airplane wings from chemical components of wood.

Sappi, a South African firm, already has a plant in South Africa producing chemical cellulose for textiles. But the conversion in Cloquet is the first of its kind in Minnesota, and the first large-scale commitment to a new type of forest product in the region.

“This is really the first step into a new generation of products, converting wood fiber into another product,” said Wayne Brandt, executive vice president of Minnesota Forest Industries, a trade group. “We may look back in 10 or 15 years and say this was the jumping-off point.”

Paper use continues to slip

The industry in Minnesota needs a jumping-off point. Companies have closed well over 100 American mills since 2000, according to the Center for Paper Business and Industry Studies at Georgia Tech University. About 223,000 industry jobs went away in that time, including at least 3,800 in Minnesota.

Brandt said Sappi’s investment in the plant is reassuring. An old Sappi paper mill in Muskegon, Mich., was demolished over the weekend, and several mills in Minnesota have either closed or shrunk in recent years.

Verso Paper, which closed its mill in Sartell in 2012 after an explosion that killed a man and caused $50 million in damage, had never turned a real profit.

NewPage, which owns a mill in Duluth, filed for bankruptcy in 2011. Boise, the parent company of the mill in International Falls, announced 265 layoffs in May, and recently reported that it would be acquired by Packaging Corp.

Even for mills that — like Sappi in Cloquet — produce chemical cellulose, the market is complicated. One concern in the industry is an investigation by the Chinese government into allegations of “dumping” — selling pulp below cost — by North American and Brazilian pulp producers selling in China.

The suit, brought by Chinese pulp producers, could result in a 15 percent duty on American and Canadian imports to China of dissolving pulp.

Sappi is not named in the suit, but its Cloquet operation would still get stuck with the tax on exports to China.

Dwyer said Sappi could handle that setback by only shipping to China from its South African mill and directing Cloquet’s production to other markets, such as Indonesia.

Another worry is that even though demand for dissolving pulp is growing, the price has dropped significantly in the past couple years — from about $1,800 per ton to about $880 per ton — as more paper companies shift to chemical cellulose production. But demand for the stuff produced in Cloquet is growing between 6 and 8 percent a year, Dwyer said, and any worries about overcapacity are temporary.

“Our customers are building capacity to consume our product,” Dwyer said.