Can you really make chemicals from wood at industrial scale?

A massive plant built by the Finnish company UPM to make chemicals more sustainably than from fossil fuels is up and running in Leuna, Germany.

The gargantuan facility, the only one of its kind in the world, contains 1,000 km of cable, 40,000 valves, and 180 km of pipes. Pile after pile of thick European beech-tree trunks lie next to it and stretch hundreds of meters into the horizon of woodland, which leads onto open farmland.

By the time the plant is ramped up to full operating capacity—which UPM reckons will be in 2027—multiple trains and up to 20 trucks per day will be hauling in 500,000 metric tons (t) per year of the tree trunks. The sustainably grown wood will be turned into roughly 220,000 t of functional fillers, glycols, and industrial sugars that can be used as building blocks for many applications. Costing $1.6 billion to build, the plant, known as a biorefinery, is a statement of huge intent.

But there is a risk that UPM’s industrial dream could become a financial nightmare, just as has happened for many other companies seeking to turn crops into chemicals. The Swiss firm Clariant, for example, pulled the plug on its business of making ethanol from straw in 2023 and posted a loss of more than $200 million. If customers don’t take up UPM’s wood-derived chemicals, its novel technology proves unreliable, or it fails to demonstrate that its approach is truly sustainable, another attempt by the chemical industry to improve its environmental profile will be over.

And yet, Harald Dialer, UPM’s chief technology officer, who runs UPM’s biomaterials business and has overseen the construction and commissioning of the biorefinery, says he sleeps rather well at night. Dialer admits that there have been challenges, but he rejects the assertion that the project is a massive gamble.

“It’s not an experiment,” he says of the biorefinery. “It was clear when I accepted this job that there would be an uphill battle, but I think we solved it,” Dialer says, speaking in an office a few hundred meters from a woodyard that marks the start of UPM’s manufacturing infrastructure, which runs along the boundary of the Leuna Chemical Park.

UPM is one of more than 100 companies in the park. While the huge piles of logs bookend the firm’s manufacturing site to the north, the other end, about 1 km to the south, is marked by a 64 m column that sits on top of a plant that separates ethylene glycol from propylene glycol.

“It maybe started as an experiment some years ago,” he says, “but it is basically the vision to convert complex biomass feed stocks—lignin and cellulose—into high-value renewable materials, chemicals, and fuels, and to own the value chains, especially where we can have drop-in products in large, existing fossil value chains.”

Despite its newness, there’s a back-to-the-future feel to UPM’s project. Starting in the late 1700s, enterprises in Germany and beyond used wood to make industrial chemicals such as methanol, acetic acid, and tar. Coal later became the raw material of choice, and in the 1920s, BASF established a huge coal-to-chemical production complex in Leuna, which is in the former East Germany.

Fossil fuel–based chemical production later took hold in Leuna and elsewhere, but these days in Europe, many companies—including firms at the Leuna site—are under increasing financial pressure. TotalEnergies with its traditional oil refinery takes up more space in the park than UPM’s biorefinery. But the refinery’s fortunes may be about to take a dip as most of the naphtha it produces is taken up by a steam cracker operated by Dow in nearby Böhlen, which the US company has said it will close by late 2027.

Perhaps surprisingly, given the size and ambition of its biorefinery, UPM was able to secure only $22.4 million in subsidies from the regional German government and the European Union to build it. Proximity to woodland, a skilled workforce, a central European location, and the ability to tap into existing infrastructure including rail links, utilities, energy, and steam were sufficient draws for the firm. UPM was also attracted to the site by the presence of other chemical firms, including C1 Green Chemicals, which makes methanol from carbon dioxide and renewable hydrogen.

Sourcing beechwood sustainably in Germany

UPM is the only company in the park using wood as a raw material. It plans to sustainably source the 500,000 t of European beech (Fagus sylvatica) it needs each year from within a 200 km radius. Such a concept would cause most chemical makers to look for the exit, but it’s bread and butter for Dialer and his UPM colleagues, because the company’s core business is making pulp and paper from wood.

“UPM knows about managing woodland and sustainability,” Dialer says. The Leuna plant doesn’t even make the list of UPM’s five biggest plants for wood consumption. Number 1 is the firm’s pulp and paper mill in Durazno, Uruguay, which takes in eucalyptus, an introduced species native to Australia, at a rate of more than 5 million t per year.

Dialer is also not concerned about sustainably sourcing that much wood in the heart of Germany. “This is not the wood that is used for nice furniture. So we are not competing,” he says.

UPM’s plan is to avoid clearing large areas of woodland, an approach that can damage ecosystems. Instead, it will harvest small numbers of beech trees from scattered locations and plant new ones in their place. The company says that its wood-gathering activities are certified as sustainable and that its carbon-footprint calculations are audited.

Sticking with one type of wood means that the biomass fed into the refinery is homogeneous, making plant operations “easier to master,” Dialer says. Within 5 years, the company hopes to be taking in other raw materials such as agricultural and forestry waste.

The size and nature of UPM’s new facility have heads turning. “The scale makes this a very, very serious jump into the chemical industry,” says Marco Mensink, director general of the European Chemical Industry Council (Cefic), a chemical industry association. “I’m very curious about the technology they’re running, because I think they found something new.”

