UPM removes significant magazine and newsprint capacity worldwide

http://www.forbes.com/HELSINKI (Thomson Financial) - UPM-Kymmene said it will permanently close its Miramichi mill in Canada as part of a plan to slash magazine and newsprint capacity and cut yearly costs between 50-70 mln eur.

The world's largest magazine paper manufacturer is closing Miramichi as the strength of the Canadian dollar has made UPM's exports to the US unprofitable.

Some 540 jobs will go, with the group expecting to take a 105 mln eur hit during the fourth quarter.

The move will also have a cash flow impact of 80 mln eur over 2008-09 and result in tax charges of 15 mln eur.

Miramichi, which has an annual capacity of 450,000 tonnes of magazine grades, has already been at a standstill since August.

Jyrki Ovaska, the head of UPM's magazine paper division, said: 'During the temporary shutdown, we have investigated several business solutions to make the Miramichi operation viable. Unfortunately, the current business environment leaves us no options.'

UPM said it would also trim newsprint capacity temporarily by shutting down a newsprint machine at its mill in Kajaani, Finland, for ten months, and one machine in Steyrermuehl, Austria, for two months.

Those measures, designed to trim its 2008 newsprint capacity by 250,000 tonnes, will be put in place during the first quarter of next year.

The cuts are the latest in a series of measures taken by key forestry industry players in a bid to tighten supply and boost prices amid rising raw material costs.

UPM said rising wood, recycled energy and energy costs means the current quarter will be its worst this year, though it is projecting full-year operating profit, stripping out special items, to be up on 2006.

The group said it will also reduce capacity of label papers by shutting one machine in Jamsankoski and one in Tervasaari, both in Finland, for up to three months.

On top of those cuts, three old self-adhesive label lines in Tampere, Finland, and one in Melbourne, Australia, are to cease production, while it is considering closing a timber components and planing mill in Luumaki, in Finland.

Also under review are sawmills and woodland it manages under license located close to Miramichi.

All-in-all, some 680 people are expected to be made redundant, with a further 270 to be out of work during the temporary shutdowns.

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UPM removes significant magazine and newsprint capacity worldwide

HELSINKI, Dec. 17, 2007 (Press Release) - Following the review of its asset portfolio against the current cost and business environment, UPM has decided on several courses of action, including removal of production capacity.

The Company today announced the following:

Removal of 450,000 tonnes of magazine paper capacity by permanently closing the Miramichi paper mill in Canada

reduction of 250,000 tonnes of newsprint capacity through the temporary shutdown of one paper machine in Kajaani, Finland, for ten months, and one machine in Steyrermühl, Austria, for two months

reduction of label paper capacity with the temporary shutdowns in Finland of one paper machine in Jämsänkoski and one in Tervasaari, both up to three months

rationalisation of the Company's self-adhesive label materials operations by closing three old coating lines in Tampere, Finland, and one coating line in Melbourne, Australia, and

commencing negotiations with employees on the possible closing of the timber components and planing mill in Luumäki, Finland.


With the exception of Miramichi and Tampere, all the above measures still require negotiations with employees according to the national practices in respective countries.

The decisions are based on UPM's view of the markets and cost competitiveness of the assets. We estimate that next year demand growth will be slower than in 2007 and in the beginning of the year meaningful price increases can be achieved mainly in magazine papers. At the same time the industry will face higher costs of wood, recycled paper and energy. The full year 2007 operating profit, excluding special items, is forecast to exceed that of 2006. The cost development is, however, visible already during the current quarter which will be our weakest quarter of the year.

The annualized cost saving is estimated to be in the range of Euro 50 - 70 million, mainly consisting of reduced wood, recycled paper, energy and personnel costs.

Due to the closure of the Miramichi mill, UPM will book in operating profit costs of approx. Euro 105 million in Q4 of 2007, majority of which will impact Magazine Papers Division. The cash flow impact is estimated to be Euro 80 million during 2008-2009. In addition, income tax charges of approx. Euro 15 million will be recorded from the reduction of deferred tax assets in Canada.

Actions related to magazine papers

UPM will permanently close its paper mill in Miramichi, Canada. The Miramichi mill has been temporarily shut down since August 2007.

"During the temporary shutdown, we have investigated several business solutions to make the Miramichi operation viable. Unfortunately, the current business environment leaves us no options," says Jyrki Ovaska, President of UPM's Magazine Papers Division.

The record strong Canadian dollar has made the export of Miramichi paper to the United States market unprofitable. The Canadian currency has gained 25% this year. The increasing cost of essential raw materials such as wood and chemicals has offset the benefit of price increase for magazine paper. Demand for magazine paper grades in North America has been stable, but globally, there continues to be overcapacity in magazine papers.

UPM has permanently ceased production of 980,000 tonnes of coated magazine paper in 2006-2007 to reduce the structural overcapacity and improve profitability of the business. Near Miramichi, UPM operates two sawmills in the communities of Blackville and Bathurst, and manages woodlands under Crown forest licenses. The future of these operations is under consideration.

UPM's North American customers will continue to be served by the Company's coated groundwood paper mill in Blandin, Minnesota, USA, and UPM's paper mills in Europe.


Actions related to newsprint

UPM will reduce its standard newsprint production capacity in 2008 by 250,000 tonnes by temporarily shutting down one paper machine (PM 4) in Kajaani, Finland, for ten months and one paper machine (PM 4) in Steyrermühl, Austria, for two months, starting during the first quarter of 2008.

Furthermore, the cost competitiveness of the Kajaani mill will be improved by streamlining and reorganization which will result in permanent headcount reduction.

"Shutdown for almost a year is an unconventional measure. However, we foresee a changing newsprint market situation in Europe in 2008. The demand growth for standard newsprint is currently flat in Europe, and with continued imports from North America and a decrease in exports to Asia, the European newsprint market is not in balance. Therefore, we need to take action," says Hartmut Wurster, President of UPM's Newsprint Division.


Actions related to label papers

UPM will temporarily shut down two label paper machines for up to three months, one in Jämsänkoski (PM 4) and one in Tervasaari (PM 5), both in Finland. In label papers, there is overcapacity in Europe and the strong euro makes the current exports unattractive.

Actions related to wood products

UPM will start negotiations with employees on the possible closure of the timber components and planing mill in Luumäki, Finland. The financial performance of the mill has been negative and the market outlook for 2008 will remain weak. The closure of the Luumäki planing mill relates to UPM Timber's plans to centralise its planing operations.

Actions related to self-adhesive label materials

UPM will rationalise its self-adhesive label materials production at its Tampere factory in Finland by closing three outdated coating lines, no later than in March 2008.

In addition, UPM will shut down a self-adhesive label materials production line at its factory in Melbourne, Australia. The specialty products produced on this coater have been transferred to other production lines. The Melbourne factory continues to serve the Australian market with a combination of locally produced products and imports from other Asian factories.

Impacts on personnel

UPM estimates that these measures will reduce the number of the Group's personnel by approximately 680, mainly caused by the permanent closure of the Miramichi mill (540 persons), streamlining and reorganisation of the Kajaani mill (60 persons) and the possible closure of the Luumäki mill (50 persons). Rationalisation of the self-adhesive label materials operations in Tampere, Finland, and Melbourne, Australia, will reduce the headcount by about 30 persons.

In Kajaani, Jämsänkoski and Tervasaari, negotiations on possible temporary layoffs will be started with employees. Temporary layoffs are estimated to affect approximately 110 persons at the Kajaani mill. At the Tervasaari mill in Valkeakoski, the temporary layoffs are estimated to affect approximately 90 persons and at the Jämsänkoski mill approximately 70 persons.

Paper products industry to lose $400M this year

Paper products industry to lose $400M this year, turnaround to start in 2008
3 hours ago

OTTAWA - Canada's paper products industry will be in the red again this year, recording about $400 million in losses as a result of the surging loonie and falling demand, the Conference Board of Canada says.

That would mark the third straight year of losses in the $11-billion pulp and paper industry, which has been in a deep funk for most of the decade.

But the Conference Board report released Thursday forecasts a turnaround for the industry starting in 2008 as prices begin to rebound modestly and demand increases from such expanding economies as China.

The report predicts the industry will make a modest $6 million profit in 2008, but earnings will rise to $600 million in 2009 and continue building to $1.7 billion in 2011.

"Much of the industry's profit will be generated by the pulp segment, boosted by strong demand in China and Western Europe," the report states.

Despite the brightening prospects, the board does not see the same bright picture for employment.

The industry has shed about 21,000 jobs in the last four years. But despite expected increasing profits, the board forecasts only minimal job growth starting in 2008.

The key factor ailing the industry is the high loonie - the board estimates that every cent rise in the Canadian dollar has shaved $200 million in profits from the sector's bottom line.

As well, the increasing computerization and Internet use in North America has cut into the demand for certain types of paper, the report says.

"The death of paper has been forecast many times since the 1990s," the report notes.

"Yet the industry - especially in North America - has still been hit by the rise of computers and the Internet," it adds. "Newsprint has been worst hit as circulation and classified advertising continue to decline and as environmental concerns multiply."

The Pulp and Paper Products Council pegged newsprint consumption decline at 12.2 per cent in the first three quarters of 2007.

In the wake of increased competition and mounting losses, many companies have either merged their operations, shut down money-losing mills or made other streamlining moves to remain profitable.

For example, Montreal-based paper giants Domtar and Abitibi have struck deals to merge with major U.S. forestry companies and are moving forward with efficiency drives to improve their finances.

Domtar Corp. (TSX:UFS), formed by the merger of Domtar Inc. and the fine-paper business of U.S. forestry giant Weyerhaeuser Co. (NYSE:WY), is the largest integrated producer of uncoated freesheet paper in North America and the second-largest in the world based on production capacity, and is also a manufacturer of paper-grade pulp.

