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Label materials take a hit

January 16, 2008

In what could be a sign of tougher times ahead for certain sectors of our industry, UPM, the Finnish papermaking giant, is reducing capacity. It is closing three of UPM Raflatac’s older pressure-sensitive coating lines in Tampere, Finland, plus a specialty coating line in Melbourne, Australia. The company has transferred products produced on this coater to other production lines. The factory continues to serve the Australian market with a combination of locally produced products and imports from other Asian factories. Early last year UPM Raflatac opened a $40 million labels material factory in Changshu, China.
The closures form part of the group's efforts to bring its papermaking capacity into line with reduced demand and profitability in key parts of its global operations. UPM is also reducing speciality label paper capacity with the temporary shutdowns in Finland of one papermaking machine in Jamsankoski and one in Tervasaari, both up to three months. Overcapacity in Europe and the strong euro are said to make the current exports unattractive.
In other markets, UPM is permanently closing the Miramichi pulp and paper mill in Canada to remove around 500,000 US tons of magazine paper capacity from the market. It also reducing newsprint capacity through the temporary shutdown of two papermaking machines: one in a Finnish mill and another in Austria.
In a corporate statement, UPM said the decisions were based on its view of the markets and cost competitiveness of its assets. It estimates that demand for its paper products will be slower than in 2007. Also, meaningful price increases will take hold only in the magazine papers sector. At the same time, the entire papermaking industry faces higher costs for wood pulp, recycled paper and energy. UPM forecasts the full year 2007 operating profit, excluding special items, will exceed that of 2006, but it expects increased costs for the current quarter will make it the weakest quarter of the year.