A chemical-production process with many steps

UPM starts its process by dropping beech-tree trunks onto a giant conveyor belt. They are moved into a pretreatment plant, where they are stripped of their bark and chopped into chips, stored in two huge hoppers. From there, the chips ride another belt to an enzymatic hydrolysis unit where, in the presence of steam, the wood is separated into its main components: cellulose (50%), hemicellulose (25%), and lignin (25%). “It is a step other companies have struggled with on a large scale,” Dialer says.

From here, UPM uses various technologies, including a step to convert cellulose and hemicellulose into industrial sugars. UPM catalytically converts some of the sugars into ethylene glycol and propylene glycol. And the company uses a variety of technologies to enhance the functional properties of lignin.

New route to renewables

So far, the technology is working as expected, Dialer says. “We are in the process of starting the lignin and derivatives side of the plant and, over the course of the year, the glycols section.”

With the biorefinery beyond its initial start-up, the firm is now focused on optimizing existing processes, says Marcus von Twistern, UPM’s vice president of biorefinery operations. “It’s about tweaking all the units. It all needs to fit together,” he says.

Competing with products made from fossil fuels

According to Dialer, the company is already “partially” selling products to key customers. “We have gained a lot of interest for the products at scale,” he says. But he does not expect the step-up in demand to happen overnight. Some of the sectors that the biorefinery’s products are set to serve, such as vehicle tires and polyethylene terephthalate (PET) bottles, require time-consuming qualification first, he says.

There is, though, a bigger underlying problem: biobased chemicals are significantly more expensive to make than those derived from fossil fuels. “There is a higher cost. There’s no cost parity at the moment,” Dialer says. “But we are able to command a ‘biopremium’ in the market.” He declined to specify how much more the biorefinery’s products cost to make or how much of a premium UPM expects them to command. But “overall profitability is in the target range. Of course we are profitable,” he says.

Whatever profit UPM was calculating it could make at the start of the year has gone up since, thanks to the far-reaching fallout from the war in Iran. The spike in fossil fuel prices is making it more expensive for companies to produce traditional petrochemicals and has created a “tailwind” for biobased chemical producers, Dialer says. Stockpiling among the customers of European chemical firms in response to the Iran war has boosted the profits of companies such as BASF and Evonik Industries in recent weeks but this surge in demand could disappear as quickly as it arrived, analysts say.

Another benefit of biorefining that the Iran war has brought into focus is the security of the raw material supply. Shortages of fossil fuel–derived raw materials have cropped up in Europe and beyond, and analysts expect more if the war continues. But locally sourced biomaterials, such as the beechwood that UPM is collecting, are disassociated from such problems, says Paul Hodges, chairman of New Normal Consulting, a firm that provides analysis to chemical companies and others including financial institutions. “We’ve now got a very strong national-security angle in all of this that people have finally realized,” he says. Although the tailwind from the Iran war could soon die down, the company expects its products to experience steady demand growth.

Lignin was once thought of as an intriguing material with little commercial value. But by modifying lignin, UPM is making it useful for a range of new applications. The company expects the global market for lignin to rise from 25.2 million t in 2023 to 29.6 million t in 2030, with key applications being plant biostimulants, functional fillers, and phenolic resins.

One target market for lignin is the functional filler carbon black, now made almost entirely from petroleum. The firm estimates that demand for lignin-based carbon black for applications including tires and plastics will grow 18% annually over the next decade to more than 1 million t per year.

UPM estimates that demand for products derived from cellulose and hemicellulose, including propylene glycol and ethylene glycol, will also increase quickly. Key uses for propylene glycol are airplane deicing fluids and building blocks for polyester resins used in fiberglass-reinforced plastics. Ethylene glycol’s main use is as an intermediate for PET, a plastic widely used to make water bottles. In a sign of bullishness about wood-derived glycols, UPM recently agreed to acquire intellectual property relating to the manufacture of ethylene glycol and propylene glycol from the technology firm Avantium.

UPM says it can clearly show the environmental benefits of its biorefinery products, including ethylene glycol. If one of UPM’s customers were to make 1 t of PET with its ethylene glycol, the polymer would have a carbon footprint of 800 kg, compared with a footprint of 1.5–2.2 t for mechanically recycled PET, 1.6–2.6 t for chemically recycled PET, and 3.0–3.4 t for PET made from fossil fuel–derived ethylene glycol.

Some sustainable consumer products are clearly attracting eco-premiums, says Bernd Elser, global leader for chemicals and natural resources at the consulting firm Accenture. “It could be in fashion products, textiles, or packaging for dairy products,” he says.

But securing premiums for sustainable raw materials used to manufacture such products is not a given, Elser warns. “If you talk to chemical companies, I think they would all say they are not reaping the benefits. So there is magic happening in between, which they are not fully capturing.”

The good news for UPM and other producers of biobased chemicals is that the European Commission (EC) is developing legislation to support demand for their products. Cefic is pressing the EC to ensure that this legislation includes mandates for biobased content in final products, Mensink says. “When you can create the demand, you also overcome the need for subsidies.”

At this early stage, it is unclear which way UPM’s big experiment will go. Chemical companies around the world, especially those in Europe struggling with expensive fuel, carbon-emission charges, and low-cost imports, will want to keep an eye on the biorefinery’s performance as UPM ramps up production. Tellingly, when C&EN spoke to Cefic’s Mensink recently about the plant, he was due to visit Leuna to take a closer look.

CORRECTION

This story was updated on June 2, 2026, to correct the amount of wood that UPM expects to consume when its new plant is running at capacity. It is 500,000 metric tons, not 220,000 metric tons, per year.

Alex Scott is a C&EN business reporter covering all chemistry-related issues in Europe.