The company, with nearly 14,000 people, also produces lumber and other specialty and industrial wood products.

Meanwhile, AbitibiBowater Inc. (TSX:ABH) is launching a review of operations as the newly combined company attempts to improve operations and reduce debt by $1 billion over three years. The review could lead to mill shutdowns in Canada and the United States.

The combination of Abitibi-Consolidated Inc. of Montreal and Bowater Inc. of South Carolina was completed Oct. 29.

Earlier this week, Vancouver-based Catalyst Paper Corp. (TSX:CTL) extended the shutdown of its No. 1 paper machine at the Elk Falls newsprint mill at Campbell River, B.C. until the end of March because of a shortage of fibre.

Other pulp and cardboard operations at the mill will also be shut down over Christmas, affecting 600 employees.

Expected Rise in Paper Costs Leaves Publishers Shuddering

Expected Rise in Paper Costs Leaves Publishers Shuddering
Mags Could Be Paying 25% More Next Year Due to Mergers in Pulp Biz
By Nat Ives

http://adage.com/mediaworks/article?article_id=122187

Magazine publishers are already facing way too many rising costs: technology investments, postage, editors both diva and deserving. But the seemingly mundane budget line for glossy paper is suddenly the one everyone is worried about.

Welcome to our hell, publishers said last week.

"I frankly became more of a quasi-expert than I would want to be, only out of necessity," said John P. Loughlin, exec VP-general manager at Hearst Magazines.

The weakness of the American dollar is increasingly restricting publishers' overseas options.

Seller's market
More worrisome, paper seems to be emerging from a competitive era of cyclically rising and falling prices. This year already has seen increases implemented and announced. Now structural changes, including mergers and a growing role for aggressive private equity, look likely to drive prices up next year by another 20% to 25%, Mr. Loughlin said.

The industry hasn't seen a spike like that since 1995, when announced increases led to a brief run on the paper market that echoed Dutch Tulip Mania. This isn't spare change, either: Paper comprises some 15%-20% of publishers' costs, Mr. Loughlin estimated. One big publisher said it's still unclear how big a hit is bearing down. "We're still examining what we believe specifics amount to, and whether there are benefits to our scale," an executive there said, speaking on the condition of anonymity.

Planning the right strategic response is complicated by that fact that visibility, beyond such rough projections, remains limited. Paper manufacturers aren't too helpful on this score. A spokesman for AbitibiBowater, the result of an October merger and now the third-largest publicly traded paper company in North America, declined to discuss publishers' fears. "We cannot speculate on pricing on a going-forward basis," he said.

A spokeswoman for NewPage, which hopes to close on the acquisition of Stora Enso's North American operations by the first quarter, did not respond to a voicemail and an e-mail seeking comment Nov. 21.

Hearst ready
Mr. Loughlin said Hearst would get by. The company increased cover and subscription pricing on many of its magazines this year and is considering a couple more hikes next year. "We have tried to be thoughtful about our structure in the good years and in the tough years relative to paper prices," he said. "Nobody wants to be here, but frankly we're in a good position in that we've managed our costs and don't have to change the physical specs on the magazines."

The other obvious recourse, trying to pass costs along to advertisers, just won't work well enough for everyone, said Malcolm Campbell, publisher of Spin. "It's going to put some people out of business," he said.

And he didn't just mean the indies. "Don't kid yourself," he said. "There are a lot of large-publishing-company old titles that are very marginal anyway. You're going to see a lot of icons going down if paper prices go up that much."

Spin, he said, will continue just fine in print, even without exploring options like switching to cheaper paper stock or reducing the magazine's size. "There may be some adjustments," he said. "I don't think we're going to go that route. We'll find other ways."


-----------------------------------------------


Paper prices "must double" says M-real chief

BY William Mitting, PrintWeek

http://www.printweek.com/paper/news/768484/Paper-prices-must-double-says-M-real-chief/



Paper prices must double to make the paper industry economically and environmentally sustainable, Andrew Gun­man, regional director of paper manufacturer M-real, has warned.



Speaking at the annual PPA Magazine Conference at London's Millennium Hotel last week, Gunman said the industry had to "pay the right price" for paper to save the environment and secure its future.



"Increased paper costs would reduce waste and force the industry to consume less," he said. "The paper industry needs more money to build a sustainable future."



Gunman added that, while most publishers do not insist on the environmentally friendly FSC certified paper, there has been increased demand from large retailers such as Sainsbury's.



"We have seen a 100% increase in demand for FSC paper in 2007 which is pushing up prices," he added.

Bemoaning the cheap price of paper in Europe, Gunman said the supply and demand mismatch was the fault of the paper industry, which had sold too cheaply.



He added that the low prices were destroying communities across Europe as paper mills are forced out of business.



Gunman's comments will be met with concern among the printing industry which is already struggling with increased paper prices.

One industry insider said that paper-based marketing and information communication has to stand up economically against other delivery channels. As paper prices increase, it makes these other channels more viable, threatening the industry.

In 2006, the dollar price of softwood kraft pulp increased by 22%, a cost which was passed onto printers.


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US toughens paper import duties to save local jobs

US toughens paper import duties to save local jobs
Jennifer Whitehead, printweek.com, 23 October 2007
http://www.printweek.com/news/753883/US-toughens-paper-import-duties-save-local-jobs/

The US government is to put anti-dumping and anti-subsidy duties on coated paper imported from China, Indonesia and South Korea, after calls from unions wanting to protect jobs in America.

This will prevent the sale of glossy paper products at below US production costs.

The United Steelworkers union has welcomed the US Department of Commerce's decision, saying that China had, until now, enjoyed "special treatment" that exempted it from anti-subsidy tariffs.

However, it criticised the delay in making the decision, saying that it had already forced mill closures and the shutdown of paper lines in the US.

United Steelworkers president Leo Gerard said: "Today's ruling is the right direction for American workers, but much more still needs to be done to bring about fair trade.

"For example, China imports most of its timber, yet there is still no real way to determine if the imported wood – which is used to make paper products exported to the US – has been harvested illegally."

China had appealed to the World Trade Organisation against moves to impose the tariffs.

The number of jobs in the US paper industry has fallen dramatically since 2002, when United Steelworkers counted around 190,000 workers in the paper and forestry products industry. That number now stands at 130,000 workers.

Reading into the pulp mill fictions

Reading into the pulp mill fictions
Judith Ajani
http://canberra.yourguide.com.au/detail.asp?class=your+say&subclass=general&story_id=1053684&category=opinion

The silent sleeper in the Gunns pulp mill debate is its commercial viability. Perhaps Environment Minister Malcolm Turnbull, with his business blood, cannot imagine a company advancing a $1.5billion investment without having done its sums, carefully. Turnbull is not alone here, most people would think it incredible.
But Gunns is no ordinary company. It has never experienced a conflict-free business day since its mid-1980s beginnings. Its business battles are as much battles against greens as they are for market share.

Gunns is a company lifted by a cheer squad rooted in four decades of battles over hydro-electric dams, mining, woodchipping and pulp mills in an island state of just 500,000 people. While its cheer squad bears little commercial responsibility for Tasmania's largest-ever investment, financial prudence requires that Gunns' board somehow keeps its feet firmly on the ground.

Gunns is reserving its final judgment on the viability of the mill until the approvals are in. But because the environmental and political debate precedes the economic judgment, the mill's commercial viability has slipped under the radar. It is quite possible it will fail the test.

In Tasmania, a grudge factor has simmered since the late 1980s when Canadian paper maker Noranda pulled out of the Wesley Vale joint venture pulp mill proposal with North Broken Hill. The public understood the pull-out as industry's response to then federal environment minister Graham Richardson's tightened requirements. This was just half the story.

Since Noranda's decision, globally traded chemical pulp prices have halved in real terms, a scenario they had not planned for and an economic reality of little interest to grudge-bearers. In the shadow of Wesley Vale, Gunns' proposed pulp mill is so emotional and politically complex that neither Turnbull nor his shadow, Peter Garrett, should assume economic rationalism drives the show.

Despite the mill's commercial viability remaining untested publicly, both Gunns and the Tasmanian Government promote its wider economic benefits. If the pulp mill's financials do not stack-up, neither does the $6.7billion boost to Tasmania's economy and the 1617 new jobs calculated by the Allen Consulting Group as input to Gunns' integrated impact statement.

Allens did not investigate the financial viability of the mill before calculating these figures. The study's project director later argued that "it is difficult to see why this [the mill's commercial viability] is anything other than a matter for Gunns and the company financiers" and questioned the legitimacy of government or the public interest in the commercial viability of major industrial projects. Allens, however, ignores the Tasmanian public's business interest through Forestry Tasmania who will supply most of the wood from public native forests.

It also ignores the risk of more Federal Government hand-outs if Tasmania's public purse is used to keep an uneconomic mill alive. ITS Global, the consultants engaged by the Tasmanian Government to review the social and economic benefits of the pulp mill, also started with the premise of the mill's commercial viability.

CommSec, using information Gunns presented in its impact statement and its own market analysis, concluded the mill would be marginally positive for Gunns but emphasised the project was highly risky, strongly leveraged to a volatile commodity price and subject to approval and construction risk. Its analysis was hamstrung by data constraints, especially on native forest log prices that remain confidential to Gunns and the Tasmanian Government. Other broker reports agree with CommSec's risk assessment but give a more positive assessment of the mill.

Five years ago, Visy Industries broke through the pulp mill barrier in Australia when it commissioned its softwood plantation mill near Tumut. Environmentalists gave it a tick having passed the first hurdle no native forest logging and the second concerning emissions. Visy also engaged in real public consultation. On environmental and consultation matters, the two pulp mills are fundamentally different. They also differ in their market orientation, and herein lies the high economic risk CommSec associated with the Gunns mill.

