Pulp, paper and timber manufacturer UPM has announced that it is to permanently close four paper machines at its European facilities in response to ‘overcapacity’ on the paper market.

Newsprint machine 1 at UPM Shotton in Wales; newsprint machine 3 at UPM Chapelle in France; supercalendered [magazine] paper machine Jämsänkoski 5 at UPM Jämsä River Mills in Finland (pictured, right); and coated mechanical paper machine 2 at UPM Kaukas in Finland are all expected to permanently close by the end of the first quarter of 2015 in response to decreasing paper consumption.

According to the company, the closures would reduce its paper capacity by 800,000 tonnes.

Further to this, if all the plans to close capacity are implemented, UPM’s personnel at the mills would be reduced by approximately 550 people by the end of 2015. As such, the employee information and consultation processes will begin this month to help prepare for the changes.

In addition, to the machine closures, UPM has also announced plans to centralise UPM Paper Europe & North America (ENA) supply chain planning and order fulfillment activities to Augsburg and Dörpen in Germany.

Bernd Eikens, Executive Vice President of UPM Paper ENA, said: “We regret the impact of planned closures on our employees who, even under considerable pressure, have been loyal and committed. However, we have to adapt our operations to the changing market environment – this is the only way for a sustainable future. With these planned actions we will ensure the efficient use of our remaining capacity in Europe.”

New profit improvement target

The planned capacity closures, as well as savings in variable and fixed costs in all UPM businesses, have reportedly led UPM to introduce a new profit improvement target, with an annualised impact of €150 million (£119m).

Indeed, the fixed cost reduction of the planned closures is expected to be around €55 million (£44m), and UPM will book write-offs of approximately €100 million (£79m) and restructuring charges of approximately €80 million (£64m) in the final quarter of 2014.

Jussi Pesonen, President and CEO of UPM, commented: “During the past 12 months we have been able to improve our financial performance through streamlining but also through better focus and significant decrease in variable costs. Our new business structure has shown that it is capable of delivering results and we have been able to identify further profit improvement potential in our businesses. This potential we aim to capture in 2015.

“The European paper business is a case for itself. We have achieved a turnaround in profitability during 2014. Nevertheless, the current operating rates are unacceptably low and the current economic environment is not promising tailwind for 2015. We plan to adapt our production to meet the profitable customer demand. We also ensure savings without endangering customer deliveries in the structurally declining market.”

Find out more about UPM’s paper activities.