Leading Paper Giants to Consolidate

Consumers and office workers are shifting from paper to mobile devices, such as smartphones, ipads, laptops and tablets. This trend, accompanied by related cultural shift called “BOYD” (bring your own device), is leading to a relentless fall in the demand for and price of paper.

Faced with this reality, UPM-Kymmene and Stora Enso, world leaders in the manufacture of printing and writing papers, are seeking to consolidate their papermaking operations. According to Annecy, France-based 4-Traders, UPM and Stora will fold most of their paper businesses into a joint venture over the next year.

Handelsbanken Analyst Karri Rinta said, “The industry has reached a point where it has no choice but to take drastic action, and this joint-venture scenario is basically the only possible way to salvage cash flow in the business.”

Paper is the largest business for each of the two companies. It takes up 69% of UPM’s total sales of 10.5 billion € ($14.2 billion) and 44% of Stora’s 10.8 billion € ($14.6 billion) revenue.

Rinta said such a venture, with a combined 40% share of the European market and low debt, would have the muscle to close down several mills totaling up to 2.0 million tonnes of annual capacity, or 12% of its overall production.