Amid continued pressure on the paper industry, European paper and forest products companies that have diversified away from the mature European publication paper market and invested in new growth areas saw improved profitability in the first half of 2015, reports Moody's Investors Service, Frankfurt am Main, Germany.

 

"Companies such as Mondi Plc and Metsa Board Corp. have made sizeable investments in related segments, such as specialty paper and paper packaging, with higher margins and growth prospects, allowing them to generally outperform their peers that still have a relatively high exposure to the mature European publication paper market," said Matthias Volkmer, a Moody's VP-senior analyst. 

Moody's report, titled European Paper and Forest Products Companies: Mixed H1 Results Point to Additional Publication Paper Capacity Cuts is now available online. Moody's subscribers can access this report directly. 

The report notes that more players are seeking to diversify for growth. Norske Skogindustrier ASA, for example, plans to invest in growth areas such as tissue and biogas, though these initiatives may not be enough to help the company achieve a turnaround and refinance its debt maturities next year.

 

Furthermore, while some European pulp producers have benefited from the weaker euro -- as pulp is a U.S.-dollar traded commodity while their costs are mainly in euros -- a ramp-up in pulp production could exert pressure on pulp prices in the second half of 2015.

 

In addition, despite sizeable permanent production capacity closures during H1, newsprint producers suffered a decline in market demand. Various players have announced their plans to reduce production over the summer.

 

"However, production cuts may not be sufficient for prices to increase and for producers to recover profitability," adds Volkmer. "Therefore, additional capacity closures are likely inevitable."