UPM to close range of European paper machines

The announcement does not affect UPMs 500,000 tonne-a-year capacity newsprint mill at Shotton in North Wales. It includes the planned closure of an older paper machine, number 3, at the Ettringen mill in Germany which produces newsprint.

Also destined for closure, after negotiations with employees, are the UPM Myllykoski mill at Kouvola in Finland and the UPM Albbruck mill in Germany.

A statement issued today by UPM said: As part of the Myllykoski integration, UPM has completed a comprehensive review of the long term competitiveness of its publication paper mills. The review has covered asset efficiency, production input availability and costs as well as end-use markets.

The statement continued: As a result of the review, UPM plans to adjust its magazine paper capacity to match the needs of its global customer base. Therefore, UPM will start negotiations with employees on the plan to permanently remove 1.2 million tonnes of magazine paper capacity in Finland, Germany and France, and 110,000 of newsprint capacity in Germany. The plan also includes restructuring of the overlapping paper sales and supply chain networks and global functions.

Speed

The speed with which the decision to close the mills and machines has not caused a great deal of surprise within the paper sector as UPM was in talks with Myllkyoski for a long time ahead of the purchase of the business.

There is known to be overcapacity in Europe for magazine paper and newsprint, in part down to reductions in demand from publishers, and the European Commission did not turn down the acquisition of Myllyoski on competition grounds. There has also been new capacity installed, including the Palm mill in Norfolk.

The planned closure of the Myllykoski and Albbruck mills and the paper machine 3 of UPM Ettringen would be scheduled by the end of 2011. The Stracel mill sales process would start this autumn and is expected to be completed within twelve months.

UPMs President and CEO Jussi Pesonen said: The paper industry faces severe challenges due to high raw material, energy and logistics costs, and considerable overcapacity. The profitability of our paper business is clearly below the level required to run long-term sustainable operations. The planned restructuring would further strengthen the cost competitiveness of UPMs paper operations and reduce the future need for major maintenance investments.

Mr Pesonen added: With the planned actions we would respond to the magazine paper overcapacity challenge for our own benefit. In addition, we would ensure the efficient use of our remaining capacity. However, this plan would not solve the cost challenges of the industry.

Reassurances

Customer reassurances came from Jyrki Ovaska, president of UPM Paper Business Group, who also said that production costs would be reduced.

He said: Our aim is to improve the profitability and cost competitiveness of our magazine papers. The planned measures would immediately reduce the unit costs of UPMs magazine papers and newsprint from the level before the acquisition of Myllykoski. In spite of the restructuring, we would be able to serve our paper customers better through our improved product portfolio and geographic scope.

The planned closures are very unfortunate for the affected employees but restructuring is the only way to make a fundamental improvement in the cost competitiveness of our paper business. UPM will carry out the restructuring negotiations in a responsible and professional manner in line with the national legislation of the respective countries, says Ovaska.