Visy processes softwood pulp into paper to supply its domestic box-making plants. It enjoys the transport and familiarity advantages of a domestic market. Visy's strategy copies the global corporate structure of integrated pulp and paper production. Gunns can't follow suit, as its hardwood pulp is geared for printing and writing paper. This is because PaperlinX, Australia's monopoly producer of such paper, has the domestic market effectively stitched up through its own production or its subsidiaries' imports. Gunns must therefore compete in the global pulp market, a market that's both a dumping ground in economic downturns for old players and the target of new, extraordinarily low-cost producers in South America. CommSec believes Gunns cannot match their costs.

For many decades now, real (inflation-adjusted) pulp prices have followed a roller coaster down in this gruesome market. Gunns' forceful lobbying to keep costs down is no surprise. The problem lies in the Tasmanian Government who leads the cheer squad.

Under intense political pressure, Turnbull brings in scientists to help fix the growing political problem. An economic evaluation would be equally valuable. It would help shape how the Federal Government might best bring Australia's native forest pulp mill saga to a close. For Opposition Leader Kevin Rudd, this task includes managing the forestry union and Labor politicians who will not forget Wesley Vale days.

Judith Ajani is an economist at the Australian National University and author of the recently published The Forest Wars, by Melbourne University Publishing, 368pp, $34.95.

Stora Enso found not guilty of anticompetitive conduct in the USA

Stora Enso found not guilty of anticompetitive conduct in the USA
Friday July 20, 3:02 am ET


HELSINKI, FINLAND--(MARKET WIRE)--Jul 20, 2007 -- Stora Enso Oyj News Release July 20, 2007 at 07.00 GMT
ADVERTISEMENT


HELSINKI, Finland - Stora Enso (NYSE:SEO - News) today announced that On 13 December 2006 the US Antitrust authorities announced that Stora Enso North America Corp. had been indicted for its alleged anticompetitive conduct in connection with the sale of coated magazine paper in the USA in 2002 and 2003.

On Thursday 19 July 2007, following a jury trial in the US Federal District Court in Hartford, Connecticut, the jury found Stora Enso not guilty of the charges.



For further information, please contact:
Per Lyrvall

By gum, it might just be a solution

By gum, it might just be a solution
Email Print Normal font Large font July 19, 2007

Page 1 of 4 | Single page
Selective crossbreeding to speed the growth of trees offers a breakthrough in meeting the increasing world demand for timber and at the same time saving forests, writes Louise Williams.

Advertisement
AdvertisementIn a secure, sterile greenhouse just south of the Arctic Circle trees are flowering in four weeks that would otherwise have taken 10 to 15 years to mature. The genetically modified seedlings are a huge step forward in the race to produce bigger, faster-growing trees.

It's a race which must be won to meet insatiable global demand for wood and forest byproducts without pushing commercial logging even deeper into the world's dwindling native forests.

"The post-fossil fuel era will see human society turn back to its traditional dependency on wood," says Professor Ove Nilsson, the scientific co-ordinator at the Umea Plant Science Centre in northern Sweden.

But, he says, projected demand dramatically outstrips forest production. Soaring global consumption, especially in Asia, is colliding with new demands on forests for carbon-neutral biofuels for electricity, industrial furnaces, heating and vehicles.

"Everyone agrees that if we are going to solve this puzzle we have to make commercial forests more productive," Nilsson says. "We have to grow bulkier trees faster so we get much higher yields per hectare. Otherwise we risk cutting down every stand of rainforest left on the planet."

In China, the forest products industry grew from $US4 billion to $US17.2 billion in the five years to last year, paper consumption has doubled in a decade and forests, especially in Indonesia and Russia, are being rapidly felled to feed the Chinese industrial machine. Elsewhere, scientists are eyeing wood for biofuels because it is at least twice as "energy dense" as crops used to make ethanol for green vehicles, and trees require much less land and fertiliser.

The commercial forests of the future, Nilsson says, will be fast-growing plantations "tailor-made" for bio-energy, pulp and paper, new wood fibre products and sawn wood and logs for construction and furniture.

And it's not all science fiction; a plant enzyme has been identified in Sweden which makes paper highly water resistant, a potential replacement for petroleum-based plastics, and a wood fibre composite is being tested to replace plastic components in cars. Millions of cloned high-yield trees are being planted in the US, following decades of research and breeding to select the most productive trees. The most dramatic breeding gains have been achieved in Brazil, where massive eucalyptus plantations grow to 35 metres in seven years, a 300 per cent increase on the original Australian species. But most trees are still only 20 to 40 per cent bigger than their ancestors. Genetic engineering is the next frontier.

The futuristic seedlings are locked inside a pressurised greenhouse on the roof, to prevent cross-contamination of pollen and spores with native forests. Unlike work on crops such as corn and soy, the genetic modification of trees is in its infancy. In agriculture, extraordinary improvements in food crops have been achieved through millennia of selective breeding, irrigation, fertilisers and, more recently, the biotechnology revolution, which began in the US in 1995. Wild tomatoes were originally no bigger than a strawberry and corn was about the size of a finger.

"You could argue that biotech has an even bigger potential for trees than crops because crops were already greatly improved before GM, but in forestry we are still at the beginning," Nilsson says.

The trouble with trees is that, unlike crops, selective breeding takes decades. Many cold climate trees such as spruce and aspen take 10 to 15 years to flower, meaning superior trees can only be picked out and crossbred - in the hope of even more productive offspring - a couple of times in a forester's career.

Eucalypts have galloped ahead because they flower in two to three years, allowing rapid crossbreeding to emphasise favourable characteristics such as fast growth and straight stems, boosting harvests in Brazil from 20 cubic metres of wood per hectare to up to 60 cubic metres.

What Nilsson and his team have managed to do is to mimic one of the earliest flowering plants on the planet, the Arabidopsis, a member of the mustard family that flowers in four to six weeks. They discovered poplars and other trees have the same FT (flowering locus T) gene which triggers early flowering in the Arabidopsis, but in nature it is dormant for up to 15 years. By isolating the gene, activating it, then returning it to the seedling, they've turned on almost instant flowering in several of the slowest-maturing trees.

"The flowers are formed normally and they produce pollen," Nilsson says of the first batch grown last year, which created waves in the global scientific community.

The seedling themselves aren't much use in forests; they're not necessarily bigger or stronger. The idea is to use the GM early-flowering trees for cross-breeding; giving researchers the chance to select the best trees using molecular markers a couple of times every year, instead of once every two decades for cold forests such as those in Sweden.

The way the remotely activated FT gene has been delivered into poplars also opens the door for other genetic modifications from a bank of 250 tree genes identified at the Umea centre. The genetic delivery mechanism is a naturally occurring soil bacterium which readily infects plant cells, transferring part of its own genes into those cells. The bacterium has been hijacked by scientists looking for way into a tree's genetic structure.

"We just replace the bacterium's genes with the genes we want to introduce into the tree and the bacterium (or the plant) won't notice the difference.

"If you take the gene that controls the production of growth hormone and turn it off you get a bonsai, but if you make it more active you get a tree that produces almost twice the amount of wood fibres," Nilsson says.

An Australian PhD candidate, Jonathon Love, is at the Umea centre searching for his tree accelerator. His research focuses on how trees seek to correct a lean by generating more wood on one side to straighten the stem.

"If you identify the gene that is responsible for the localised growth stimulation, turn it on, then put it back, you can stimulate faster growth in the entire trees," he says.

Turning laboratory super seedlings into super forests is likely to rely increasingly on embryonic cloning. When genetically superior parents have been created, embryos can be excised from their seeds and grown in tissue culture, where they can be stimulated to make copies of themselves. The embryos can be stored in liquid nitrogen while the copies are planted out to identify which of the original seeds produced the best characteristics. Cloned tree embryos are not difficult to handle; they can be dried, shipped all over the world, and planted without a seed.

Love has worked in commercial forestry in Tasmania and says he's acutely aware of the pressure rapidly growing demand for wood products is putting on wilderness regions.

"The benefit of using forest sustainably is that you can have a carbon-neutral process. Wood is solar power harnessed by trees; you fix the same amount of carbon growing trees as you lose when you harvest them.

"Science can help with technical solutions to maximise productivity, but you still need good management and political commitment to replanting," Love says.

Umea lies in Sweden's biofuel region of vast forests. Wood waste from local timber industries fuels the power plant, providing carbon-neutral electricity, hot water and heating. Garbage is also tossed into the furnace. There's enough emissions-free hot water to run pipes under the city centre, keeping streets free from snow in winter, when the temperature plunges to minus 20 and the sea, lakes and rivers freeze over.

Forest industry waste is being used to generate electricity and heating in Europe, and in Brazil forest offcuts are replacing fossil fuels in the likes of smelting and food processing. Wood and wood composites must eventually replace high-emissions building materials such as steel, bricks, concrete and synthetic composites. In Sweden's south, Europe's first high-rise wooden apartment block is under construction.

Most significant, perhaps, are Swedish experimental factories turning wood and forest waste into second-generation automotive biofuels, raising the prospect of vehicles running on trees. GM trees are being tested in the US for biofuel production and New Zealand and Denmark are also investing in wood-to-vehicle fuel research.

How close we are to commercial GM forests is a matter of conjecture. China has planted out GM trees modified to resist pests, but many governments are cautious. Nilsson plans to use the fast-flowering mechanism only for breeding in sealed greenhouses. Once high-yield trees have been created, the gene can be bred out, leaving genetically normal trees to be cloned and planted.

GM eucalypts, he says, may be only five for six years away, but genetically modified hardwoods are unlikely in cold climate forests before 2015.

And there's still the contradiction between environmental demands for carbon-neutral biofuels and building materials to reduce greenhouse gas emissions and the traditional opposition to commercial forests from green groups concerned about biodiversity, especially with single-crop plantations.

