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.