An Invitation Pulp Producers Couldn't Refuse

Implications: Raising the duy of all logs to 80 euros/cubic meter will put half the mills in Sweden and Finland out of business it's been reported. Already these mills are operating with the world's highest wood costs - some say as high as US$256/mt or almost six times as high as Ara Cruz's world costs for plantation grown eucalyptus.  It's impossible to believe that any mill can pay the equivalent of US$80/cubic meter for their round wood and even hope to be break even must less make a profit. And, raising prices on all their paper and board products in an oversupplied market like Western Europe is not a answer.  Russia appears to be driving a very hard bargain and forcing all its log customers to quickly make some serious expansion decisions.

Analysis:  Stora Enso is the first to express their intentions to begin feasibility studies to build a world class pulp (3000mt/day of pulp production) and paper mill (400,000mt/year of UFS) in Nizhny Novgorod, Russia.  Stora is the world's top paper and board producer.  This feasibility study is expected to be concluded by April, 2009.   Stora's Finnish rival, UPM-Kymmene has formed a joint venture with Russian Sveza for a pulp mill in northwestern Russia (note: this is the area where IP already has their huge integrated pulp and paper complex at Svetagorsk). These new mills in each case will cost more than US$1.58 billion.  But, on the positive side, Russia, the former Republics and all of eastern Europe do represent an attractive new market. Russia has much to offer.....plenty of clean fresh water, the world's most extensive forests, a well trained and highly motivated work force....and...best of all, lower transportation costs to all these new markets.  It may be that Mr. Putin's encouragement is simply speeding up a decision they would have made on their own in time.