Global Trends Review, April 22-28, 2013: Challenging conditions for Nordic producers; market forces restructurings

The largest Scandinavian companies posted not very cheerful Q1 results. Setra’s net loss was SEK 27 million, which is on par with Q1 2012 levels. Sales decreased slightly. According to company’s CEO Stefan Lundin, strengthening Swedish krona had affected the operating result by more than SEK 20 million: “The small price increases we noted in several of our key export markets during the period were eaten up by what for us was the negative exchange rate development”. Company’s sales to the home Swedish building market was quite good, though. However, despite a fall in sawlog prices during the past year, there is still an imbalance in the relationship between raw material prices and selling prices for sawn timber, Lundin concluded.

Another Swedish company, Södra, recorded an operating loss of SEK 84 million. “We expect to see slightly higher prices for sawn timber products over the year. With raw material prices and currency exchange rates as they are, 2013 will nevertheless be a tough year for southern Swedish sawmills,” acting president Gunilla Saltin said. In February, the company raised price of spruce timber by SEK 40/m3.

Meanwhile, Holmen Timber’s operating loss was SEK 35 million, sales fell from SEK 298 million to SEK 271 million.

Norwegian producer of sawn timber, glulam and wood building structures Moelven had the operating loss of NOK 64 million, compared to NOK 18.7 million of profit a year ago, sales declined from NOK 2.1 billion to NOK 1.8 billion. Company CEO Hans Rindal said that investments in the start-up of two processing mills affected the group’s profitability in the first quarter. The liquidation of Södra Cell Tofte pulp mill also affected the industry, according to Rindal, as the company now tries hard to ensure sales channels for timber and chips.

Curtailments in the Nordic pulp and paper industry may lead to abundance of wood chips in the southern regions of Sweden and Norway, EUWID Wood confirmed. Closures will free up to 2.2 million m3 of industrial softwood and another 1.9 million m3 of wood chips. Forest owners in Norway, and partly in Denmark and the UK as well, who used to deliver mainly industrial spruce to suppliers in the region are currently looking for alternative buyers. Various Norwegian and Swedish sawmills now find themselves in a similar situation as they too must find new sales channels for their woodchip assortments.

Apart from Södra, capacity cut is also planned by Norske Skog. PM 2 at Skogn mill in Norway is to be idled temporarily from June 2013, taking another 160,000 tonnes from the market. Net loss of Norske Skog in Q1 2013 amounted to NOK 381 million compared to the loss of NOK 343 million in the previous year. The company is addressing these challenges with closures and conversions of paper machines and wants to cut costs and improve productivity. Permanent capacity cuts in Europe of more than a million tonnes that have been announced will provide a better market balance and increased prices, Norske Skog believes. The company expects that the operating environment will remain challenging through the first half of 2013, with weak demand in both Europe and Australasia.

The strong Swedish krona and the European economic crisis are also dampening Billerud Korsnäs’ results in Q1 2013. However, the results are in line with expectations and the company has identified additional cost synergies. Q1 2013 was the first full quarter for the combined Billerud Korsnäs after the companies merged officially on 29 November 2012. “Packaging Paper faced a slightly slower than normal market, Consumer Board experienced a more satisfactory and normal market and the Containerboard’s market was rebounding and strong. Overall, we are still waiting for a European pick-up, and as a consequence increasing our sales efforts in emerging markets,” Per Lindberg, President and CEO of Billerud Korsnäs said in a statement The company expects to implement price increases of 5-8% for containerboard in the second quarter. The NBSK market is said to have developed very positively and the company expects further price increases during the year.

Reports of North American companies are much more optimistic. West Fraser Timber is reporting net earnings of $67 million on sales of $863 million in Q1 2013. “Both SPF and SYP lumber prices steadily improved throughout the quarter as we headed into the spring building season. B.C. and Alberta stumpage costs are set to increase in the next quarter but lumber productivity and cost improvements are expected to continue to improve over the next few quarters as we complete various major capital projects,” company said in a press release.

Price increases pass on to Europe. As EUWID Wood says, several OSB manufacturers are going to apply further price hikes to deliveries from early May. Prices are to rise by an average of 2-3% or up to €10/m3. Swedish and Finnish shippers of lumber had also reached agreements with a variety of Central European customers on delivery terms for rough-sawn whitewood in the second quarter. The contract partners agreed on an average increase of €10/m3 on the prices that had applied in the first quarter. Many of the negotiations were caught between good sales opportunities for shippers on various markets outside Europe along with delays in building activity in Central Europe.

