UPDATE 2-UPM to close Miramichi plant, take Q4 hit

(Adds analysts, updates shares)

By Sakari Suoninen

HELSINKI, Dec 17 (Reuters) - Finnish magazine paper maker UPM-Kymmene (UPM1V.HE) said on Monday it would permanently close its Miramichi mill in Canada and cut production at other plants as its sees demand growth slowing next year.

UPM said wood, recycled paper and energy costs would continue to climb and at the beginning of the year meaningful price increases could be achieved mainly in magazine papers.

Paper makers have battled in recent years with overcapacity, which has kept a lid on prices. Recently, costs have also risen more quickly, adding to the woes in the sector.

"This will somewhat improve the supply/demand balance, but not enough to make a big difference in pricing," said Nordea analyst Harri Taittonen.

"The industry is still dancing to the same tune. A lot has been done, but the market has not improved."

UPM said rising costs would make the fourth quarter the weakest of the current year, but still forecast that full-year operating profit, excluding special items, would improve.

UPM said it estimated annual cost savings of 50 million to 70 million euros from the cost cut programme, which would axe 680 jobs in total and cause a 105 million-euro ($150 million) hit in fourth-quarter results.

UPM said the Miramichi mill, which has been temporarily shut down since August, had annual capacity of 450,000 tonnes of magazine paper.

Newsprint capacity would be reduced by 250,000 tonnes in 2008 through the temporary shutdown of paper machines in Finland and Austria.

"The Miramichi closure was expected, but cuts in newsprint were bigger and longer than I expected," said Evli Bank analyst Teemu Salonen.

Taittonen said the cut in newsprint production at Kajaani in Finland had come late for the next pricing round but could help some in changing the negotiation atmosphere.

Newsprint prices are usually negotiated over 6 to 12-month periods.

Shares in UPM rose slightly from earlier lows on the news to 13.82 euros, but lost ground again and were down 2.3 percent at 13.71 euros by 1338 GMT.

Its Nordic rivals' shares saw a similar short jump before settling at earlier lows.

For a related factbox on capacity cuts, 3000 Xtra users please double click on [ID:nL17291582]. (Reporting by Sakari Suoninen; Editing by Quentin Bryar)