It appears that the North American paper industry doesn't have the market cornered any more when it comes to large scale restructuring. The trend, if you can call it that, has officially spread to Europe.

The most recent restructuring announcement came from Finland's UPM, who said it has plans to reduce 17% of its coated magazine paper capacity and 12% of its coated fine paper capacity in Europe through mill and machine closures—measures that account for the removal of 530,000 tpy and 150,000 tpy, respectively. UPM also intends to exit the brown sack paper business and possibly take out 60,000 tpy of “semi-alkaline” pulp by shutting an old pulp line.

Another Finnish papermaker, M-real, in March said that it has initiated a strategic review of the company's current business portfolio, with a view to exploring potential benefits of participation in the consolidation and restructuring of the European paper industry.

At UPM, the company expects its “Profit Improvement Program” to deliver EUR $200 (about US$240 million) per year in cost savings when completed. “The measures are intended to make our best units even more competitive,” said Jussi Pesonen, president and CEO of UPM.

Reading between the lines, it sure sounds as if UPM plans to reinvest in its manufacturing plants, and when it does, capital will be selectively earmarked for operations with the best tools already in place; so hold that thought.

Here in the U.S., and as most of you know, International Paper rocked the paper world last July when its chairman and CEO, John Faraci, announced a “transformation plan” of more sweeping proportions than many in the industry had anticipated. The plan included the divestment of businesses that accounted for about 30 percent of IP's 2004 sales and set the company's focus on uncoated papers and packaging globally (see Transforming a Giant on page 26).

I had the pleasure of meeting John Faraci for an interview at his Stamford, Conn. office in late February and during our discussion he said that IP would “carefully” select specific North American operations for reinvestment on the premise of making the company's best operations better.

He used a pretty good analogy to baseball to drive home his point. “If I'm a lifetime .200-hitter, should a team invest millions of dollars trying to turn me into a .300 hitter? No, because I will never be one. Instead, that money should be invested in a proven .300-hitter who already has the tools in place to become one of the best in the game. Then you'll see a return on your investment.”

The restructuring taking place in North America and other areas of the paper making world is essential if the industry is to return to profitability and attract investors. It will provide future investment capital from cost savings, the equilibrium of capacity to demand, and the divestment of non-core businesses and assets.

There is a ways to go before we see how things shake out, but the current restructuring may be setting the stage for the reinvestment by the North American paper manufacturers in what they consider to be their best .300 hitters.

PaperAge. Copyright © O'Brien Publications, Inc. All rights reserved.