Here is Antti’s pre-earnings report on UPM, which will publish its results on Wednesday, April 29.
UPM may have had a better-than-expected start to the year, driven by the short-fiber pulp markets and high electricity prices in Finland during Q1, but the negative risks to the economy and inflation caused by the war in Iran kept our full-year forecasts marginally lower. The stock is not cheap in the short term (2026e: P/E 17x), even though earnings are expected to return to growth this year from a low level. Consequently, we reiterate our target price of EUR 24.00 and our Reduce recommendation for UPM ahead of the Q1 report.
Nothing new per se, but a significant shadow over a 10+ year period for Metsä Group and also for Finnish forest owners who sell pulpwood. UPM and SE are in better positions with this. Naturally, it also affects their willingness to invest in Finnish pulp mills if the trend accelerates.
Wood as a raw material is overpriced in the Nordics, and this indeed has certain consequences. A wood price adjustment is certainly underway, partly through the use of eucalyptus.
Wood isn’t expensive; it’s the labor and costs associated with harvesting and utilizing it that add up. In Finland, people got used to cheaper wood because forest companies worked together to keep prices down. Additionally, prices were suppressed by Russian wood and imports. Still, when you look at the companies’ profits relative to the cubic meters (m^3) of wood purchased, they are indeed making a very good profit.
Then again, looking at why new pulp mills are being invested in in the south: they are in countries where labor is cheap, there are no trade unions, bureaucracy can be handled quickly with money, they have become safe to invest in, land is cheap to buy, and you get a final harvest and raw material from eucalyptus every 10 years, plus the markets are new. But it doesn’t replace long fiber; that strength is needed for products, and short fiber doesn’t provide it. You can get some pine species from Canada, but there is plenty of demand here in the Nordics as well. Additionally, there is a shortage in Europe because the bark beetle destroyed large areas of old spruce forest, and it takes 100 years before there is a replacement.
Finland’s problem is reflected in the fact that Sweden made logging easier and filing complaints harder, thereby increasing wood use, or at least facilitating it. Here, it seems to be going the other way. In Finland, there is a lack of understanding that the forest grows and needs to be managed in a certain way at certain times. Planting, clearing, thinning, and logging. Simple for those who own land.
Here is the pre-earnings report on Metsä Board from Viljakainen, which will publish its Q1 results on Wednesday, April 29th.
We reiterate our reduce recommendation and EUR 3.00 target price for Metsä Board. The macro reflections of the war in Iran do not facilitate the company’s earnings turnaround, even though the ongoing massive efficiency measures and the declining price of wood are narrowing the company’s losses this year. However, we further lowered our short-term forecasts for Metsä Board, but made no significant forecast changes for the medium term. We still do not find Metsä Board’s expected return attractive, considering the earnings turnaround that will take time even at best, and the potentially structurally weakened operating environment.
It can probably be considered that the cessation of Russian imports caused a supply shock. Finnish pulp production was built partly on Russian wood, i.e., cheap pulpwood. At the current cost level, production is not profitable; that is the fundamental problem. Therefore, either pulp mills must be closed or more wood must be sourced from somewhere for the fiber market. Or then we should be able to process products that can withstand a higher price for raw wood.
The market price of wood is always right, whether it is cheap or expensive. But it is not worth making pulp at a loss.
