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Canadian Mill Closes, Slashing Magazine Paper Production

UPM-Kymmene attributes unprofitable U.S. exports to rise of Canadian dollar.



By Jason Fell
12/18/2007

Global papermaking powerhouse UPM-Kymmene has decided to permanently close its Miramichi paper mill in Canada, effectively slashing 450,000 metric tons of magazine paper produced at the facility per year. The official closing of the mill, which had been temporarily shut down since August, is one part of a larger plan the company hopes will cut yearly costs between $70 and $100 million.

"During the temporary shutdown, we have investigated several business solutions to make the Miramichi [mill] operation viable," Jyrki Ovaska, President of UPM's Magazine Papers Division, said in a statement posted on the company's Web site. "Unfortunately, the current business environment leaves us no options." To help increase profitability, the company had already ceased production of 980,000 tons of coated magazine paper in 2006 and 2007.

In addition to the closing of its Miramichi paper mill, UPM-Kymmene announced the temporary closures of paper machines in Finland and Austria, resulting in a reduction of 250,000 tons of the company's annual newsprint capacity. Nearly 700 people will be laid off as a result of the closures-540 from the Miramichi mill-according to the company.

UPM-Kymmene attributes the closures to a decrease in demand growth and the continued strengthening of the Canadian dollar in relation to the U.S. dollar. The increasing cost of essential raw materials such as wood and chemicals has offset the benefits of spikes in magazine paper prices, making it unprofitable to export paper from the Miramichi mill to the U.S. and the rest of the world.

U.S. magazine publishers are expecting at least two paper price hikes in 2008-one in January and the other later in the year, both in the 7-percent range. Mill closures will have an additional effect on paper prices, as less volume translates to higher prices.

"North American demand for coated publishing papers is declining right now and shows very little prospect for recovery over the next year or more, so any re-entry into the market by Miramichi would have caused a drop in coated paper prices, so restarting Miramichi would have been kind of a catch 22 for UPM," says John Maine, vice president of world graphic papers at RISI."They needed much higher prices to justify restarting Miramichi, but if they did restart, prices would go down because demand is not growing."

UPM-Kymmene will continue to serve its North American customers with its coated groundwood paper mill in Blandin, Minnesota, and other mills in Europe. A request for comment was not immediately returned.

By Jason Fell
12/18/2007







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