Digital Age Slams Finland’s Papermakers

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By: By MATTI HUUHTANEN, Associated Press Writer

Shielded from the deafening roar and searing heat of Paper Machine No. 4, factory foreman Reino Mustonen watches from his glassed-in office as miles of newsprint whizz by on huge rollers.

The color looks OK today, the paper quality fine. But the long ribbon of newsprint flowing from the small Finnish town of Varkaus will quickly run out – for good.

Mustonen’s employer, Stora Enso Oyj, plans to close down the machine, known as PM 4, on Thursday. For three decades, it churned out newsprint for European papers including Britain’s Financial Times, French daily Le Figaro and El Pais in Spain.

In Europe and America, demand for newsprint has dropped off along with newspaper circulation as the written word, and the advertising that comes with it, migrates from paper to computer screens.

The impact has been severe in Finland, which accounts for 12% of global paper production. An industry that long served as a pillar of the country’s economy and national identity — and supported towns like Varkaus, population 23,000 — is in severe and long term decline.

“Finland has lived from its forests through the ages but now the sector’s suffering,” the 60-year-old Mustonen says. “It’s sad because the forests are our heritage.”

The global economic turmoil has now speeded up the downturn started by the Internet, closing paper mills and forcing the layoff of thousands of workers in an industry founded on the country’s sprawling forests, known to generations of Finns as their green gold.

The paper industry is struggling with overcapacity and plunging paper prices in both Europe and America. Asia and South America are still growth areas, and global paper makers including Stora Enso are increasingly investing there.

One of the world’s largest paper makers – Memphis, Tennessee-based International Paper Co. — has also closed mills and slashed jobs since 2008 because of poor demand. It now employs 57,000 — down from some 70,000 in 2007.

From being the main source of foreign income in Finland’s export-driven economy, the forest products industry has gradually lost dominance. The high-tech sector, led by the world’s top mobile phone maker Nokia Corp. – which started up as a paper maker – has taken over.

“We’re seeing the same trend as in America. Europeans simply are using less newsprint,” said Juha Vanhainen, a vice president at Stora Enso’s headquarters in Helsinki. “There’s less advertising and competitive media are taking a role away from newspapers so the consumption of newsprint is shrinking.”

Still, around 900,000 of Finland’s 5.3 million residents are forest owners, and the industry provides about one-third of all paper used by Europeans. Some 20% of the work force of 2.6 million earns a living from forest products, which last year accounted for 19% of exports at a value of euro8.7 billion ($12 billion).

At Varkaus, truckloads of timber are unloaded at the lakeside mill where the wood is steam-heated and processed into pulp before being made into paper. A printing plant, which turns out the country’s largest daily, Helsingin Sanomat, and regional newspapers, adjoins the massive paper storage hall – the end of a 3,000-foot (900-meter) production chain.

The news that Stora Enso’s last paper machine is shutting was met with deep disappointment in the town on Lake Saimaa in a district of dark spruce and pine forests. Industrialists opened the first sawmill here in 1830. They built wooden homes, schools and churches for forest workers and their families along leafy boulevards and secluded lanes near the billowing smoke stacks that dominate the skyline.

Now the town is suffering, with the climbing jobless rate of 16% expected soon to hit 20% — almost three times the national average.

After PM 4 winds down, the only newsprint machine in the country will be at UPM-Kymmene Corp.’s Jamsa plant, which provides paper for News International, publisher of British newspapers The Times, The Sunday Times and The Sun.

UPM is the world’s largest magazine paper maker, with 23,000 workers worldwide. It has cut production by 1.8 million tons, or 14%, since 2004 and reduced personnel by 30%. In the last two years it has slashed 1,600 jobs.

The cuts have improved efficiency by 28%, says Jyrki Ovaska, head of UPM’s paper business. But the prospects are not bright.

“Annual growth in the business used to be 5%-7% in the 1980s and 90s, but in the past 10 years we have been pretty near zero growth and there have even been years of negative growth,” Ovaska said. “Capacity has just not been able to react quickly enough to these changes.”

Paper industry watchers have speculated that problems might be solved if competitors merge some operations to specialize in their stronger paper grades thus cutting capacity and bringing paper prices up again.

On Tuesday, UPM said it was in talks to merge or buy segments of smaller rival Myllykoski which has operations in Finland, Germany and the United States, and earlier this month Finnish media reported that Stora Enso, Norske Skog of Norway and Sweden’s Holmen were planning to merge newsprint operations.

Although the report was quashed by the companies paper makers are not ruling out changes in the fabric of the industry.

“We are interested in being an active player in the sector if we find structural arrangements that are sensible and add to the company’s value, but growth is not a value in itself,” UPM’s Ovaska said.

Vanhainen from Stora Enso spoke along the same lines.

“I don’t rule out consolidation in the industry someday but it should not be entered into lightly,” Vanhainen said. “The conditions have to be right and it must always bring added value to the owners. As such it does not solve problems.”

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