Tag Archives: Stora Enso

…but also some good news in Finland

Finland is a very innovative country when it comes to products relating to the forest industries (and in many other ways as well – I will post another time about that).

I have in the past written about biofuels here, and how they could be a future direction for the forest industries. One such innovation is presented by a new company called Suomen Bioauto (no english link yet), which offers ‘the cheapest’ way to convert cars into cars that can run on biofuels. In practice this means gas made from all kinds of biowaste. Alternatively, natural gas can be used. The company can also convert cars so they can use bioethanol. I think this kind of company is very much to the liking of Neil Young, even though it doesn’t make cars into true hybrids.

Another piece of good news is that Stora Enso invests 14 million Euros in its Oulu pulp mill, to make it more environmentally friendly and improve cost effectiveness. The Oulu paper&pulp mill is on one of the bigger mills in Finland, with a capacity of 1 125 000 tonnes/annum fine paper and 360.000 tonnes/annum of long fibre pulp.

Stora Enso: does the work-force reduction end someday?!?!

When you thought you had covered the recent announcement of Stora Enso’s ‘economizing‘, the company manages to surprise. First with an anouncement of a potential large investment, and today with large co-determination negotiations over approximately 650 redundancies in Finland and about 750 in Sweden. World-wide the goals is to reduce the workforce by 2500 people.

The news item states that the reduction concerns all parts of the company, including services and support.

I seriously wonder what the company aims to achieve here. With less personnel there are less fixed costs, and a potential for increased labour productivity, but how much does the company really want to squeeze its personnel? Has Stora Enso thought about the effects on occupational health? Or does the company simply want to become smaller, give up market share, production capacity? I very much doubt that.

Paper industry news

Among all the developments in the Eurocrisis it is too easy to forget that there is lot happening in the paper industry as well. Some issues relate to the future of the industry, some to the current business model.

One such new development is the production of flexible graphite circuits, made from/on paper. This Finnish link states that it is unclear how and why graphite forms from cellulose, but in any case it could be a great development for intelligent paper and such applications.

Another interesting development, on a different scale, is a concept car made of biomaterials in a co-operation between UPM Kymmene and the Metropolia University of Applied Sciences. This link has some interviews with participants in the project. It would be great, a car that is biodegradable to a large extent!

In the category ‘Finnish forest industries are transforming into energy producers’ we have the news that UPM Kymmene wants to build up to 22 windmills in Paltamo. Currently, assessment of environmental impact is being carried out. The wind-power park would provide, depending on the final configuration, some 44-85 Megawatts.

In the same theme, two items that I missed: UPM did get EU support for a biofuel refinery (in France) while Stora Enso and Neste missed out on this.

Regarding prices, the IPW published news that two big players are increasing prices of specialty papers due to higher demand (Sappi and Ahstrom). If I have time, I should get back to the issue of pricing in pulp, paper, board and specialty paper.

And finally, the UPM Stracel sale has been finalized. I reported about this earlier, but these processes take their time. It is good to see that skilled personnal can still find good jobs – if there is a willingness to take a risk to invest.

No pulp fiction – rising prices and a stop to deforestation in Indonesia

This article tells about the increases of prices in various grades of pulp , notably NBSK and BEK. As I have written before, pulp prices have seen quite a lot of action recently – usually mentioned in the context of increasing demand from China/Asia. Obviously this could at a more local scale also be related to rising demand in carton/paperboard, which is needed for packaging all those products that come from China. It is in any case clear, that pulp and paperboard do fairly well, and paper is just in a very weak position, as e.g. Stora Enso also mentioned.

But for me as a sociologist it is interesting to see what language is used here in the article: ‘pushing through mark-ups’, ‘getting prices accepted’ etc. Of course, you can frame this in a supply-and-demand setting, but with this product, pulp, it seems so that prices are (at the moment at least) determined by producers and then kind of settled through negotiations of orders with clients, which in the end lead to contracts. That mechanism is quite a far cry from what microeconomics teaches us, although from a different perspective it can still be said that there are movements to find a new equilibrum. But ‘word has it that even additional volumes were ordered in some cases’ – which would seem incompatible with the usual story of supply and demand (as in: the higher the price, the less demand). This is definitely an interesting case.

 

On a wholly other issue, I read from a Dutch newspaper that APP (Asia Pulp and Paper) has announced that it stops using tropical wood from Sumatra, Indonesia for pulp production. The company has been under intense pressure by organization such as Greenpeace, but probably more decisive has been the decision by companies such as Kraft and Unilever not to order APP’s products. But in any case, good news for the fragile rainforests of Indonesia.

Non-creative destruction: Stora Enso plans to reduce its personnel by 520 persons in Europe

Here’s a question: if you operate a business in a difficult market, what should you do?
Stora Enso thinks it should reduce its personnel to increase profitability.

