Varkaus Pulp, Fine Paper, Sawmill Operations Get New Lease on Life

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Stora Enso, Helsinki, Finland, had announced last August that it planned to permanently close down its Varkaus mill in Finland by the end of 2010 unless there were a robust recovery in the supply and demand balance for office paper that would allow clearly profitable operation. Since then, the company says that supply and demand balance and pricing of office paper have improved, and that it therefore is able to keep the pulp mill and fine paper mill in production as long as financially viable and there is competitive fiber available for the Group in the long term. Operations of the sawmill and, as announced earlier, the biofuel joint venture with Neste Oil, NSE Biofuels Oy, and its demonstration plant also will continue.

At the same time, the situation in newsprint has dramatically deteriorated. Because of the overcapacity in newsprint and directory paper, and resulting weak earnings, Stora Enso plans to permanently close down newsprint production at Varkaus, with combined annual capacity of 290,000 metric tons, by the end of the third quarter of 2010. The proposed closure would affect about 200 people out of 512 people employed at the Varkaus mill. The plan will not substantially affect the amount of renewable energy production at Varkaus, the company adds. Stora Enso notes that the European newsprint market is structurally oversupplied, with 18% excess capacity expected this year. Consequently, newsprint sales prices have fallen significantly. In the longer term, newsprint demand in Europe is expected to continue to decline, as has already been happening in North America for some time. In addition, newsprint production at Varkaus relies on less-competitive fresh fiber, and Varkaus is far away from most of its customers. Weak market conditions have already caused the temporary shutdown of Varkaus newsprint machine PM 2. As a result of the co-determination negotiations that were announced this February, PM 2 production is temporarily curtailed until further notice, Stora Enso announced.

The restructuring actions in Wood Products, including the recent closure of Tolkkinen sawmill and the divestment of Kotka sawmill, are improving the customer and business portfolio for the remaining Wood Products units, including Varkaus sawmill, which will continue to operate, Stora Enso says.