Market forces restructurings

Soon after Metsä Group published a release on optimization measures, another Finnish giant, Stora Enso, also announced restructuring. The company is going to focus on growth markets, while two divisions that showed poor performance (Printing & Reading and Building & Living) will be integrated in a new division “mainly focusing on mature business and geographies”. The company will streamline its structure and consider outsourcing alternatives as well as sale of non-core assets. Group net loss was €16 million in the first quarter of 2013 against a net profit of €74 million a year ago. “The combination of continuing structural decline in media-driven paper grades and economic weakness in Europe led to year-on-year declines of 9% in the group’s operational EBITDA and 21% in operational EBIT despite the solid performance of the other two business areas,” Jouko Karvinen, CEO of Stora Enso commented. According to Karvinen, the company’s reading and printing paper markets have shrunk by more than 20% since 2008. The other two divisions which are more successful, Renewable Packaging and Biomaterials, will remain unchanged. The new division structure will be applied from July 1.

Pulp, Paper and Power business of equipment producer Metso is to initiate a global cost competitiveness program to adapt to structural market changes and improve profitability. The program will target an annual cost reduction of approximately €100 million by 2016. Among reasons cited are continuing downturn in demand for paper machinery and the growing trend towards cheaper technology solutions. Earlier company also announced that it is going to make its products and solutions in papermaking available for the corrugated industry. Metso’s 1Q 2013 net sales were €1.59 billion compared to €1.76 billion a year ago. EBITA indicator before non-recurring items reached €132 million.

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Lower pulp prices during last summer and increased supply of sawmill chips put downward pressure on pulpwood prices in North America and Latin America in the 4Q/12, according to the Wood Resource Quarterly. The biggest declines occurred in Western US, British Columbia and Brazil. However, as a result of the weakening US dollar, wood fibre prices actually increased in US dollar terms in a number of countries and the Softwood Wood Fibre Price Index (SFPI) was up slightly (+0.1%) in the 4Q/12 to $100.13/odmt. The biggest increases from the 3Q to the 4Q occurred in Eastern Canada, Finland, France and New Zealand. The price declines in the local currencies were mainly the result of an increased supply of softwood fibre in regions with extensive lumber production. In the US Northwest, chip prices fell as much as 27% during 2012 and pulp mills in the region had some of the lowest softwood fibre costs in the world in the 4Q/12. In Western Canada, prices in the 4Q/12 were down 22% from late 2011, reaching their lowest levels in three years.

Hardwood fibre price movements were mixed, with hardwood pulplog prices generally trending downward in many of the key hardwood pulp-producing regions in both local currencies and in US dollar terms. This resulted in a 1.5% decline in the Hardwood Wood Fibre Price Index (HFPI) to $104.80/odmt in the 4Q/12. The biggest decline occurred in Brazil where Eucalyptus log prices have fallen continuously for over a year from early 2011, when they were at their all-time highs. In the 4Q/12, prices in US dollar terms were back down to same levels as where they were in early 2009. Few regions in the world currently have lower hardwood costs than Brazil.

Portucel Group (Portugal) recorded net earnings of €44.7 million in Q1 2013, down 14.6% from the previous year, due to reduction of paper demand in Europe. The company said that despite the increased supply of eucalyptus pulp and the apparent slowdown in the Chinese market in the first two months of the quarter, the pulp market has shown itself to be strong. According to Portucel, the question of whether the pulp market will remain strong will depend, as in previous years, on rising consumption in China.

U.S. total kraft paper shipments in March 2013 were 132.6 thousand tonnes, an increase of 11.6% compared to the prior month, as the American Forest & Paper Association reported. Bleached kraft paper shipments decreased year-over-year 1.3%, and the 7.2% year-over-year decline in unbleached kraft paper shipments were enough to bring overall kraft paper shipments down 6.5% year-over-year. U.S. containerboard production in March 2013 rose 6.8% over February 2013 but fell 2.6% over the same month last year.

Resolute Forest Products is shutting down its newsprint mill in Thunder Bay, Ontario for two weeks. 110 workers will be affected by the downtime. The shutdown is being blamed on market conditions and high costs. The company also wants to contract out 42 jobs to control costs at the mill.

Spanish imports of softwood lumber in 2012 were a fifth lower than the year before at 722,765 m3, TTJ reported. The value of the imported lumber fell by 25% to €123 million. The latest data shows that the imports stabilised in the fourth quarter whereas reductions were recorded in each of the first three quarters. The imports in 2012 only reached 26% of the volume recorded for 2007.

SCA BioNorr, a subsidiary of SCA, intends to expand pellet production from its current level of 160,000 tpy to 240,000 tpy. Around SEK 60 million will be invested in the expansion of the mill. A definite schedule regarding when the expansion of production is to be carried out is only expected after approval from environmental bodies is granted.

Prepared using corporate press releases, Timber Trades Journal, Wood Resources International, ForestTalk, EUWID Wood and EUWID Paper.