Paper mills to close as Covid-19 accelerates plunge in demand

Stora Enso plans to close two paper mills in Finland and Sweden amid a rapid drop in demand accelerated by the Covid-19 pandemic.

In a sign of the torrid state of the paper industry, the Finnish group said the closures would cut €600m of its annual sales and reduce its paper capacity by more than a third, although boosting earnings before interest, taxes, depreciation and amortisation by €35m.

Stora Enso, like most of the forestry-based companies, is moving away from paper towards cardboard packaging, biomaterials, and using wood in buildings. Paper will represent just over 10 per cent of sales after the closure, down from about 70 per cent a little more than a decade ago.

“Unfortunately, in the rapidly declining paper market, we need to adjust our production capacity to improve the competitiveness of our total paper business. This sadly means the closure of unprofitable assets,” said chief executive Annica Bresky.

The planned closures of Veitsiluoto mill in Finland and the Kvarnsveden mill in Sweden in the third quarter would lead to more than 1,100 job losses, and €231m in costs, of which €96m is in cash, to Stora Enso spread over the first six months.

The paper industry has been in decline for more than a decade as a result of falling demand for newsprint, magazines and office paper, leading to thousands of job losses and dozens of mill closures.

Stora Enso said the coronavirus pandemic had sped up the shift in consumer behaviour, leading to significant overcapacity in Europe and low prices and struggling mills.

Both the Finnish and Swedish mills were lossmaking with little prospect of improvement in the future, the Helsinki-based company added. But it stressed it would still use the regions for sourcing wood.

Sanna Marin, the Social Democrat prime minister of Finland, called the news a “major blow” to workers and the northern Finnish town of Kemi where the mill is based. The government will start immediate action to help the region.

Shares in Stora Enso were 2 per cent lower at €16.43 by lunchtime in Helsinki, but were still close to their highest levels in at least two decades.

Companies such as Stora Enso and UPM-Kymmene, two of the largest paper groups in Europe, may have suffered with paper but the boom in online shopping has helped their packaging businesses, while they are looking to set up wood as the ultimate renewable and reusable material able to be used as an alternative to plastics as well as construction and energy.