UPM is to shut one paper mill and sell another in response to continuing declines in commodity web offset papers used for newspapers and advertising material.
The Finnish forest products giant blames a short term demand disruption caused by the Covid-19 pandemic related lockdown measures for the decision to close its Kaipola mill and to sell Shotton in North Wales.
Kaipola has a capacity of 450,000 tonnes of newsprint and 270,000 of coated mechanical papers. It will close at the end of the year with a loss of 450 jobs. The announcement has provoked a minor political storm in Finland, with opposition politicians blaming an unpopular fuel tax for the decision, an explanation that is mentioned by UPM.
While there have been early signs of a normalisation in paper demand after the lockdowns, it says, the ensuring economic outlook has deteriorated globally. In short it is acting ahead of an expected recession which will accelerate the decline in demand for graphic papers.
In Europe, UPM had earlier reported a 32% decline in demand for graphic papers across Europe in Q2 compared to the previous year, leading to a 20% decline in sales across the group for the quarter. Edit was negative for the first time in five years, the company says.
Sales in the first six months were 18% down. But it has not been universally bad news: demand for speciality papers used in labels rose 10% in Europe.
But the decline in demand for newsprint now appears unstoppable. It has already closed the Chapelle mill in France with a capacity of 240,000tpa. It now plans to sell Shotton, removing 250,000tpa from the market.
The loss of Shotton follows on the closure of the Aylesford newsprint mill, leaving Palm Paper in Kings Lynn with a 400,000tpa capacity as the only UK producer of newsprint. Shotton will be converted into a mill producing container board and corrugated, materials that have an increasing demand thanks to the growth of home shopping. Currently DS Smith, Smurfit Kappa and Sauce are the major corrugated mills in the UK.
Shotton has an established recovered fibre plant and a combined heat and power boiler to tempt a buyer or group of investors. The company has not set a timetable for the sales process or whether it is in early stage discussions.
The closures will leave UPM with a substantial business in graphic arts paper. According to the UPM website, the communications paper division has 15 mills and the capacity to produce 7.3 million tonnes of paper a year generating sales of €4.5 billion.
Winfried Schaur, executive vice president UPM Communication Paper, says: “Even if dealing, these markets offer profitable business and good cash flow for mills with a competitive cost structure. In a mature business, it needs relentless efforts to look after cost competitiveness and to make sure that our assets are in efficient use in all circumstances.”
UPM will be removing around 1 million tonnes per year of newsprint capacity, reflecting eclipse in circulations across Europe, something accelerated by the lockdowns across the continent. The company is insisting that any purchaser for Shotton converts the paper machine for other purposes. The mill has a strong recycled fibre facility and network of collection points.
