Despite the coronavirus pandemic, the early part of the year was still reasonably good for large Finnish forestry companies.
Finnish companies operating globally mostly performed well during the first quarter. Admittedly, there were great disappointments among them.
No one knows what to do next. In the fall, the results will plummet, but may not be as much as feared.
In the current exceptional situation, the importance of export earnings for the Finnish economy is further emphasized. Even the export bet could clot towards the end of the year if the pandemic does not ease.
In their newly published forecast, the economists of the Finnish banks state that the second quarter will be a bottom line for the Finnish economy.
Export companies, and forest companies in particular, should not yet have any worries compared to restaurants, airlines, travel companies or the entertainment industry.
Finnish forest industry in good condition
The forest industry is well prepared for the economic downturn and the uncertainty caused by the coronavirus. The export of forest giants is rising, and there is enough demand for the products in the world. The machines are mostly running at full capacity.
In addition, UPM, Stora Enso and Metsä Group are debt-free or low-debt. In fact, forest companies have never had such little debt.
The companies have also overhauled their operations severely over the years. Forest giants are ready to take even harder blows.
However, the turnover of all three large forest companies clearly decreased in the first quarter of the year compared to the corresponding period of the previous year. The reason was, among other things, the fall in pulp and paper prices. In Europe, demand for paper continued to decline.
The downturn in printing papers will continue as advertising goes online and news is read online. The interest rate crisis will further accelerate the decline in demand for European paper.
”The outlook for the [Finnish] forest industry therefore varies quite a lot by product group. In general, the demand for pulp has remained moderately good, but then, for example, printing papers are currently in a very difficult situation,” says senior researcher Emmi Haltia of Pellervo Economic Research (PTT).
”Demand for pulp and board and label papers has remained moderately good. The world needs food packaging, e-commerce packaging, medicine packaging and hygiene papers,” Haltia says.
He estimates that the demand situation in the forest industry will remain reasonably good, even though the uncertainty in the global economy is growing due to the pandemic. China is the largest buyer of pulp, and therefore pulp demand is recovering at a rapid pace.
”The peak in demand for tissue paper experienced at the beginning of the corona crisis will level off, but the use of tissue paper may remain at a permanently higher level in emerging economies. That will then affect Finnish pulp exports in the future,” Haltia says.
Big investments underway
The situation of Finnish forest companies is also well illustrated by their courage to make large investments. Billions of projects are underway, although the outlook is hazy and there can be no prediction of the duration of the recession.
For example, UPM’s pulp mill in Uruguay and the biochemical project in Leuna, Germany, near Leipzig, are both progressing according to schedule. The price investment for the pulp mill will rise to around EUR 2.5 billion and the price for the German biorefinery to around EUR 550 million.
Metsä Group, on the other hand, is building a sawmill in Rauma costing about EUR 200 million and a bioproduct plant costing Kemi for about EUR 1.5 billion. Construction work on the Rauma sawmill begins these days.
”Installation work on the sawmill’s machinery and equipment will begin early next year. By then, the buildings have been completed in that respect. The sawmill will start up in a couple of years,” says project manager Harri Haapaniemi from Metsä Group.
According to him, the sawmill will become one of the largest sawmills in Europe and the world. The domesticity rate will rise to about 70 percent.
More important than the size of the sawmill is its new technology, which is not yet in use anywhere.
Metsä Group has stated that it will continue its development projects according to the planned schedules, which may of course be affected if the pandemic continues.
In April, the company agreed on the purchase of main equipment for both Rauma and the planned bioproduct factory in Kemi. The value of the agreements totals approximately EUR 500 million and their domestic content is 70 percent. The investment in the Kemi plant will be finally decided next autumn.
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