Could the swelling of energy wood stocks bring relief to the supply of pulpwood and thereby to its price, at least until next winter in Finland? Of course, mild winters can also inherently limit winter harvesting opportunities, especially as wood is increasingly harvested from peatlands.
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Temporarily, probably, but some of the energy wood is logging residue that is not suitable for a pulp boiler.
Based on newspaper articles and forum posts, cardboard and paper machines operated at 60-80% capacity in Finland last year. Still, wood prices are at their peak. What do you think will happen when the demand for cardboard and paper recovers? In addition, there are still investments in the pipeline that will increase wood demand, e.g., SE in Oulu. I personally think that a few pulp mills will also be closed in the coming years. There won’t be enough wood for everyone at a reasonable price, as wood is unlikely to be imported from the eastern neighbor in the near future.
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I would say that all these forest companies have room to come down to about half of their current prices, even without a change in earnings, as valuation multiples for basic industry are quite high. Many of these could easily drop to about a third of their current prices.
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Historically, this is exactly true, but in my opinion, this does not mean that pulp integration would not be beneficial. Even integrated board mills may, of course, have to dry pulp for quality reasons, but full integration can be beneficial in terms of energy efficiency and, more generally, the scalability of fixed costs, especially in the Nordics, where a certain degree of competitive disadvantage is precisely the distance from the board’s end-users. Many of the newest entrants (including, for example, SE Oulu, Klabin in Brazil, and Chinese players) are also fully integrated, and I would see these players having a cost advantage, at least when calculated up to EBITDA, compared to existing mills, due to both economies of scale and broader integration. Of course, below EBITDA, players who have made large investments have significant depreciation to pay, so from no one’s perspective is this a victory lap with the current outlook.
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Thoughts on that integrated comment.
There are certainly cost savings; at some point, softwood pulp was supposed to replace mechanical pulp. This has not yet been achieved, except in paper and light corrugated board grades, which these North American integrated mills mainly seem to produce.
Wood procurement for large integrated mills has become significantly more expensive, as wood has to be transported from an ever-larger area. Long wagons no longer run from the eastern border full of softwood and birch wood.
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For the forest industry folks 
, highlighting Antti’s discussion about Metsä Board and the market in general 
Metsä Board’s stock is cheap – especially on a balance sheet basis (2024e: P/B 0.9x). But due to intensifying competition in the cartonboard market and a structurally tightened wood market, the risk of a value trap is, in our opinion, evident.
Topics:
00:00 Introduction
00:18 What does a value trap mean?
00:58 Low return on capital
02:51 Market offers no tailwind
06:35 Is the cartonboard market growing over time?
09:42 Challenges for forest companies
11:40 Demand development
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U.S.-based International Paper is set to get EU approval for its 5.8 billion pound ($7.12 billion) purchase of UK rival DS Smith.
DS Smith, which operates in more than 30 countries, provides packaging, paper and recycling services to companies including Amazon and Unilever
Major moves are happening, as indeed Westrock was most recently acquired by Smurfit Kappa for 11 billion USD last year.
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Suzano hinnankorotusyrityksessä.
In Asia, the price increase will be $20 per metric ton. For Europe and North America, the price increase will be more significant, with a rise of $60 per metric ton.
“Suzano to increase eucalyptus pulp prices in Asia, North America, and Europe”
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Suzano is a very significant and credible player, and I consider its price increase, both in terms of level and timing (1.2.25), to be credible. Good news.
I am attaching again the daily price curve for the Chinese market, the “dominant contract” in local currency. (Sorry for the repetition, already in messages 3121 and 3093). The market turnaround in China seems to have occurred on 15.12.2024 for both short-fiber and long-fiber pulp. I consider it significant that long-fiber pulp has now surpassed its 2024 peak (5/24) and is significantly above the 23/24 year-end level (+13% in local currency). Could the inventory adjustment be over?
The criticism presented in message 3114 regarding the European list price is correct and relevant; it is in clear contradiction with the market’s actual spot price. Therefore, SCA’s announced list price increase in Europe can only be considered a possible indication of a market direction change, by no means a rise in the spot price close to the list price.
The price of short-fiber pulp is approaching the 23/24 year-end level and has risen by about 6% from its bottom on 15/12/24. We are still far from the 2024 peak, but Suzano’s price announcement creates confidence in the beginning of a real turnaround.
Further on the use of the “dominant contract” price data. I don’t believe anyone in Europe and South America sends pulp to China for a 1-2 month shipping journey without securing the price. This happens one way or another through futures prices. Therefore, in my opinion, this price best corresponds to relevant price information. The market also generally has volume.
The rise in short-fiber pulp prices strongly affects UPM’s results.
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The article refers to OP’s morning review, which estimates Suzano’s price increase figures;
China 20 USD = 4% vs local market
Europe 60 USD = 6% vs local list price
US 60 USD = 10% vs local spot price
Quite respectable figures if they materialize.
STOCK EXCHANGE: Forest companies opened with a strong rise – Suzano raised prices PÖRSSI: Metsäyhtiöt avasivat reippaaseen nousuun – Suzano korotti hintoja | Kauppalehti
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Based on the share price reactions of forest companies, the market was excited by Suzano’s announcement, as news is otherwise scarce, apart from cautiously positive European PMI data for the industry. The increase came somewhat earlier than consensus expectations, and it will be interesting to see if it ultimately goes through.
