UPM: Russian wood tariffs could reduce paper production already this year

Less-profitable mills could face closure

print this

The tariffs placed by Russia on its exports of raw timber could lead to a reduction in pulp and paper production in Finland already this year - warns paper manufacturer UPM in its financial review for last year.
     Russia first raised its export tariffs in July last year, and the next hike is scheduled for April. Next year the tariff will be EUR 50 per cubic metre, which will basically lead to an end of imports of raw timber to Finland.
     In a financial review published on Tuesday, the company notes that there is the risk that imports cannot be replaced in an economically sound manner.
     
UPM CEO Jussi Pesonen says that the tariffs will first affect pulp and paper mills with low profitability.
     According to Pesonen, it is possible to respond to the Russian challenge by improving the efficiency of wood harvesting in Finland.
     "The second matter is to work to resolve the question of tariffs. Discussions have to include the EU, Finland, and Russia", Pesonen said.
     
UPM's result for last year remained modest. Profitability was most severely hit by the rising price of wood, which was not yet the result of Russia's tariff policy. The company managed to reduce other variable costs linked with production.
     Operating profit for the year was EUR 483 million. Excluding special items it was EUR 835 million. There was little change in turnover.
     
UPM hopes to get a 15 per cent profit on invested capital, but the company was last able to reach such a goal eight years ago. At that time, market conditions were good for all forest industry companies. Since then, return on investment has hovered in the neighbourhood of four to seven per cent.
     Nevertheless, CEO Pesonen does not consider the goal unrealistic.
     "It is a very tough goal. We will do all we can to improve our profitability. We have done so since 2004, when I started in the top management in the company, and we will continue to do so this year. In am convinced that this is a very good company in all of its sectors", Pesonen says.
     
UPM's estimate for this year is cautious. Although the paper market is doing well, profitability is expected to stay at last year's level.
     The first quarter is expected to be less profitable than a year earlier.
     The company predicts that wood will rise in price this year, which is good news for forest owners.
     In addition to fresh wood fibre, UPM is spending more on waste paper, which it uses as raw material at its factories elsewhere in Europe.
     The forecasts did not please investors, and UPM's share price fell by six per cent on Tuesday.


Links:
  UPM Financial Review 2007

Helsingin Sanomat