By Agnieszka Flak
HELSINKI (Reuters) - Major paper producers are in no rush to push aggressively into high-growth emerging markets as long as supply worries and overcapacity in traditional markets are hurting their profits, industry executives and analysts told the Reuters Paper Summit.
Demand in China, India and Russia is expected to boom, while Latin America and Russia are fiber wells for the industry.
But the European forestries, including the world's top paper and board maker Stora Enso (STERV.HE: Quote, Profile, Research, Stock Buzz) and magazine paper producer UPM-Kymmene (UPM1V.HE: Quote, Profile, Research, Stock Buzz), still derive a vast majority of their sales from mature markets.
Chief executives of both said at the summit they were satisfied with their expansion so far, but analysts say they simply cannot do much as long as overcapacity is keeping a lid on paper prices at home and increasing costs of wood and energy eat into the companies' already low margins.
Only when they have fixed problems at home will they be able to invest elsewhere.
"The domestic issues are a priority -- they can't do both at the same time," Handelsbanken analyst Sampo Timonen said.
FIBRE SOURCE
Investing in emerging markets could help offset some of the wood supply constraints back home, the companies said.
"Latin America is a brilliant source of fiber," said Stora Enso's Chief Executive Jouko Karvinen. Fast-growing eucalyptus trees there are harvested at 9 years, whereas Nordic wood requires at least 40 years to grow.
Stora Enso owns a 50 percent stake in a pulp mill joint venture in Brazil and also plants eucalyptus in China.
But the firm has been selective in where and how it invests.
"I am not a great believer in scale of economies, that you have to be hugely big to make money -- being selective actually helps you with speed," Karvinen said.
UPM is a major stakeholder in the Metsa-Botnia pulp mill project in Uruguay, along with fine-paper maker M-real (MRLBV.HE: Quote, Profile, Research, Stock Buzz) and cooperative Metsaliitto. UPM also has a project in China to make pulp out of straw.
All agree the venture will ease some of their supply woes, especially in light of Russia's plan to triple lumber export duties from 2009, doubling lumber prices for Finnish mills.
China interests as a growth market, but has limited wood supply and the plantations the European companies have acquired so far are still too small to make for a significant production. Continued...
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