But, says Nilsson: "The only way we are going to cope with rising demand is increase forest productivity. GM is one tool but this is a new way of thinking and working and we need more experience to fully understand its potential."

Louise Williams visited Sweden at the invitation of the Swedish Institute for the 300th anniversary of the birth of Carl Linnaeus, the world's first ecologist and the father of the binary nomenclature system of scientific classification.

Kruger idles No. 4 machine 11

Kruger idles No. 4 machine 11
Company blames high loonie for two-week shutdown

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CLIFF WELLS
The Western Star

The economy of the region was dealt its second blow this week when Corner Brook Pulp and Paper announced Friday it was shutting down a paper machine.



In a terse and vague press release, Jean Majeau, Kruger’s vice-president of corporate affairs, said “one newsprint paper machine” at the Corner Brook facility and the super-calendared machine at the Wayagamack mill in Trois-Rivieres, Que. faced “production curtailments.”



The statement gave no time line on the shutdown, other than it begins July 22. It also said the two machines produce 145,000 tonnes of annually.



The three-paragraph release cited the high Canadian dollar as the reason. According to the Bank of Canada website, the loonie was trading at 95 cents US on Friday.



The announcement came the same week Lafarge Gypsum announced its Corner Brook plant was shutting down, taking 53 jobs with it.



Bruce Randell, president of the Communications Energy and Papermakers Union Local 242, said the shutdown of No. 4 will likely affect a total of 25 or 26 jobs, but he doesn’t expect the shutdown to be long-lived.



He said it’s expected that the machine will be back up and running within a couple of weeks, although he doesn’t have any official notice of the length of the shutdown.



He said the hardest hit group will likely be the students hired for the summer. He said senior staff will likely move their holidays to coincide with the down time and some may get some training, but the relief workers won’t be needed as badly with the peak vacation season used.



“If it’s going to be a two-week duration and they start up the machine again — which we assume they will — it’s not too bad,” said Randell.



“It’s the summer time and a lot of people have their holidays and spend some time with their families. If this is a long-term thing — which we don’t believe it is — obviously it’s going to be dramatic.”



As the 4 p.m. mill whistle sounded Friday, there were few smiling faces as employees headed home. There were many questions unanswered, and there was a feeling of concern among mill workers.



Tradesmen Rick White and Ross Edison said the rumours have been around for a long time, but that doesn’t help when the news comes down. They heard the closure is for two weeks, after which an assessment will be done.



“It’s been spoken of for the last couple of years that it was potentially going to be shut down, that one machine,” White said. “Apparently, it is supposed to be temporary.”



Edison said it appears Kruger is taking every measure to ensure as little work time as possible is lost.



“What they are asking the men to do now is for a percentage to come forward and take extra vacation during that period, so that nobody is affected with any layoffs,” he said. “They are saying that you can allow 30 per cent more guys off now on vacation for whoever wants to take it.”

Being tradesmen, they said they feel protected from the closure, but said the people in the labour pool will have less work. In particular, they said there will be fewer hours for those on call.





Economic impact



Mayor Charles Pender said it’s hard to guage how hard the area will be hit by the shutdown.



“Any shutdown of any machine for any length of time is going to have an effect on the economy and is a concern to us, no doubt,” Pender said.

“I’ve already had a chance to speak with somebody in government on this



“We met with Kruger twice over the last two months and they were impressing upon us the gravity of the situation, given the rising cost of the dollar, which is the major cause for this shutdown. I think more than half of the paper from the Corner Brook mill goes to the United States, so obviously it’s having a major impact on them.”



Tom Marshall, Finance minister and Tory legislature member for Humber East, said the industry as a whole needs to find a way to be competitive in a world with a pricey loonie. He said Corner Brook Pulp and Paper is coming up with innovative ways to save money, whether it’s burning peat in their boilers to save oil or setting up a co-generation plant.



“The market is terrible as we know,” Marshall said. “We saw the results of that with Abitibi (in Stephenville) and from the shutdown of plants in the rest of the country... We do know Kruger are smart operators and experienced operators. We’ve worked closely with them in terms of helping them on the energy side, on the silviculture side and the roads side. We’ll continue to work with them to ensure this operation is efficient and can compete in the global market even under challenging circumstances.”



Shawn Woodford, president of the Greater Corner Brook Board of Trade, said more questions than answers were raised by the news release.



“We’re certainly going to ask Kruger the details of what this actually means and what the impact will be,” he said. “We’re hoping it’s a temporary measure, and a short temporary measure to correct the market conditions that are being seen in the paper supply.



“After the news this week of Lafarge, something like this obviously is something I take quite seriously.”



Gerry Byrne, Liberal legislature member for Humber-St. Barbe-Baie Verte, said this business in particular has been innovative in trying to invest in cost-saving measures, but haven’t always received the support it needs.



He said the shutdown is evidence the manufacturing sector in the country is being let down, especially by the laissez-faire monetary policy of the federal government.



“I’m extremely concerned with this being the second shoe to drop in the manufacturing sector in Corner Brook in seven days, more announcements like this may follow,” Byrne said.



“The Harper administration has failed to do anything to assist the manufacturing sector in this country and the competitiveness challenges they faces as a result. They (federal Conservatives) have walked away from Canadian jobs.”

Tembec shuts Louisiana paper mill, 540 jobs cut

Tembec shuts Louisiana paper mill, 540 jobs cut


CALGARY, Alberta, June 1 (Reuters) - Tembec Inc. (TBC.TO: Quote, Profile, Research) said on Friday it will shut its coated-paper mill in St. Francisville, Louisiana, at the end of July, cutting 540 jobs.

The Canadian paper maker said high costs and inconsistent production at the mill, and what it called "challenging market conditions in terms of both price and demand," provoked the closure.

The shutdown is the latest of a series of facility closures by Tembec over the past year. The company has been cutting capacity and looking to boost margins at its operations.

In a statement, Tembec chief executive James Lopez said the company had unsuccessfully attempted to boost the profitability of its only coated-paper mill last year by lowering costs and changing its product mix.

"Despite these changes this facility continues to be hampered by high energy costs, low machine productivity and difficult market conditions," the statement said.

Tembec said it is reviewing alternatives for the St. Francisville operation but offered no other details.

The mill has a capacity of 325,000 tons of coated and specialty papers used in catalogues, magazines and for cover stock.

Tembec shares were unchanged at C$1.18 on Friday on the Toronto Stock Exchange. The stock has dropped 22 percent over the past 12 months.

($1=$1.06 Canadian)

((Reporting by Scott Haggett, editing by Peter Galloway; scott.haggett@reuters.com; Reuters Messaging: scott.haggett.reuters.com@reuters.net; +1 403 531-1622)) Keywords: TEMBEC/CLOSURE

(C) Reuters 2007. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nN01364932

Domtar paper machine to halt again

Domtar paper machine to halt again
By Diana Graettinger
Wednesday, June 20, 2007 - Bangor Daily News


BAILEYVILLE — For the third time this year, the Domtar Inc. pulp and paper mill, Washington County’s largest employer, announced Tuesday that it is shutting down its paper machine.

The move will idle about 90 employees indefinitely. The mill, which dates to 1906, has about 500 workers.

The company blamed the latest shutdown on poor market conditions.

"We will run through the 24th [of June], and we will conclude on the 25th," Domtar spokesman Scott Beal said Tuesday.

The cut-size operation, which cuts large rolls of paper into 8½-by-11-inch sheets, went down around June 4.

So far there is no announced restart date for the paper machine, but Beal cautioned that the company wasn’t saying there would be no return to production.

In previous shutdowns, some workers have been kept on board to do maintenance. But not this time.

"We will be working hard to minimize our expenses during this period when we have one of our production machines down," Beal said.

The company will be asking employees to take vacation time if possible.

In May, the same 90 employees returned to work after being out of work for about a month. The cut-size machine was switched back on the day after Memorial Day after having been turned off April 5.

The first time the paper machine was shut down was in March. And just last November the company announced it was cutting back on production for two months because of the same market-related conditions. Production resumed in January.

The shutdown is not restricted to Domtar.

"I have read some headlines that some of our competitors are taking downtime," Beal said. "We also are seeing some of our own sister mills within Domtar. It isn’t just a localized problem in Down East Maine. I know that doesn’t do a lot to put food on the table — we understand that — but this issue is bigger than just Domtar."

Town Manager Scott Harriman said Tuesday he was sorry to hear about the latest shutdown.

"We’re disappointed to hear the news that Domtar is going down for an indefinite period, and we hope that they will be able to get back up and running in a very short time frame," he said.

Harriman said shutdowns were difficult. "The up-and-down nature of these shutdowns [is] very tough on local people," he added.

Although the paper machine is down, the production of pulp — the raw material that Domtar ships worldwide and that is used in the papermaking process — will continue.

George "Bud" Finch, chairman of the Eastport Port Authority, said Tuesday it has been a good year for shipping pulp out of the port at Estes Head. As of the end of May, the port had shipped out more than 145,000 metric tons of pulp. The port expects to ship upward of 360,000 metric tons by the end of the year — a record amount, he said.

"While we recognize that the downturn in the paper industry is certainly a significant blow to the economy of Washington County, we have great hope that the global market for Domtar pulp will remain strong," Finch said.

Domtar, based in Montreal, is the third-largest producer of uncoated, free-sheet paper in North America. It is also a leading manufacturer of business papers, commercial printing and publication papers, and technical and specialty papers.

