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OTHER NEWS 9 Nov 2015

What pain relief can be administered to declining paper markets?

A Pöyry Point of View examining whether it is possible to actively change paper pricing through a strategic acquisition and consolidation strategy

Whilst world demand for paper and paperboard is forecast to grow, the graphic paper market is facing huge challenges in Europe. Pöyry proposes a different attitude to consolidation strategy to save the declining industry.

The graphic paper industry and newspapers in particular, have never really recovered from the recession of 2001-2002. Overcapacities remain in the graphic paper market and prices of newsprint have reached a historic low of around 450 EUR/t and below in the first and second quarter of 2015. At this price level even cost leaders are not able to cover their capital costs anymore.

Whilst world demand for paper and paperboard is forecast to grow, the graphic paper market is facing huge challenges in Europe. The current response from industry figures has been rapid reductions in capacity. In Europe more than 20% of capacity has been reduced, with shutdowns in the first quarter of 2015 already equating to 650,000 tonnes of annual capacity. Pöyry forecasts further demand reductions of approximately 3 million tonnes by 2025 – a deep cut to the industry

The recent spate of shutdowns of the least competitive plants has flattened and lowered the cost supply curve and thereby lowered the price for paper. Marginal producers have reacted by lowering their prices in a bid to regain market share.

Christoph Euringer, Senior Consultant, Pöyry Management Consulting, said, “Bottom lines in the newsprint and other graphic paper markets are taking a hit and demand decline in many grades is expected to continue. Businesses need to button down the hatches and make smart strategic decisions to weather the storm. The solution lies in an intelligent consolidation – companies must ensure they review their and competitors’ portfolios smartly to buck the decline trend.”

Pöyry experts argue that the closing of the least competitive plants will further deteriorate the situation whereas strategic closings will help to stabilize and even increase prices. While the same amount of capacity exits the market, in both cases the effect is different. Rather than flattening the supply curve the slope of the curve increases and inaction will just allow market forces to further depress prices and challenge the viability of every company’s operations.

For further information contact:

Metin Parlak
H+K Strategies

+44 207 413 3771

About Pöyry

Pöyry is an international consulting and engineering company. We serve clients globally across the energy and industrial sectors and provide local services in our core markets. We deliver management consulting and engineering services, underpinned by strong project implementation capability and expertise. Our focus sectors are power generation, transmission & distribution, forest industry, chemicals & biorefining, mining & metals, transportation and water. Pöyry has an extensive local office network employing about 6,000 experts. Pöyry's net sales in 2014 were EUR 571 million and the company's shares are quoted on NASDAQ OMX Helsinki (Pöyry PLC: POY1V).

Website: www.poyry.com