UPDATE 1-UPM to spend $220 mln on Finnish pulp mill after China cuts

Fri Feb 28, 2014 3:25am EST

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(Adds UPM comment, background, market prices)

By Jussi Rosendahl

HELSINKI Feb 28 (Reuters) - Pulp and paper maker UPM-Kymmene plans to invest 160 million euros ($220 million) on boosting output at one of its Finnish mills on expectations of a pickup in Nordic wood pulp, and having cut back on spending at a paper factory in China.

Although the company has been cutting back its paper output in Europe for years, it sees a brighter future for pulp needed to make paper, tissue products and packaging board.

UPM said in a separate statement that it would save 113 million euros by reducing infrastructure investments at its factory in Changshu, China.

UPM said the investment would lift Kymi mill's annual pulp capacity by 170,000 tonnes to 700,000 tonnes. The company has three pulp mills in Finland and one in Uruguay. Total capacity will be about 3.5 million tonnes after the Kymi investment.

Pulp chief Jaakko Sarantola said the long-fibre pulp made of Nordic pine and spruce has a bright outlook as there were no new plant projects in sight that would increase sector supply.

"The market for long-fibre pulp looks very favourable, capacity is well in balance," he said.

UPM aims to lift pulp output further in the coming years to more than 3.6 million tonnes with existing mills, he said.

The global pulp market is seen growing steadily on the back of booming Chinese demand for tissue and packaging board.

However in short-fibre eucalyptus pulp, many companies have recently been ramping up new capacity in South America.

European market prices for benchmark long-fibre pulp have risen 10 percent this year to $918 while that of short-fibre has fallen 1.5 percent to $768, according to FOEX indexes.

Long-fibre pulp prices are typically driven by global demand for packaging board, while short-fibre pulp is more commonly used in the making of hygiene products.

UPM's pulp unit generated about 44 percent of the group's underlying operating profit of 683 million euros last year. (Editing by Louise Ireland)

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