Will there be a LWC monopoly in the future?

Commentary by Lasse Krogell, NOPA:

In the beginning of December, we got the news that UPM and Sappi are planning to form a new company that would include the entire UPM Communication Papers business and Sappi’s graphic paper business in Europe. The graphic paper demand in Europe is around 8,5 million ton and the capacity of UPM and Sappi Europe is approximately 2,8 million. A strong market share for the joint venture, but not dominant, looking at these figures. But when we look at the coated mechanical papers, LWC and MWC it starts to look interesting. The European demand is said to be 2,4 million and the combined UPM Sappi CM capacity is 1,8 million. There is also an export of about 500.000 tons from Europe.

Who are the other CM producers in Europe? Norske Skog has a mill in Austria, Bruck, that produces 260.000 tons LWC. The Swiss company Perlen produces about 200.000 tons and Leipa in Germany about 350.000 tons. But the Leipa LWC is made from 100 % recycled fibre.

From a Nordic / Baltic perspective buying paper from Switzerland or Austria feels a little strange. But is it really a problem for the printers if there is only one company selling the paper you need? Doesn’t it also make life easier?

We have already got used to the fact that paper demand is decreasing rapidly. Paper machines are closed or transformed to other product types to balance the demand and supply. This development will continue independently of how many suppliers there are. Players in the value chain have also been forced to accept the fact that paper prices will stay on a higher level than it was years ago. It is natural that the price of LWC is between SC and woodfree coated.

Are there any other options? One can always argue that why stick to LWC? There are other papers available. Why not print on SC or improved news? A lot of direct mail products that used to be printed in heatset on LWC are today coldset products. MWC products can be upgraded to woodfree coated. Of course, these are decisions made together with the customer to the printing company.

The new joint venture will, at least to start with, be a company concentrating on graphic papers. This can also be a clearly positive thing for the printers. For at least a century the paper industry has not made almost any effort in further development of the paper product. I admit that paper is a very basic product. But still there are possibilities to further develop the product. Hopefully the new company will launch on the market new types of graphic papers that could help our value chain to find new trust in the printed product.

Will the competition authorities approve this joint venture? I think that five years ago they would not have accepted it, but today I suppose they will. In earlier cases of mergers, it has happened that the authorities have made conditional approvals. Some parts of the planned fusion must be sold to a third party for the merger to be accepted. Could this be the case also here? To have a real effect on the market situation this should then be Rauma or Kirkniemi that should be sold. An interesting thought, who would be the buyer?

Another interesting thought is that in the news of the joint venture it was informed that UPM and Sappi will stay as the 50 / 50 owners of the joint venture for at least tree years. What will happen after that? Is there already a plan for the future that can’t be published now?

We just have to accept the fact that we live in times of uncertainties and have to be prepared for all kinds of changes in the coming years. But let’s now enjoy the holiday calm and recharge for the new year.