All change at UPM

14 October 2008



Challenges and developments in the packaging paper industry


The pulp and paper industry is currently experiencing difficult market conditions. In particular, Finnish wood has spiralled in price as forest owners decide to retain their wood as it is expected to increase in value, due to demand from emerging markets.

Hit by increased prices for wood and energy, UPM reported a return on investment of only 4.1 per cent for this year. As a result, the company has recently announced closure of its paper mill in Kajaani and pulp mill at Tervasaari.

The Finnish manufacturer has also announced new strategies for its label division and overall business structure that it says will “create a better balance between what it can make, sell and deliver”.

Converting Today speaks to Will Oldham and Niko Kinnunen, of UPM-Kymmene, to hear about the developments in the paper industry and UPM’s future strategies.

Converting Today: How do you plan to deal with constant price increases for wood and energy?

Will Oldham: We can’t really control these factors, but UPM is in a stronger position to mitigate them than some other companies. A programme of acquisitions has resulted in a fully integrated business. Energy costs are slightly alleviated by the fact that we produce much of the energy for our mills from biomass, which is a by-product from paper manufacturing.

Niko Kinnunen: Our fixed costs have risen by 14 per cent in four years, whereas our variable costs have increased by 9 per cent. The closure of the mills is helping reduce the fixed costs, but inevitably some variable costs must be passed to the customer. We must increase prices, but the extent of this is determined by the paper type.

CT: Does this mean we will continue to see consolidations in the industry? Will the market stabilise in the near future?

Will Oldham: The short answer is that the market will not stabilise for some time. The paper industry will continue to consolidate. In the short-to-medium term, UPM will seek to undertake acquisitions and mergers whenever opportunities arise that complement its current portfolio.

CT: What improvements have been lined up for UPM’s label division?

Niko Kinnunen: We have undertaken a structural review of label operations, looking at new products and expanding markets. Earlier this year we invested $109 Mn in constructing a second US manufacturing facility, located in Dixon, Illinois. During the final quarter of this year, we are investing u90 Mn in a new labels factory in Krakow, Poland, serving the expanding Eastern European packaging industry.

CT: How will the ‘streamlining’ of operations across the business groups affect customer service?

Will Oldham: Customers should notice an improvement – there will be fewer connections between the customer and the person involved in actioning their requirements. We are aiming for a quicker response to requests.

CT: Will the closure of UPM’s Tervasaari pulp mill impact supply of speciality papers?

Niko Kinnunen: Not at all. The paper mill, which comprises three paper machines, will receive chemical pulp from our other UPM Finnish pulp mills instead. The mill currently produces 400,000 tonnes of paper per year.

CT: Is the demand for paper as a preferred substrate for packaging on a decline? How do you plan to promote paper, especially in competition to film?

Will Oldham: The demand for paper is not at all in decline – in fact, overall demand has increased, particularly in such sectors as labels. We are in the business of promoting the most suitable substrate for the application, providing the necessary barrier and aesthetic characteristics. I don’t deny that there are some situations where film is the most suitable substrate. We are working with our partners across the entire value chain and seek to demonstrate the benefits of one paper type over another, taking into account processing perimeters and final performance.

Moreover, consumers readily understand the positive environmental credentials of paper packaging. It is also particularly suitable for retail packaging due to its quality and ability to add value. Paper packaging can also be more conveniently opened than some film packaging.

CT: What are the trends and growth areas for speciality packaging papers?

Niko Kinnunen: Customers basically want greater functionality, such as surface coatings and built-in effects. We are developing high quality papers with enhanced printing surfaces. A prime example is a coated surface with a kraft paper structure, such as for carrier bags, where a combination of strength with good aesthetics is necessary.

Will Oldham is UK general manager and Niko Kinnunen is Speciality Papers sales manager of UPM


Niko Kinnunen Will Oldham

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UPM-Kymmene

Will Oldham Will Oldham
Niko Kinnunen Niko Kinnunen


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