High price of wood and other rising costs lead to cuts in forest industry

UPM and Stora Enso announce cutbacks and closures

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“Every stone, and even every grain of sand has been turned, but no solutions have been found to the profitability problem”, said Jussi Pesonen, CEO of the paper manufacturer UPM, explaining the company’s decision to shut down the Kajaani paper factory. As a result, about 500 paperworkers will lose their jobs. Also to be shut down is the old Tervasaari pulp mill in Valkeakoski.
      Also on Wednesday, another forest industry giant, Stora Enso, announced the shutdown of two paperboard lines, leading to the loss of about 580 jobs. The two companies have a total of nearly 5,000 jobs on the line at production facilities in different parts of the world.
     
The forest industry giants say that the main culprit in the affair is the price of raw timber, which is forcing them to make hard decisions. Within a short time, UPM’s’ raw material costs have risen by EUR 400 million.
      “Without that, we would have been very close to our targets”, Pesonen said.
      At home UPM plans to increase its purchases from domestic forests, but only at a competitive price. The company does not plan to pay as much for Finnish wood as for imported raw material.
      “I believe that Finnish forest owners are ready to sell wood onto the market. UPM will certainly buy all of the wood, if it is economically feasible”, Pesonen said.
     
At Stora Enso, the aim of the cuts and new investments is to allow the company, which has been the greatest buyer of Russian wood so far, to get by completely without imports from Russia. Shutting down two paperboard production lines should improve profits by EUR 140 million by 2010.
      There will also be cutbacks in production at the Sunila and Enocell pulp mills. The aim is to reduce excess output. CEO Jouko Karvinen says that the factories will be a “safety valve for balancing capacity”.
      If enough wood becomes available for the factories at a reasonable price, the mills will run at full capacity, Karvinen believes.
      The company did not get an adequate price offer for the Kotka paper factory that it had put on sale, so the facility will continue operations under Stora Enso for now.
      Even after the cutbacks announced on Tuesday, Karvinen would not promise a secure future for anyone.
      “Nobody must think that the storm has passed. I cannot give anyone a permanent security guarantee, least of all to myself”, Karvinen said at a press conference in Helsinki.
     
Pesonen said at his press conference on Wednesday that he gives his “full recognition” to the efforts of the workers in Kajaani. However, the efforts were not enough, as the factory has been operating at a loss.
      The factory’s main product is newsprint, which is too expensive to manufacture in Kainuu. The raw material for the paper is fresh spruce fibre, whereas the company’s main competitors use cheaper recycled paper as raw material.
      Pesonen himself is quite familiar with the problems facing Kajaani. As a young engineer he was the head of magazine paper production at the plant. His father Jori Pesonen was manager of the whole factory.
      “Many issues have been considered in Kajaani in recent years. Big market factors linked with wood, transport costs, and energy are significantly greater than in other places”, Pesonen said.

More on this subject:
 FACTFILE: Forest industry cutbacks in the next two years

Previously in HS International Edition:
  Stora Enso pulp mill closed down in Kemijärvi (28.4.2008)
  Russian EU Ambassador warns of more complications in wood tariff dispute (17.4.2008)
  UPM: Russian wood tariffs could reduce paper production already this year (6.2.2008)
  Stora Enso management severely criticised at shareholders´ meeting (27.3.2008)
  UPM: Russian wood tariffs could reduce paper production already this year (6.2.2008)

Links:
  Stora Enso press release 10.9.2008: Stora Enso moving ahead - will be ready for full Russian roundwood duties
  UPM press release 10.9.2008: UPM continues restructuring measures - Company plans to close paper and pulp capacity in Finland

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