Read that again.
How do companies manage to stay ahead of the curve? Yes, cost containment is one part of the equality. But to stay afloat, innovation is needed. Perhaps both process-innovation and product-innovation. Look at Lada – no innovation of either kind, and it fell way behind the curve. Not even the influx of Western capital (investment, innovation, get it?) could help. Or look at Microsoft – it had working processes and a market advantage for its software, but with the advent of smartphones and tablets a new, smaller product was needed. In the time Microsoft worked on Windows Phone, Android and Apple staked out significant claims for their operating systems.
Making paper is  very capital-intensive, but that doesn’t make labour less important. There are at least two reasons why Stora Enso’s decision is a stupid strategy (besides that it is a general strategy of Finnish forest companies by now).

  1. Labour is not simply a cost, as the CEOs of the Finnish paper companies seem to think – employees have intense knowledge about work processes and machinery. Instead of ignoring skills and knowledge, companies could acknowledge the incredible advantage they would have from updating machines instead of reducing the workforce.
  2. Labour is not nearly the biggest cost for the Finnish paper industry. Raw materials, energy and transport are much more significant.

Furthermore, a reduced labour force again increases the pressure on employees to do their duty. The Finnish paper industry does not have a very great record in terms of workers’ well-being, so increases in the workload do not sound like a great development. Even if individual workers may benefit in salary terms from a more diversified job, this is a meagre consolation if one’s health suffers as a result.

 

The markt for paper in Europe is in decline, and there is still over-capacity, which hinders profitability. But European over-capacity is to some extent the fault of the Finnish paper companies themselves, which used European aid to make new investments. These units have often both greater production capacities and newer technology, which makes them more valuable in accounting terms AND relative to competitors (see this post). The core problem for the Finnish paper companies is that the European market is in decline. Finland’s location (with resulting transport costs) and reduced value of raw materials (pine, spruce, birch relative to eucalyptus) do not amend this situation.

 

Reducing its personnel is destruction, not creative destruction which is the process by which the ‘old’ is replaced by the ‘new’. If Stora Enso is serious about improving profitability, it should come up with innovative products, investments which reduce the relative cost of Finnish raw materials for paper production and preferably in this way also increasing its energy self-sufficiency by using more biofuels for its energy needs. If Stora Enso has no such plans but instead continues to reduce its workforce, then it is clear that the company does not have a serious commitment to continue operations in Finland.

 

The perils of post-closure support

[This is a draft, I try to get my thoughts straight, originally published 27.2.2012]

This story started with the closure of the Kemijärvi pulp mill in 2008. Although it was argued by some that it was pure destruction of capital and knowledge, as this mill had a very advanced testing lab, Stora Enso closed the mill ostensibly because it did not want competitors to buy it.

Kemijärvi is in the very north of Finland, and the loss of an employer of this size has tremendous local consequences. A local protest movement, including businessmen and employees alike, was formed and tried to pressure politics and Stora Enso not to close the mill. Alas.

Something did happen though after the mill was closed. The (then) Anaika Group informed that it would buy the mill to produce laminated wood products. According to this news it was a project driven by the state and Stora Enso to help the region. Both Stora Enso and the state (through Finvera) borrowed substantial sums of capital to Anaika Group, which by then had changed its name to Arktos Group.

However, the project was never completed and production never started. In 2011 there were co-decision procedures and a few weeks ago the production was stopped. Rather incredibly, Arktos Group got in 2010 a ‘Success certificate’ from the research and analytics division of Kauppalehti Oy.

Without further facts, it is not entirely clear what happened in this episode, but the owner of Arktos Group mentioned problems with technology conversion and deficient skills of the personnel regarding producing laminated wood products. The failure of the laminated wood factory can be explained sociologically as well as economically. Both explanations more or less amount to the same, though. Sociologically, it can be said that the Kemijärvi pulp mill was embedded in its surroundings (physical and business-wise). It got its raw materials locally but apparently also did international work thanks to its advanced lab. The Arktos laminated wood factory was not embedded in the same environment, although it also would procure wood locally. Its products (had there been products) were finished products ready to sell through hardware stores or furniture makers. The lack of connection between what was to be done at Arktos Group in Kemijärvi and the rest of its relevant market was too big. This is where we switch to economic explanation: the transport of pulp, due to its bulk nature, is most likely much cheaper than laminated wood transport. Pulp from Kemijärvi most likely went to the mills in Kemi and Oulu, whereas the sale of laminated wood products would have been national and non-bulk. From the point of view of the end-product, the physical location of a factory of (nearly) consumer products in Kemijärvi was not very well chosen. Local demand would not have been enough, at least.

