Tag Archives: Metsä Fibre

New pulp industry investment in Finland/Äänekoski

Today is apparently a day for good news. On the website of Tekniikka&Talous a press release/news item was published concerning a new investment by Metsä Fibre in a so-called next-generation pulp mill, of a value of 1,1 billion Euros, which would make it the biggest single domestic investment in the pulp and paper industry in Finland.

Why is it next-generation? The english press release states:

The new mill will be the world’s first next-generation bio-product mill that can convert wood raw material into a diverse range of products. In addition to high-quality pulp, the mill will produce bio-energy and various bio-materials in a resource-efficient way. A unique bio-economy ecosystem of companies will be built around pulp production.

So this is why it is not presented as a pulp mill but as a bio-product mill: the diversity is an important issue I’d say. This development supports the ideas I have regarding the transformation of the pulp and paper industry (e.g. in the context of the Sulphur Directive: here). This is the kind of innovation Finland needs both in terms of employment (which is estimated at 2500 jobs in the whole value chain) and environmental impact. Finland has very high tech know-how regarding forest industries and more and more it is possible to see off-shoots of the ‘traditional’ paper industry developing into new industries.

Litigation within the industry – UPM-Kymmene in arbitration proceedings against Metsä Board

The news about UPM-Kymmene starting arbitration proceedings against Metsä Board, related to a deal (divestment of shareholdings) with the Japanese Itochu Corporation is new for me and also quite complicated – I am neither a lawyer nor a business strategist or financial officer, so I have difficulties parsing what this all means.
One of the reasons why this news is so difficult to parse is that Metsä Board (and Metsä Fibre) is owned by Metsä Group, which itself is owned by the Metsäliitto Cooperation, which is a co-operatitive. The ownership structure of Metsä Board is shown here, but the key issue seems to be Metsä Fibre, which used to be Metsä-Botnia:

1986 Changes in ownership base
Metsäliitto Teollisuus and G.A Serlachius merged and founded Metsä-Serla, which became the principal owner of Metsä-Botnia. The next change in the ownership base occurred in 1989 when Nokia Corporation divested its ownership and United Paper mills became the second primary owner of Metsä-Botnia.

2009 Metsä-Botnia become a subsidiary of Metsäliitto Cooperative
The ownership of Metsäliitto and M-Real in Metsä-Botnia increased to 83% and the share of UPM-Kymmene was reduced to 17% in December 2009  and the Fray Bentos pulp mill was divested to UPM-Kymmene.

2011 Metsäliitto Group increases its ownership in Metsä-Botnia
Metsä-Botnia redeemed its own shares from UPM-Kymmene on the basis of a shareholders’ agreement the parties made in 2009. The number of redeemed shares corresponded to 6.7% of the whole share capital of the company. After the redemption Metsäliitto Cooperative owns around 57% of the company, M-real 32%, and UPM-Kymmene 11%.  Metsäliitto Group was granted a call option to the rest of the Metsä-Botnia shares it owns. The call option is valid for two years.

2012 Metsä-Botnia becomes Metsä Fibre, part of Metsä Group
On 11 April 2012, Metsä Group’s parent company Metsäliitto Cooperative, Metsä Board and Japanese Itochu Corporation agreed on a transaction in which Itochu will acquire a 24.9 per cent strategic stake in Metsä Fire Corporation. After the transaction, Metsäliitto Cooperative owns 50.2 per cent, Metsä Board 24.9 per cent and Itochu Corporation 24.9 per cent of the total share capital of Metsä Fibre.

So, UPM-Kymmene has a long history of ownership relations with Metsä-Botnia/Metsä Fibre. The history shown above indicates a declining share for UPM-Kymmene in Metsä Fibre, and apparently in 2012 the last share owned by UPM were ‘bought back’ and the whole ownership structure was changed. I have no idea or opinion regarding to the strategical benefits of not being tied to UPM-Kymmene anymore.
But it is perhaps interesting that UPM is starting arbitration proceedings against Metsä Board (the former M-Real), rather than Metsä Group. The news release refers to a breach of the tag-along clause. I can’t know what the exact formulation was but this is a general tag-along clause:

This Tag Along Clause is for use in Shareholders’ Agreements where one of the parties is a minority shareholder. It is designed to protect the position of the minority shareholder where the majority shareholder decides to sell a defined percentage of shares in the company.

Where the majority shareholder decides to sell his shares, this clause gives the minority shareholder the right to tag along with the sale, i.e. to sell his shares to the same purchaser on the same terms and conditions. This prevents a minority shareholder from being stranded with an outside investor and with little or no effective control over the company.

I simply wonder what breach UPM-Kymmene means here (I mean, I really don’t know about these issues). I guess this call option is the key point here, which gave Metsäliitto the right to do whatever it wanted with the remaining shares of Metsä Board – meaning also the shares that nominally were still with UPM.
So for the arbitration court I guess the question to answer is: can Metsäliitto/Metsä Board sell those shares of another company that it potentially owns through the call option and how does this effect the rights enshrined in the tag-along clause, which is relevant only if UPM-Kymmene still can be considered a minority stakeholder in Metsä Fibre at the date the deal was sealed?
Difficult question. It also may have some impact on the relations within the Finnish Forest Industries Federation, although this probably cannot be observed.

Pulp price announcements – Market forces at work?

UPDATE: EUWID Pulp and Paper states that leading pulp producers are hiking prices for softwood pulp, because

Most manufacturers see good chances of success for November price hikes. Low stocks and good order backlog created a good environment for NBSK prices to rise, EUWID respondents explained. It should not be particularly difficult to get the market to accept the price increase, they said. (emphasis mine)

Two price increases in the same week: Södra Cell and Metsä Fibre both announced that the new price of Softwood Pulp will be 820$ per tonne starting November 1, 2012. Coincidence? That is early to say, although METLA has said that demand for pulp from China and Eastern Europe continues to be good.
The Jaakko Pöyry Oy ‘World Paper Markets up to 2025’ features a section on market concentration, and the so-called Herfindahl-index is so, that the paper industry can not be classified as an oligopoly. But the industry does have some characteristics of oligopoly – if we look at those pulp prices that are increased to 820$ per tonne, then it is at least hard to argue that market forces are at work.
One of my next ideas for research is indeed price formation in the paper industry – from an economic sociological perspective, in which prices are determined by internal norms concerning margins and costs, but also externally by observing competitors. If the near future sees more price increases by soft-pulp producers, I know I have a case!


With regard to the quote in the update, it seems that supply and demand indeed work to set prices, but rather before the market than in the market.