In a positive scenario, the increase in list prices could indeed reflect a turnaround. However, the market intelligence service I use indicated that discounts given on pulp list prices in Western countries had again (this has been a trend in recent years) spread at the turn of the year, and the increase in list prices merely “covered” that gap (i.e., kept the price stable), at least for softwood pulp. In the coming weeks, we will presumably become wiser on the matter.
To my understanding, at least Finnish forest companies have not really started using pulp futures. Fundamentally, for pulp, the buyer and price are known when the ship departs from the country of production towards China, at least in the case of our forest companies. As a result, the pulp price achieved by at least Finnish forest companies during a quarter typically follows the development of market spot prices with approximately a one-quarter lag.
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If this is the case, then the situation differs significantly from the crude oil markets. Over the years, there have been stories in the media that the captain doesn’t necessarily know the destination yet when an oil tanker leaves the Middle East heading towards East Asia or Europe. Cargoes are sold en route, and even the same cargo changes ownership multiple times during the journey..
However, pulp is a bulk product similar to crude oil, meaning the risk of being stuck with it is quite low, even if shipped at one’s own risk without an order. But I’m no expert on this.
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Indeed it does, a much smaller game in many respects. Pulp is also a semi-finished product and not a completely pure raw material (i.e., there can be certain differences/variations in the specs).
Pulp futures have only existed for roughly 5 years. Furthermore, the futures are Chinese (incl. currency) and not the stuff of the big London and Chicago commodity exchanges.
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Metsä Board out of OMXH25 index, Kalmar in its place Metsä Board ulos OMXH25-indeksistä, Kalmar tilalle | Kauppalehti
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Below is a tweet from the Fenno equity fund’s X account, maintained by Juha Varis.
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The entire forestry sector’s share of Finland’s GDP is only around 5%. The direct share of forest industry companies is even smaller than this.
Finland’s economic growth should not be based on the forest industry, although it is still a significant sector, accounting for nearly a fifth of the total value of exports. And locally, especially in Eastern Finland, it is vital. I myself still have about 40% of my net worth tied up in forests, even though the share has been decreasing for years.
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Pulp integration is undoubtedly beneficial if it is naturally available (as has been the case with Oulu, where the board mill was built by converting a former paper mill). Benefits also emerge in energy efficiency.
Although Stora Enso Oulu will undoubtedly be a very efficient board production unit with the second board machine, it is not completely integrated, is it (or however this is ultimately to be understood)?
The Oulu pulp mill only cooks unbleached softwood pulp (UKP), and doesn’t it therefore have to use significant amounts of purchased pulp?
Among consumer packaging board mills, in terms of pulps (chemical pulp and chemi/mechanical pulps), there doesn’t seem to be a complete integrated mill in Finland anywhere else than Imatra.
In Imatra, Kaukopää, there are birch (BHKP) and softwood pulp lines (NBSK), as well as a chemi-thermomechanical pulp (CTMP) plant, and additionally, in Tainionkoski, a softwood pulp line (UKP). The total capacity in Imatra is 1,300,000 tons.
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True, I forgot this; the Oulu pulp mill was converted to brown pulp during the first board machine investment. In liners, the proportion of pulp in the board mass is so large that integration is practically mandatory. And the capacity of the Oulu pulp mill is not enough to feed two large board machines, when thought about more closely. So Stora Enso has to either bring the pulps for the surface and bottom layers of consumer board from the company’s other mills or buy them from the market. Of course, a pulp mill on the same site helps the energy efficiency of the consumer board machine to some extent.
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It’s easy to agree that TAKO has been able to operate for a long time under the surrounding circumstances. However, I don’t believe that the cooperative background has influenced the continuation of TAKO’s production until now and the (planned) decisions – it has, however, had its own role and place in Metsä Board’s overall structure over the years, and this “puzzle” has worked roughly until now.
And looking at the situation over a longer period in recent years (excluding these very last few years due to various reasons) and, for example, the prevailing cartonboard market situation, there has been no justification to plan the cessation of production at TAKO. Subsequently, TAKO unfortunately fell victim to market conditions, the general situation, and certain significant influencing factors.
Purely hypothetically speculating, broader specialization (cf. Pankakoski – operating with small machines, even smaller than TAKO’s) might theoretically have been able to save the mill over some timeframe. And even if such a thing had worked in some way, even theoretically, how would potential niche segments have fit into Metsä Board’s strategy? On the current path, purely in folding boxboard, there is no future for TAKO in the same way anymore.
On the other hand, TAKO’s location is what it is, and it won’t change, and certain boundary conditions, affecting TAKO more specifically and generally, have deteriorated. A difficult equation overall.
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Here is SalkunRakentaja’s article about forest stocks, the article quotes Hannu Angervuo. 
According to Angervuo, the old wisdom for investing in forest stocks is: buy forest stocks even before companies’ results turn upwards, but remember to sell forest stocks before peak results become apparent to stock market investors. Then the investor gets the most out of the share price development.
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