Fine paper makers say demand softens

HELSINKI (Reuters) - Finnish paper makers M-real (MRLBV.HE) and UPM-Kymmene (UPM1V.HE) said on Thursday fine paper demand continued to slide in Europe as economic growth slows.

UPM-Kymmene said it would continue the shutdown of a 200,000 tonnes/year fine paper machine in Germany until the end of 2008, citing further weakening in demand and overcapacity.

M-real said it has seen softer demand for fine paper over the European summer months.

"We have seen some amount of weakening fine paper demand," Chief Executive Mikko Helander said on Thursday at the Reuters Paper Summit in Helsinki. "It remains to be seen whether this is seasonal or ... because of the economy."

The euro zone economy recorded its first ever contraction in the second quarter, pulled down by falling activity in its biggest economies and raising the risk of a technical recession.

The European Union's statistics office Eurostat on Thursday estimated the economy of the 15 countries sharing the euro contracted 0.2 percent against the first quarter, the first quarterly decline since the data series started in 1995.

"Demand for fine paper is definitely sensitive to weakening economies ... We think that this is something more than just seasonality," said Handelsbanken analyst Sampo Timonen.

Shares in M-real -- more exposed to changes in fine paper prices -- were 3.1 percent down at 1.24 euros, while shares in UPM and Stora Enso were slightly firmer.

UPM Chief Executive Jussi Pesonen told the Reuters Paper Summit that a slide in demand has "continued" at a time when the market is suffering from overcapacity.

"It's very much a European issue. It's a very fragmented market. We haven't seen an increase in volumes," he told the summit held in Helsinki.

(Reporting by Tarmo Virki and Brett Young; editing by Will Waterman and Sue Thomas)