Publisher of Men’s Magazines Is Sold to Private Equity Fund

Publisher of Men’s Magazines Is Sold to Private Equity Fund

By RICHARD PÉREZ-PEÑA
Published: June 16, 2007
http://www.nytimes.com/2007/06/16/business/media/16mag.html?_r=1&oref=slogin

Dennis Publishing, the magazine company behind three of the most successful publications aimed at young men in the United States — Maxim, Stuff and Blender — was acquired for an undisclosed price by the private equity fund, Quadrangle Capital Partners II, Quadrangle said yesterday.

Kent Brownridge, an industry veteran, is a junior partner in the purchase and will be chief executive of the magazine group. Mr. Brownridge, 66, spent 31 years at Wenner Media — publisher of Rolling Stone, US Weekly and Men’s Journal — most recently as senior vice president and general manager, before leaving Wenner in 2005.

Dennis Publishing is the American arm of Dennis Publishing Ltd., a British company owned by Felix Dennis. It will retain one of its American magazines, The Week.

A spokesman for Quadrangle said the group would be renamed when the sale is completed, which is expected to be in the third quarter. Quadrangle was represented in the deal by Davis Polk & Wardwell. Dennis was advised by Allen & Company and Jones Day.

Maxim was a pioneer among the “lad magazines,” the upscale-but-raunchy publications, including Stuff and FHM, for young men. Blender, a music magazine, also appeals mostly to men under 35, a favorite target of advertisers.

Blender, Stuff and Maxim, all monthlies, have a combined paid circulation of 4.5 million in the United States, and together they average more than 400 ad pages each issue.

The deal includes the magazines’ Web sites, which attracted more than four million unique visitors during April, and other related ventures including the Maxim satellite radio channel on Sirius and Maxim-themed resorts and restaurants.

Quadrangle is a major investor in a number of media companies, including Cablevision Systems and Metro-Goldwyn-Mayer Studios. The company is led by Steven Rattner, the former deputy chairman of Lazard.

By RICHARD PÉREZ-PEÑA
Published: June 16, 2007\


Dennis Publishing, the magazine company behind three of the most successful publications aimed at young men in the United States — Maxim, Stuff and Blender — was acquired for an undisclosed price by the private equity fund, Quadrangle Capital Partners II, Quadrangle said yesterday.

Kent Brownridge, an industry veteran, is a junior partner in the purchase and will be chief executive of the magazine group. Mr. Brownridge, 66, spent 31 years at Wenner Media — publisher of Rolling Stone, US Weekly and Men’s Journal — most recently as senior vice president and general manager, before leaving Wenner in 2005.

Dennis Publishing is the American arm of Dennis Publishing Ltd., a British company owned by Felix Dennis. It will retain one of its American magazines, The Week.

A spokesman for Quadrangle said the group would be renamed when the sale is completed, which is expected to be in the third quarter. Quadrangle was represented in the deal by Davis Polk & Wardwell. Dennis was advised by Allen & Company and Jones Day.

Maxim was a pioneer among the “lad magazines,” the upscale-but-raunchy publications, including Stuff and FHM, for young men. Blender, a music magazine, also appeals mostly to men under 35, a favorite target of advertisers.

Blender, Stuff and Maxim, all monthlies, have a combined paid circulation of 4.5 million in the United States, and together they average more than 400 ad pages each issue.

The deal includes the magazines’ Web sites, which attracted more than four million unique visitors during April, and other related ventures including the Maxim satellite radio channel on Sirius and Maxim-themed resorts and restaurants.

Quadrangle is a major investor in a number of media companies, including Cablevision Systems and Metro-Goldwyn-Mayer Studios. The company is led by Steven Rattner, the former deputy chairman of Lazard.

N.Skog in talks to restructure magazine paper

N.Skog in talks to restructure magazine paper
By Aasa Christine Stoltz
REUTERS

7:07 a.m. June 15, 2007

OSLO – Norwegian papermaker Norske Skog is in talks with competitors that may lead to a merger in the European magazine paper industry, the company's chief executive told Reuters in an interview on Friday.
Norske Skog, the world's biggest producer of newsprint, may see its smaller magazine paper operations grow or shrink as a result, Chief Executive Christian Rynning-Toennesen said.

“Yes, we are in talks with some companies,” he said, though declining to reveal which firms or any further details.

Rynning-Toennesen said prices of magazine paper in Europe would stay low in the second quarter but that some signs of improvement were in view.

“Some capacity is being closed down, leading to a slightly tighter market in the second half of this year than the first.”

Also the currently weak Chinese market for newsprint may get a demand boost from the 2008 Beijing Olympics, Rynning-Toennesen said. The company has two paper mills in China.

“I think it will improve in a couple of years – minimum one year, maximum two years,” he said. He added that the Chinese market looked marginally better now than it did six months ago.

The Asian market is where Norske Skog sees the strongest growth in demand, but overcapacity has kept prices low. New Chinese capacity will enter the market this year and next, but there have been no new mills scheduled to open after that.

Rynning-Toennesen said efforts to overcome the excess of capacity were helping improve China's market balance. “The government is pushing for shutdowns of old plants that are highly polluting.”

CHOPPING COSTS

Norske Skog's aim to knock 3 billion Norwegian crowns ($492.8 million) off its cost base in 2006-2008 is going as planned, and the effort may be expanded further, Rynning-Toennesen said.

“We're working to see if there are other projects and measures we could launch on top of what we've already decided on,” he said.

The Norske Skog CEO added that current savings efforts are more than offsetting the general rise in raw material costs. “We think all our cost increases will be more than counteracted by our improvement programme.”

But he was uncertain how the market would develop and declined to make any specific results forecasts.

Rynning-Toennesen repeated earlier statements that Norske Skog aimed to achieve about half of its remaining cost-cutting plans of 2.6 billion crowns in 2007 after reaching 400 million in annual improvements in 2006.

But he acknowledged that cost improvements could possibly be swallowed by a demanding market.

“If prices should continue to decline in the United States, our improvement could possibly be eaten up by falling prices. If on the other hand, the American market stabilises and increases, that will not happen,” he said.

“This is going in the right direction, though I would prefer it were moving faster,” Rynning-Toennesen said.

UPM's CFO says no plans to close any more paper mills

UPM's CFO says no plans to close any more paper mills
Wed Jun 13, 2007 3:54PM EDT

NEW YORK, June 13 (Reuters) - UPM-Kymmene Oyj (UPM1V.HE: Quote, Profile, Research) (UPM.N: Quote, Profile, Research), the world's largest maker of magazine paper, has no plans to close or reduce production at any of its remaining paper mills, Jyrki Salo, the company's chief financial officer, said Wednesday.

Earlier this month, the Helsinki, Finland-based paper manufacturer decided to shut its paper mill at Miramichi, Canada, for up to 12 months, due to a global overcapacity in magazine paper and weak prices.

"If you look at the assets that we have, we have very modern, very high capacity assets ... so now we will be able to generate margins that are well above the industry average," Salo said in an interview.

In March of last year, UPM-Kymmene announced that it planned to close and restructure operations at a number of its facilities in a move aimed at cutting costs, reducing supply and improving profitability.

The company's European and North American rivals like Stora Enso Oyj (STERV.HE: Quote, Profile, Research), M-Real (MRLBV.HE: Quote, Profile, Research) and Neenah Paper Inc. (NP.N: Quote, Profile, Research) have all been undergoing similar restructurings due to market oversupply and weak selling prices.

((Reporting by Euan Rocha; euan.rocha@reuters.com@reuters.net; 1 646 223 6026, editing by J.S. Benkoe)) Keywords: UPMKYMMENE CLOSURES/

Loggers, sawmill workers on strike alert

Loggers, sawmill workers on strike alert
Coast's $2-billion industry could be behind picket lines by next week
Gordon Hamilton, Vancouver Sun

Published: Wednesday, June 13, 2007
Eight thousand coastal loggers and sawmill workers were told Tuesday to get ready for a strike, after talks broke down Monday between the coast's largest employer group and the United Steelworkers.

"Crews in the coastal forest industry should prepare for potential strike action," the United Steelworkers said in a bargaining bulletin sent out Tuesday morning after Forest Industrial Relations, which represents 31 companies, walked away from the negotiating table.

The union is also negotiating with three major companies -- Interfor, Island Timberlands and Timberwest Forest -- separately. Those results are mixed.

The coast master agreement, which affects 8,000 workers, expires at midnight Thursday. If all sets of talks break down, 72-hour strike notice could be delivered Friday starting the count-down to a strike next week, putting the $2-billion sawmilling and logging industry behind picket lines.

A strike would also begin a 30-day countdown for the coast's pulp and paper industry, which has built up a one-month supply of wood chips in anticipation of logging and sawmilling operations going down.

"I would characterize the probability of a strike as being very high," Rick Jeffery, president of the Coast Forest Products Association, said Tuesday. "There are significant portions of the Steelworkers demands that will take us back to the 1980s."

Kevin Mason, analyst with Equity Research Associates, said the logging and sawmilling sector has been preparing for a strike but that the coast's seven pulp and paper producers are vulnerable, even though theirs is a totally separate industry whose workers are represented by a different union.

"For the the pulp and paper industry, which is relying on wood chips, this is a huge thing," Mason said.

Mason said if the union calls a strike, it could be a long, bitter one.

"Both sides seem quite entrenched and quite far apart."

The industry and labour have gone through significant transformations since 2003, when a three-week-long strike was only resolved after both sides agreed to an arbitrated settlement. That settlement, imposed in 2004 by mediator Don Monroe, sowed the seeds for further conflict as it was viewed by workers as being pro-industry.

Since then, industry has used the 2004 agreement to contract-out logging operations and make changes in worker shifts that have not sat well with employees. Further, in 2005, the old IWA was merged into the United Steelworkers, a larger, more powerful union that observers say is ready to flex its muscles on the coast.

Steve Hunt, western regional director for the Steelworkers, said the union is not looking for a strike but that employers are seeking even further concessions than contained in the Monroe agreement.

