The Finnish forest industry is facing difficulties in achieving sufficient competitiveness and productivity despite high levels of production.
According to figures issued by the Finnish Forest Industries Federation (FFIF), all areas are showing an increase in production. Sawn wood production for the first six months of this year at 6.6 million m3 was 4.6% higher than for the same period last year, plywood production for January to June reached a record 715,000m3, up 6% on last year’s figure, while paper and paperboard production increased substantially over last year’s low figure, which was due to the labour dispute in the second quarter of 2005.
However, despite these high levels of production, company results have not been satisfactory. For example Metsäliitto, UPM and Stora Enso all made smaller operating profits for 2005 in comparison with 2004 and all three companies are undertaking measures to improve efficiencies. Furthermore the FFIF has renewed its strategy and the tasks it undertakes, as well as restructuring its organisation in order to meet the significant changes in the Finnish forestry industry’s operating environment in recent years.
“Our forest industry cannot build a future based solely on its traditional competitive advantages,” said FFIF president Anne Brunila. “The new organisation will strengthen lobbying efforts on issues related especially to the wood products industry and wood construction. Furthermore, as future success and competitiveness require substantial investment in research, product development and innovation, the FFIF must be an active participant in these areas.”
Metsäliitto is undertaking a programme to clarify its strategy and implement cost-cutting measures. Among the results of this have been the sale of the company’s 5,000ha of forest holdings in Estonia to the Swedish forestry group Södra, and the integration of the subsidiary Finnforest Corporation into the parent company Metsäliitto Co-operative to form Metsäliitto Wood Products Industry.
Core business
As part of measures to concentrate on its core business, Metsäliitto Wood Products Industry (Finnforest) has sold Hartola modular factory’s business operations to Finndomo, the business operations of HSL Elements to PW Interior Oy, Finnforest Romania srl to the Austrian merchant chain juA Frischeis GmbH and is exploring the possibilities of selling its Norwegian subsidiary Moelven Industrier ASA.
Where Stora Enso is concerned, it is proceeding with a profits improvement programme with the target to reduce production costs by €160m and by the end of June had already reduced costs by €104m.
There have been reports in the Swedish press that, despite being the largest in Europe in the field of wood products, Stora Enso would sell its wood products division because of unsatisfactory profitability. Although the company has acknowledged that the role of the wood products division in its organisation is being reviewed, it points out that no decisions have been taken, nor is there any timetable concerning this issue.
Stora Enso is in fact investing €31.5m in its Nebolchi sawmill and €12.5m in its Impilahti sawmill. These investments will not only enhance the competitiveness of Stora Enso’s sawmilling business and wood procurement in Russia and upgrade the sawmills to manufacture products with added value, but will also improve access to the fast-growing building materials markets in Russia.
UPM changes
In the case of UPM, the company is undertaking an extensive profitability improvement programme. As part of this, UPM is exploring the possibility of restructuring its forestry work to improve cost-
efficiency. The company plans to move towards the use of purchased services, which would mean that UPM would no longer employ forestry workers direct.
UPM’s objective is that the company’s forestry workers would be taken on as employees by companies providing forestry work services. UPM is also prepared to support its forestry workers who are willing to establish themselves as self-employed service providers. The company has already been using external services alongside its own forestry workers for many years.
Also as part of its profitability improvement programme UPM has closed its timber further processing mill at Dinnington, in the UK. “The financial performance of the Dinnington mill has been poor for a number of years. Regardless of the efforts made by the mill’s production personnel and sales staff, the mill’s high cost structure, compared to the relatively low production capacity, makes it impossible to make the operations profitable,” said Tuomo Visanko, senior vice-president, operations.
However, on the other hand, UPM is investing tens of millions of euros in wood products manufacture and further processing at its plywood mills and sawmills in Finland and Russia.
A further complication for the Finnish forest industry has been the increased export duties on Russian softwood implemented at the beginning of June. Imported wood accounts for well over 20% of the wood used by the Finnish forest industries and, of this, 80% comes from Russia. “A pressure towards an increase in price due to the newly implemented export duties on Russian roundwood means that it is more difficult to plan for the long-term purchase of timber, creates uncertainty with regard to the supply of imported wood and makes timber supply more difficult for sawmills,” said the FFIF.