The owner of Pölkky Oy, mentioned in the first link, has some critical words for state interference in investments. He especially criticized that the state came in so early, before there was a ‘product’.

A similar situation exists in Voikkaa, where the planned business center in the former paper mill has not yet materialized, despite optimistic sounds in Melin and Mamia’s (2010) Tapaus Voikkaa. On the other hand, the Hamina region was lucky when Google bought paper mill real estate to house a server park. This, however, did not necessarily benefit the former paper mill employees.

Reschooling programs should be studied for effectivity to re-employ, but a study for the Confederation of Finnish Trade Unions shows that re-employment programs have not worked very well.

The problem is simply stated: Finland is an ‘archipelago of paper communities’, and if a mill closes, not only is this a personal catastrophe for the employees, it is also a big problem for the community, which one way or the other depends on the spill-over effects of paper mill employment (employees shop, buy houses, drive cars, eat in restaurants, participate in politics, etc).

It is really difficult to replace lost demand for jobs in the paper industry. When a mill closes, all of a sudden a lot of employees with relatively similar work experience find themselves competing for jobs. They might not find work in their own sector and have to re-school. The laminated wood production planned for Kemijärvi was possible the kind of new investment that had possibilities to employ former mill employees in work close to their own experience, but the Google server hall or Voikkaa Business Park companies might not have the same effect.

This is really one of the hazards of capitalism for society: in regions where employment is heavily dependent on a single sector (or employer), its employees are left in the cold when the work disappears. In the case of Stora Enso, the Finnish state has a rather responsible position, as it partially owns the company.

Why do Finnish paper companies prefer to close mills rather than sell them? – Some thoughts

(Originally posted 9.2.2012)

Today in the Finnish news a surprising win for the French labour movement of the M-Real mill in Alizay. Through a wide range of resistance, the local section of the French CGT labour union pressured M-Real into re-considering the possibility to sell the mill.

This blue-print of what to do with ‘unprofitable’ or ‘undesirable’ mills is well-known in Finland. The Voikkaa paper mill was closed in 2006 (the first non-bankruptcy closure in Finland) and subsequently dismantled. The Summa paper mill was closed in 2008, its factory halls sold to Google for the use of servers and two of the three paper machines were dismantled and scrapped, the third on sale. Also in Kajaani the paper machines were dismantled and one was sold to India. The most recent case, the Myllykoski mill, also follows the same blue-print: the machines are in the process of being dismantled. Currently, they are planned to be stored locally, no other plans for the machines are known publicly. Also in the case of the Kemijärvi pulp mill, Stora Enso rather closed the mill than sell it.

Why do these companies prefer to dismantle working mills rather than sell them? The examples of Lohja Paper and the Kirkniemi paper mill (bought respectively by Mondi Ltd and Sappi Ltd) show that it can happen differently. At least for the former the explanation might be that it was a family-owned mill, with relatively old paper machines and lowish annual production volumes of special paper.

One thought, which is expressed also in the news article, is that paper companies don’t want production capacity falls in the hands of competitors. The apparent reason for this is that the production capacity might be used against the former owner. As also expressed in the previous post, in a situation of near-oligopoly (in Europe), it is not beneficial for company X to divest of a mill by selling it to Y, which means that either X has less advantage of the competitive restructuring relative to total production capacity on the market or that Y might gain an advantage for when demand is stronger.

There is, however, a problem with that argument (even if the market situation is more competitive than presumed) – if company X doesn’t want that a certain paper mill does not benefit a competitor, e.g. through a sale of the mill to that competitor, then it must mean that the paper mill has more potential than the company X wants to admit. True, it might be that a mill needs additional investments or some other reorganization, but perhaps in the not-so-immediate future paper mills that are not competitive to company X might be so for company Y.

One big question of course is the existence of overcapacity in (Western-) Europe. This does provide something of a rationale to permanently remove capacity from the market. However, this overcapacity is also the Finnish companies’ own doing in part.

So are Finnish companies doing their competitors a favour by closing paper mills? This is impossible to say without serious analysis (for which there might not be sufficient data). In any case, this is not the creative destruction advocated by Joseph Schumpeter; it is just capital destruction. A sale of a mill to a competitor might in the end seal the fate of a paper mill, but Finnish paper companies are not the sole possessors of wisdom, and especially considering the nature of Finnish paper industry communities, these companies have to show more responsibility for the fate of their employees. If the sale to a competitor in the somewhat longer term leads to the conclusion that the mill is not, in fact, economically viable, then that is the end of the story. But the social responsibility of the paper companies demands that a sale of ‘unwanted’ paper companies is at least seriously considered (especially regarding Stora Enso, in which the Finnish state has a majority stake through an investment company and the the Social Insurance Instution (KELA)).