"The last thing we want to do is strike. That's the easiest thing to do," Hunt said. "We are trying to do some repair work from the last collective agreement that was imposed and that's a tough thing for workers to see their way through.

"Many benefits that these guys have enjoyed for a long time were taken away. The issue here is: How do we restore some of those benefits. We know we can't get them all back, but that's where we are trying to land."


Hunt said FIR walked out of negotiations Monday night. One other set of negotiations -- Island Timberlands -- is going well, he said.

The union is still negotiating with Interfor as well but no talks are taking place at TimberWest, where the union and company are involved in a labour relations board dispute over the number of workers actually employed by TimberWest.

Hunt said a significant change since the 2004 arbitrated contract is that the Steelworkers is a stronger union than the old IWA, with deeper pockets to sustain workers through a long strike.

Forest Industrial Relations spokesman Ron Shewchuk characterized the break-down in talks as a time-out, saying the employer bargaining arm is prepared to return to the table if the union is prepared to move on company demands.

"I don't think by any means that all hope is lost," he said.

The main issues separating the two sides are:

- Changes in shifting that give employers the right to set 10-hour, four-day work weeks, run operations on weekends and change shifts with little notice.

- Contracting out, always a contentious issue, which has yet to even be tabled at the FIR talks.

- A two-year agreement sought by the Steelworkers to align the expiry of the coastal contract with the contracts covering Interior workers, which expire in 2009. The industry opposes that.

Shewchuk said companies are prepared to make some changes in the shifting provisions but not give up what was gained in the Monroe agreement as it makes companies more cost-effective.

"The Monroe arbitrated settlement was directly responding to the realities of an industry that needs to improve its competitiveness. We were not in good shape. And those conditions have only worsened since then. The Canadian dollar has risen further and the housing market in the U.S. has declined. Now we have a surcharge on lumber going out of the country.

"We have made some proposals but we really don't see any movement on the union's part. We'd be willing to talk further if there was an opportunity for the union to move."

Hunt responded: "FIR should go and dream somewhere else. They are the ones who walked away from the table."

© The Vancouver Sun 2007

BoSacks Speaks Out: The Price of Paper is on the Rise

BoSacks Speaks Out: With all the talk and emphasis on the digital future of information distribution, it's a sobering thought to remember that most of our information distribution business models still revolve around dead trees. I say sobering because the price is on the rise yet again. Did you put these increases in your budget?



I have received the following information from several sources and felt it prudent to send it out to my entire list rather then just my Paper and Pulp list. I believe that editors, marketers, publishers and all my other readers should be equally aware of the dynamics of our industry. Paper is just one of the many factors that constitute the entire puzzle of publishing, but ask your production people how much of the manufacturing budget paper takes up? I believe that you will find that it takes up more of your budget than you thought possible.




"The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it."

Adam Smith (Scottish philosopher and economist, 1723-1790)



SAN FRANCISCO, June 7, 2007 (RISI) - At least three more North American coated paper suppliers have told customers to expect price increases on coated freesheet (CFS) shipments next month, contacts said. Sources said Sappi, Stora Enso and West Linn were among companies hiking prices to remain competitive with NewPage, which told customers earlier this week that it would increase prices $60/ton ($3/cwt) on CFS sheets and rolls effective June 7. Additionally, sources said Stora Enso told customers the price increase would apply to orders of coated mechanical paper as well as to CFS shipments.





From Sappi:

Effective for new orders with a confirmed delivery date on or after June 7, 2007,

Sappi Fine Paper North America is increasing prices US $4.00 (CAN $4.25) per

cwt on the following sheet products:



1. HannoArt sheets (all basis weights and finishes)

2. Magno sheets (all basis weights and finishes)

3. Private label sheet and sheeter roll programs





Effective for new orders entered on or after June 7, 2007, with a confirmed

delivery date of July 8, 2007, or later, Sappi Fine Paper North America is

increasing prices US$3.00 (CAN $3.25) per cwt on the following web products:



1. Aero web (all basis weights and finishes)

2. Opus web (all basis weights and finishes)

3. Somerset web (all basis weights and finishes)

4. Flo web (all basis weights and finishes)



From NewPage

SAN FRANCISCO, June 6, 2007 (RISI) - US coated paper supplier NewPage told its customers today that it would hike the price of various grades of coated freesheet sheets and rolls by $60/ton next month.



The increase is effective June 7 on orders with a confirmed delivery date of July 2, or July 16 depending on the product. In a letter to customers Newpage cited rapidly increasing chemical, energy and transportation costs and the need to achieve sustainable earnings levels.



From StoraEnso:

Please be advised that Stora Enso will increase transaction price 7% on the following

coated and uncoated web products.Effective with orders placed June 15 and all shipments July 1, this increase applies to:



PolarisPress (all versions)

SolarisPress

StellaPress

TerraPress

CapriPress (all versions)

ConsoPress (all versions)

MagniPress (all versions)

SuperiorPress

ExoPress

Lux Cream

Lux

Classic

Effective with orders placed June 15 and all shipments July 13, this increase applies to:



Arbor Web Plus

Arbor Web

Productolith

LumiArt

Orion

Excellence

MediaSet

NovaPress

All Private Label products

The 7% increase applies to all gloss finish products. For all other finishes, recycle fiber

content and covers, apply the appropriate differentials from the new gloss price.


From West Linn:

This letter is to advise you that West Linn Paper Company will be increasing prices on all Sonoma®, Capistrano®, Nature Web®, Nature Plus® and any other related private label products by $3.00 per cwt (US). The price increase will be effective on orders placed as of June 7, 2007, and on any existing orders shipping on or after July 2, 2007, regardless of order date.

Metso Reveals Order For Coated Paper Machine Worth EUR 100

Metso Reveals Order For Coated Paper Machine Worth EUR 100 Mln From Henan Puyang Longfeng Paper In China [MX]

6/6/2007 5:49:31 AM Helsinki, Finland - based diversified machinery company Metso Corp. (MX) announced on Wednesday that the company received an order valued EUR 100 million for supply of lightweight-coated papermaking line to Henan Puyang Longfeng Paper Co. Ltd. in Puyang in China.

The company said that the paper machine would have a capacity close to 1,000 tons of printing and writing paper grades daily. The machine will have a wire width of 7.9 meter and a design speed of 1,800 m/min. Metso expects to deliver from headbox to reel with related stock preparation and air systems. In addition, it would provide wet end chemicals and coating color preparation systems.

Puyang expects to produce 300,000 tons of poplar based chemi-mechanical pulp and 500,000 tons of high quality printing paper.

In a separate announcement, Metso said it would supply an extensive production line rebuild for JSC Segezha Pulp and Paper mill in Russia and a wet-end rebuild in Gruvon mill in Sweden. The total value of the order for JSC Segezha is around EUR 11 million. The company expects to start rebuilt production line in early summer in 2008. The supply for Billeurd will start in spring 2008. The value of the order is not disclosed on request from the client.

MX finished Tuesday's regular trading session at $56.77,down $0.64 on a volume of 19K shares.

Dollar hammers forestry industry

Dollar hammers forestry industry
Each cent increase is a $150M hit

The Gazette


Wednesday, June 06, 2007


The rising value of the Canadian dollar is cutting deeply into the lifeline of Quebec forestry companies, according to the industry's council, which estimates that every penny increase takes out at least $150 million a year in industry revenue.

The currency crunch comes amid dismal market conditions and growing concerns that another round of mill closings are coming, Guy Chevrette, president of the Quebec Forest Industry Council, said yesterday.

The average Quebec sawmill has lost an estimated $1.5 million since the beginning of the year, Chevrette said in a statement. "For a pulp and paper plant of 300,000 tonnes, that (loss) is close to $20 million."

Late Friday, Tembec Inc. announced that it would shutter its coated-paper mill in St. Francisville, La., for an indefinite period

The shutdown, due July 31, will affect about 540 employees.

The company, which cited "challenging market conditions in terms of both price and demand," noted that attempts had been made to improve the overall financial performance of the mill.

Yesterday, the president of Canada's largest forestry union took a swipe at forestry companies at a labour convention in New Brunswick.

"Employers, especially in the forestry sector, have deliberately taken the money they have earned from our publicly owned natural resources and invested them elsewhere in the world," Dave Coles, president of the Communications, Energy and Paperworkers Union of Canada, told convention delegates.

He was responding to news that the UPM Kymmene paper and ground wood mills in Miramichi, N.B., will shut down for nine to 12 months, and that four more mills in Quebec are facing temporary shutdown.

"These communities are a microcosm of what is going on in more than four dozen communities from coast to coast to coast," he said, noting that in the past three years, more than 12,000 pulp, paper and sawmill workers have been put on the street across Canada.

"Forest companies are investing those good Canadian dollars in places where workers can most easily be exploited. And then they have the nerve to say Canadian workers can't compete."

lmoore@thegazette.canwest.com

UPM to Shut Miramichi Paper Mill for One Year

UPM to Shut Miramichi Paper Mill for One Year

June 5, 2007 - UPM said that it will close its Miramichi mill operations in August for up to one year. The paper mill is scheduled to close late in August for 9 to 12 months. The nearby groundwood mill will also shut down.

About 600 employees will be impacted by the closure, UPM said.

The Miramichi mill, located in New Brunswick, Canada, has two machines, producing lightweight coated paper, with an annual capacity of 450,000 tonnes.

Despite best efforts, Miramichi has not been able to turn its exports to the U.S. profitable. The mill is suffering from unprecedented strength of the Canadian dollar. Also, market prices for the coated magazine paper have been decreasing in North America. Demand for magazine grades in North America has been stable, but globally, there continues to be overcapacity in magazine paper, suppressing the sales price, UPM explained.

