Long lockout in Finland would put upward pressure on paper prices

Export growth may drop to zero this year

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Market analysts following the forest industry estimate that the production lockout imposed by the employer side in the current labour contract dispute in Finland will support the aims of forest industry firms to raise prices.
      The break in Finnish output will primarily reduce the supply of magazine paper and coated fine paper.
      In an outlook published on Tuesday, the Mandatum investment bank predicted that the strike and lockout in the paper industry will raise the prices of magazine papers in particular, and that it would benefit both UPM and Stora Enso.
      Mandatum published its assessment before the latest news on a failure of negotiations and the possible extension of the lockout from two to four weeks. Share prices of forest industry companies gained in trading on Tuesday.
     
The Pellervo Economic Research Institute (PTT) agrees with stock market analysts that paper prices are under pressure of rising. "We forecast that the capacity utilisation rates of paper machines will rise to nearly 95 percent this year. The buyers of paper are aware of the situation", says researcher Tapio Tilli from PTT.
      The labour dispute will not immediately affect the international supply of paper, but if the production shutdown drags on, there will be increasing pressure to hike prices, Tilli muses.
      On the other hand, Finnish pulp and paper groups face the need to manage their customer relations. Tilli believes that deliveries can be met to a large extent by increasing output in foreign plants.
     
The delivery contracts of newsprint are normally quite long, with the price set for one year at a time. Due to this fact, and the small share of production in Finland, even a long lockout will have a relatively minor effect on the price of newsprint.
      In the magazine paper market, it is common to re-evaluate the price in the middle of one-year contracts.
      Finnish forest companies began a campaign of price hikes last winter, and as a part of the tactics, UPM signed shorter deals on magazine paper than had been customary. As a result, the terms of many contracts must be renegotiated over the summer.
     
A PTT outlook dating back slightly over one month predicted that the average price of paper and cardboard in Finnish exports would rise by two percent this year. According to researcher Tilli, the gain will be primarily due to the shutdown in production, but it is not yet possible to forecast any exact figures.
      The volume of paper and cardboard exports will definitely fall due to the lockout. Last year’s growth rate was nine percent, and PTT expected a rise of 3-4 percent for 2005. "The loss of just two weeks of production will pull the growth at zero, or even in the negative range", Tilli observes.
      The shutdown of pulp mills means that sawmills will also soon stand idle. Chips delivered to pulp mills comprise 13 percent of the net sales of sawmills. Sawmill operations become unprofitable if the chips are left over.
      The shutdown of the pulp and paper industry affects the work of up to 11,000 people in the sawmill industry.


Previously in HS International Edition:
  Two-day strike shuts down entire Finnish pulp and paper industry (16.5.2005)
  Sweden's paper workers in overtime ban to support Finnish strikers (17.5.2005)

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