world news - 23.06.2008
Finnish paper firms warn of higher costs
Stora Enso said its second-quarter operating profit would halve from a
year ago, with rising energy, transport and chemical costs set to weigh
on second half profits too.
UPM-Kymmene, the world's top magazine paper maker, and packaging maker
Huhtamaki also warned that profits in 2008 would be down, citing
increasing input costs.
The paper industry has for years suffered from overcapacity which has
kept a lid on prices, while increasing costs of wood and energy have
eaten into their already low margins.
Stora Enso raised its estimate of overall cost inflation for 2008 to 4 per cent from an earlier forecast of 2.5-3 per cent.
Shares in Stora Enso fell 7 per cent on the news to ˆ6.57, their lowest
level since 1998, while UPM shares were 4.6 per cent lower at ˆ11.01 by
1151 GMT.
Shares in Huhtamaki fell more than 10 per cent, to levels last seen in February 1996.
The warnings dragged lower sector shares across Europe, with Norske Skog, Mondi and Holmen all falling more than 3 per cent.
“The bad news keeps on coming from that sector and there is really
nothing that could change that sentiment in the short term,” said
Swedbank analyst Claes Rasmuson.
“We need to see some more capacity closures for them to balance the market. That's the only thing to hope for,” he said.
Stora Enso said it was looking at further capacity cuts to improve the situation.
“After three quarters of deteriorating performance, combined with the
uncertain macroeconomic outlook, Stora Enso is reviewing its plans for
production curtailments in the second half of 2008 as well as permanent
capacity reductions,” it said. Prices for most paper grades have fallen in 2008, according to
research firm Foex, but prices for key magazine paper grade LWC have
increased 2.3 per cent in Europe.
UPM said it was hoping for some help from further price hikes.
Stora said operating profit excluding non-recurring items for the
second quarter was expected to be about half the ˆ223-million of a year
earlier due to poor performance of the Wood products business, higher
raw materials costs and adverse foreign exchange movements.
Analysts had expected the firm to post operating profit of ˆ134-million
in the quarter, according to the median forecast from Reuters
Estimates, with projections ranging from ˆ108-190 million.
UPM-Kymmene issued its second profit warning in a week and said its
operative profitability would fall in 2008 from the previous year due
to higher-than-estimated costs of wood fibre sourcing and a poor
performance at its sawn timber business.
A company spokesman later explained that the comment meant UPM's 2008
operating profit, excluding one-offs and forest value changes, would
fall from around ˆ750-million reached last year. UPM had earlier
forecast profits would be flat. On June 12 it warned that its timber business was likely to perform more weakly than expected.
See also:
- — China: MDF industry development shows rapid gains in capacity
- — Space cameras to monitor forests
- — Roundwood sales liven up in May – need still exceeds availability twofold
- — Norwegian forest owners require better framework conditions for new bioenergy production
- — 3,000 hectares of forest ravaged by fire