In Europe, UPM has permanently ceased production of 530,000 tonnes of coated magazine paper during 2006-2007 to reduce the structural overcapacity and improve profitability of the business. The Voikkaa mill in Finland was permanently closed and a production line in Jämsänkoski, Finland, was converted to another business area. UPM also closed 150,000 tonnes of coated fine paper capacity at its Kymi mill, Finland last year.

"UPM's target is to improve the long-term profitability of the coated paper business. With today's decision, UPM leaves all options open for Miramichi. We will continue to explore solutions for Miramichi during the shutdown but realize that there needs to be material changes in the business environment for the mill to start up again,” said Jyrki Ovaska, president of UPM's Magazine Paper Division.

"The Miramichi management and employees have succeeded in steadily improving the efficiency of the mill," Ovaska said. "Unfortunately, their efforts could not overcome the challenges in the business environment."

Ovaska said UPM's North American magazine paper customers will continue to be served by the company's other coated groundwood paper mills in North America and Europe during the Miramichi shutdown.

A decision on restarting Miramichi will be made in 2008, based on market conditions, the company added.

SOURCE: UPM

John Faraci has whacked billions from International Paper's U.S. operations

Paper Cuts
Evan Hessel 06.18.07


John Faraci has whacked billions from International Paper's U.S. operations. Can he succeed abroad?

International Paper chief executive John V. Faraci kicked off the board meeting in early May by loading his nine directors into the company's corporate jet. After three flights and 11 hours in the air, the weary group set foot in Svetogorsk, Russia (pop: 16,000), a gritty industrial burg of cement apartment towers on the Karelian Isthmus, near the border with Finland, surrounded by thick pine forest.

The next day Faraci took his companions on tour of IP's 1,600-acre pulp-and- paper mill. He showed off the massive new machine that bleaches wood pulp in a slurry of caustic chemicals. He boasted about slashing energy consumption at its natural gas and biomass power plant. And he walked the group along a recently renovated football-field-length paper machine that pumps out 40 tons of white paper an hour. Thanks to cheaper labor and abundant pulp supplies, paper costs on average 13% less to produce here than in the U.S.

Why drag these folks halfway across the world, instead of subjecting them to a snappy PowerPoint presentation? Faraci has a lot to prove--to the board, to long-suffering investors, to skeptics who see a dying industry ground up in the jaws of overcapacity and shrinking demand. Svetogorsk, he believes, represents one of a handful of new investments abroad--a $2 billion bet in Russia, China and Brazil on basically two commodities: white printing paper and heavy-paper packaging. That gamble could help the 109-year-old Memphis, Tenn. company become the most cost-efficient producer--or break it. The board of directors, Faraci figured, have to like Svetogorsk in order to sign off on the $1 billion or so he wants to spend in a 50-50 joint venture with Ilim Holding, Russia's largest pulp producer.

Paper is a lousy business. Any brief spurt of profitability is inevitably followed by a mad frenzy of plant additions, and then by another round of overcapacity and depressed prices. During the current depression, which stretches back over four years, the industry's return on capital has averaged 5% a year. Companies have faced stark choices: Abitibi-Consolidated and Bowater merged; Weyerhaeuser decided to chuck paper and focus on real estate and building materials; Temple-Inland, squeezed by Carl Icahn, carved itself into three companies.

Faraci has spent the last couple of years wielding a massive ax. He has shuttered four mills in North America, canning 25,000 employees, 22% of the total. That move and some cost-cutting are supposed to add $1.2 billion to the bottom line through 2008. Last year he engineered the largest U.S. land sale since the Louisiana Purchase, selling 6 million acres of forest in the South, Midwest and Northeast, raising $6.6 billion. IP is a smaller but more profitable operation since he took over: In 2006 it netted $635 million on $22 billion in sales, versus $382 million on revenue of $25.2 billion in 2003. Long-term debt is down from $13.5 billion to $6.5 billion. But the $39 stock has barely budged, despite ip's spending $3 billion over 2006 and 2007 to repurchase shares.

An IP lifer, Faraci joined the company as a financial analyst in 1974 after earning an M.B.A. from the University of Michigan. What he loved about the company was its vast acreage, which reminded him of his boyhood summers, spent going to camp, hiking and fishing in New Hampshire's White Mountains. For 15 years he cycled through jobs managing forests in Oregon, operating sawmills and running the company's construction materials subsidiary. He moved to New Zealand in 1995 to run papermaker Carter Holt Harvey, in which IP held a 51% stake. Four years later Faraci was recalled to headquarters as chief financial officer.

IP was at a critical point. In 1999 and 2000 Faraci helped John Dillon, then chief executive, buy Union Camp, Shorewood Packaging and Champion International for a total of $19 billion. The expansion couldn't have come at a worse time. Just as paper demand was lagging, IP was adding production capacity. The acquisitions piled on $5 billion in debt. "In hindsight," Faraci concedes, "we overpaid."

That became clear soon after Dillon stepped down. Faraci began exploring what new shape IP might take. One option: unloading its prized asset--its forests. Timberland appreciates 4% a year simply from tree growth: Relying on sustainable methods, IP could cut 4% of its standing timber each year to sell to its own paper and sawmills or to those of its competitors. "The forests had been our security blanket," Faraci says, adding with a dash of emotion, "The trees were the whole reason I got into this business."

In 2005 IP's forest resources division carved up the forest into 66,000 plots and conducted title searches for each one. Faraci signed deals in April 2006 selling 4.2 million acres of forest to Resource Management Services for $5 billion in cash and notes and another 900,000 acres in Louisiana, Texas and Arkansas for $1.1 billion to TimberStar, a unit of the REIT Istar Financial. Small timber outfits, individuals and environmentalists bought the remaining 562,000 acres for $520 million. (IP still owns 500,000 acres in the U.S.)

Faraci also sold his wood products division for $562 million. While a cyclical business, lumber can be hugely profitable during housing booms. Sales of 13 lumber mills to West Frasier Timber of Canada generated another $325 million; five plywood-and-lumber processors brought in another $240 million from Georgia-Pacific.

All told, IP swept up $11 billion. Faraci used $6.2 billion to pay down debt and $1 billion to fund pension obligations. Those two moves have freed up $500 million a year.

What's left? Paper packaging, the stuff of corrugated cardboard and cereal boxes, and so-called uncoated freesheet paper, used for office and business forms, envelopes, printing and so forth. These are not especially profitable businesses, with Ebit margins of, respectively, 9.7% and 7%. (By contrast forest products, most of them sold off, had margins as high as 36%.) So Faraci has to be hyperefficient. In the U.S. he's counting on various moves--layoffs, flexible labor contracts, heat-recovery devices to lower energy bills, new software for ordering and logistics--to lower costs. But he must also be in markets where people are clamoring for paper. That's why Faraci is betting on plants overseas.

In Latin America demand is growing at 3.6% a year, capacity at only 1%. Since 1960 IP has been in Brazil, where access to eucalyptus trees--which grow in 7-year cycles, compared with 26 years for southern U.S. pine--provide a cheap source of pulp. But in February Faraci shifted gears, swapping a pulp mill in the state of Mato Grosso do Sul for an integrated white paper mill in Luis San Antonio in the state of São Paolo. IP is already increasing capacity there, 130% by 2009, to 1 million tons of white paper a year, convinced that Brazil can soak up the additional output and thereby push up prices. Operations there now generate 3% of revenue, but 10% of net profits.

Faraci's biggest wager to date: Russia. If he persuades his board and the Russian Federal Antimonopoly Service to approve a pending deal, IP would spend $400 million to buy a 50% stake in two mills in Siberia and two in the west that together produce 2.5 million tons of pulp, as well as white paper and containerboard. In addition, over three years IP and its partner would invest $1.2 billion in new capital equipment, with the idea of increasing production by 40% and introducing new products. Faraci sees Siberia as a gateway to Asia, where the mills now export 45% of their pulp and where the market is expanding 7% a year.

Still, there's risk. Despite IP's goodwill efforts in Svetogorsk, where it has created jobs for unemployed paper workers and built an orphanage, the Kremlin could insist on tough terms--as it has for Western energy giants. As Credit Suisse analyst Mark W. Connelly says, it could be years before an investment in Ilim pays off.

China poses even greater potential obstacles. In March 2006 IP put up $140 million in a joint venture with Shandong Sun Paper, that nation's fifth-largest paper-and-packaging company. The deal includes two coated-paperboard machines producing packaging for toiletries and cigarettes; a third comes onstream later this year. This comes on top of investments in nine corrugated-box plants in China.

Faraci vows to lift IP Asian sales from an expected $250 million this year to $1.6 billion in 2009. But that assumes he will consummate an as yet uncompleted deal for a white paper plant (IP declines to name where it is). And that China's paper industry, backed by $24 billion from the State Development & Planning Commission, doesn't overbuild and overproduce. New Chinese mills already make and ship paper for less than any U.S. manufacturer, and they wouldn't hesitate to dump supplies within their own borders to keep the business chugging. "The Chinese care more about jobs than profits," concedes Michael Bruner, IP's manager at the Courtland, Ala. plant, who has toured Chinese paper mills.

Faraci acknowledges the coming fight. "I know we don't have this market staked out," he says. "We have very strong competitors pulling all the levers they can. You gotta run fast just to stay even."

By the Numbers
Paper Tiger
China is a fast-growing competitor.

$54 billion Asia's paper and forestry sales last year, vs. $127 billion for U.S.

42 Number of new Chinese mills to be built by 2010; the U.S. has closed 35 since 2005.

$547China's cost per ton of white paper produced, compared with $481 in the U.S.

Sources: RISI; PricewaterhouseCoopers; Center for Paper Business & Industry Studies at Georgia Tech.

Tembec to idle its coated paper mill located in St. Francisville, Louisiana

Tembec to idle its coated paper mill located in St. Francisville, Louisiana


Temiscaming, Quebec, June 1, 2007 – Tembec today announced that its coated paper mill located in St. Francisville, Louisiana will be indefinitely idled, with a target date for idling of July 31, 2007. It will affect approximately 540 employees.

The St. Francisville mill has a capacity of 325,000 short tons of coated and specialty papers, primarily used in catalogues, magazines and cover stock. Tembec acquired the facility in June 2001 by way of a Chapter 11 bankruptcy proceeding involving the mill’s former owner, Crown Paper Co.

A number of factors have combined to make this decision necessary, according to Dan Alexander, Executive Vice President and President, Paper Group. “The effect of challenging market conditions in terms of both price and demand, the inconsistent performance of the mill in terms of production, the increased cost of purchased energy, and the high manufacturing costs at this site have resulted in a situation that could not be sustained. While there has been progress during the past year, the overall financial performance of this site has been and continues to be unacceptable,” said Mr. Alexander.

The decision to idle St. Francisville is consistent with the recovery plan that was announced last year by Tembec President and CEO, James Lopez. Margin improvement at all manufacturing locations is central to this plan and the Company had indicated that, where no long-term solutions could be identified and implemented to achieve this goal, necessary action would be taken.

“Significant steps were taken in 2006 to lower the operating costs of this facility and upgrade the product mix. Despite these changes, this facility continues to be hampered by high energy costs, low machine productivity and difficult market conditions. The Company will continue to evaluate options to improve the profitability of this site and will take all available steps to ensure its customers will not experience supply interruptions,” said Mr. Lopez.

Tembec indicated that it is reviewing the full range of alternatives for this site. The Company would not speculate on the outcome of this review process.

“Decisions of this nature are never easy to make, and Tembec regrets the impact of today’s announcement on employees, their families and the St. Francisville community,” concluded Mr. Alexander.

Tembec is a large, diversified and integrated forest products company. With operations principally located in North America and in France, the Company employs approximately 9,000 people. Tembec’s common shares are listed on the Toronto Stock Exchange under the symbol TBC. Additional information on Tembec is available on its website at www.tembec.com

Catalyst Paper laying off 185 at Port Alberni operation

Catalyst Paper laying off 185 at Port Alberni operation
The company will eliminate another 130 jobs from head office staff
by Gordon Hamilton
Vancouver Sun
Published: Thursday, May 31, 2007

Catalyst Paper said Wednesday it is shutting down one of two paper machines at Port Alberni, laying off 185 people in the Vancouver Island community and eliminating another 130 jobs across the company.

Declining newsprint consumption in North America and the sky-high Canadian dollar forced the money-losing papermaker to make the sweeping restructuring moves, corporate relations vice-president Lyn Brown said Wednesday.

At the same time, Catalyst said it will be moving out of its downtown Vancouver headquarters for cheaper office space in Richmond. Many of the 130 support jobs will be lost in the head office move.


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Font: ****That's on top of 350 jobs phased out in a cost-cutting move announced only 10 weeks ago.

"These are not easy decisions to make and we recognize they affect people in a very personal way. But at the same time, these are tough times," Brown said, noting that every one cent change in the dollar has a $9 million impact on the company's bottom line.

Catalyst's operating costs are in Canadian dollars but the majority of Catalyst's business is conducted in export markets which pay in U.S. dollars.

Brown said over the last four years the company has achieved $400 million in performance improvements "only to see those gains erased" by higher energy costs and a higher Canadian dollar.

The loss of the Port Alberni paper machine is being viewed by many in the community as a betrayal by the company. Catalyst has lobbied for and received tax breaks from the city.

"We did our thing for them," Port Alberni Mayor Ken McRae said of the tax breaks. "We can't rely on them any more."

An official at the local Communications, Energy and Paperworkers Union blamed New York financial investor Third Avenue Management for the lay-offs. Third Avenue increased its stake in the company to 38 per cent last year and immediately launched a remake of the board of directors and senior management. Rick Hebert, second vice-president of CEP Local 686, said the layoffs will throw people's lives into turmoil and hurt the town's economy.

"But these private equity investors only care about shareholder profit," Hebert said.

When Hebert began working at the mill in 1977, it employed 1,500 people, he said. Once the paper machine shuts down -- Catalyst announced it is an indefinite curtailment starting Aug. 31 -- the remaining operation, a lightweight coated paper machine, will only employ 230 people.

Brown said the restructuring is more a matter of survival for the company.

"The reality is: A 93-cent Canadian dollar makes more acute some of the costs the Port Alberni mill faces," she said.

The Port Alberni machine makes directory paper, which is slightly high in value than newsprint. However, the Port Alberni machine has higher costs than Catalyst's other machines. It's production is to be shifted to the company's Crofton mill north of Victoria, replacing 134,000 tonnes of newsprint production at that plant.

Catalyst operates four pulp and paper mills in resource towns on Vancouver Island and at Powell River on the mainland. It also operates a recycled paper plant on the Lower Mainland.

ghamilton@png.canwest.com




© The Vancouver Sun 2007

Shutdown feared at Catalyst Paper

Shutdown feared at Catalyst Paper
by Gordon Hamilton
Vancouver Sun
Published: Wednesday, May 30, 2007

Catalyst Paper has called a meeting today with union leaders from its four pulp and paper operations in what is widely believed to be an announcement that it intends to shut down capacity.

"I would say things are not looking too bright at Catalyst," said investment analyst Paul Quinn of Salman Partners. "It's really difficult right now for Canadian producers with the Canadian dollar where it is and fibre costs going up.

"I wouldn't rule out temporarily shutting down some capacity."


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Font: ****Catalyst has mills at Port Alberni, Powell River, Crofton and Campbell River. It could close one entire mill or several machines at a number of mills. The company lost $25 million in the first quarter of 2007.

Catalyst is the coastal region's prinicipal pulp and paper company, with 3,800 employees. Besides the four paper mills, it runs the province's only plant producing recycled paper.

The meeting with union leaders comes after Catalyst's board of directors met Tuesday in Vancouver. Representatives of the company's largest shareholder, Third Avenue Management of New York, were on hand for the meeting.

Catalyst is being squeezed by poor paper markets and because its operating costs are all in Canadian dollars. But the majority of Catalyst's business is conducted in export markets, so its transactions are for the most part completed in US dollars. As the Canadian dollar climbs versus the greenback, the company's revenue stream is less able to cover its operating costs.

The Canadian dollar closed above 93 cents US on Tuesday.

The last time Catalyst temporarily shut down capacity was in early 2005 when one paper line was closed at Port Alberni. That shutdown lasted for almost two years before the company declared it permanent.

Port Alberni Mayor Ken McRae was prepared for the worst Tuesday, saying he expects the company will announce it is closing further capacity there. Catalyst's Port Alberni mill produces lightweight coated paper and directory paper. Lightweight coated prices are weak and the directory machine has high operating costs.

"We have been hearing so many stories -- that the mill has been sold to someone else, that they are going to shut down another machine. You never know. The machines are old, eh?" said McRae.

"Whatever they do, they will do. And we will just move on."

ghamilton@png.canwest.com

© The Vancouver Sun 2007

Pulp mill builders want better guarantees of timber supply

Timber tariffs decrease investors' interest in Russian forest industry
Pulp mill builders want better guarantees of timber supply


Export tariffs imposed by Russia on raw timber are likely to make Finnish forest companies less willing to invest in Russia's forest industry.
The tariffs will cause practical problems for Russia if the "wrong" types of wood harvested during felling cannot be exported.

The export tariffs are to take effect from the beginning of July. Initially the fee will be EUR 10 per cubic metre, and it is to increase by degrees to EUR 50.
The idea behind the tariffs is to force Western companies who want to use Russian raw material to invest in production in Russia.
Finnish experts see the tactic as strange. Most countries who want to attract foreign investment use positive incentives, but Russia is resorting to the threat of punitive measures.

So far, Finns have invested fairly little in the Russian forest sector. A few sawmills, a plywood plant and a cardboard mill have been put up, but pulp and paper projects are still in the planning stages.
The most serious project is a pulp mill planned by Metsä-Botnia in the Vologda region.
Metsä-Botnia CEO Erkki Varis says that sudden administrative moves, such as the export tariffs imposed by Russia, are "always poison" for investors, as they create uncertainty.
The tariffs also pose concrete difficulties for pulp mills operating in Russia.
"No factory exists that would be able to use all of the tree species in a certain area. If a factory produces pulp from coniferous trees, the forest might yield three times as much leafy trees and unusable wood", Varis says.
"There is no use for them in Russia. If tariffs are imposed on them, what are we supposed to do. Burn them?"
Varis says that the Vologda pulp mill is a long-term project that might be implemented in the next decade. He notes that nobody knows what will be happening in Russia at that time.

The greatest risks in the pulp mill project involve the availability of raw material, Varis admits. A promise from the local governor that there will be enough wood is not good enough for an investor.
"We have to be certain that the mill will get 300 truckloads of raw material every day. We need to have enough long-term and permanent felling contracts in our back pockets."

Timo Uronen, head of the forest industry section of the Ernst & Young auditing service, says that the equipment in Russia's forest sector is old and in poor condition. "There is a need for EUR 10 billion in investments", he states.
In Uronen's opinion, Russia has many opportunities, but the risks are considerable. "They apply to wood acquisition and logistics."
"The timber tariffs and the behaviour linked with them will certainly not increase confidence. Hopefully the whole thing will go away, but it does have an impact on the willingness of companies to invest", Uronen says.

Russia has vast forest resources, but they are used inefficiently. Plans are for annual felling of 576 million cubic metres, but currently only 130 million cubic metres are harvested from Russia's forests.
Russia's production of pulp, paper, and cardboard is 10 million tonnes a year, whereas Finland produces 14 million tonnes.