February 5, 2013 / 11:56 AM / 5 years ago

UPDATE 1-Stora Enso to cut capacity amid falling paper demand

(Recasts with comment, details on outlook)

* Q4 profit weaker than market expected

* Plans to close paper machines, cut 600 jobs

* Shifts focus from paper to pulp and packaging

By Jussi Rosendahl

HELSINKI, Feb 4 (Reuters) - Finnish forest group Stora Enso said it plans to cut paper production capacity and 600 jobs to cope with falling paper demand in Europe.

The company also reported a lower-than-expected profit for the fourth quarter and forecast more weakness for the first three months of 2013, sending the shares down 2.6 percent to 4.96 euros by 1145 GMT.

Europe’s recession has exacerbated a decline in paper demand, driven by consumers shifting to online media from newspapers and magazines.

Stora and rivals such as UPM-Kymmene have tried for years to bolster paper prices by shutting production capacity, but such cuts have so far been outpaced by the fall in demand.

Stora said it would shut down two paper machines in Sweden, representing 3.4 percent of European newsprint capacity. It also launched a plan to cut annual costs by 54 million euros ($73 million).

Its fourth-quarter operational profit rose 6 percent year-on-year to 155 million euros ($210 million) but missed the average forecast of 162 million euros in a Reuters poll.

It forecast first-quarter operational profit to be about one-third lower than in the previous quarter.

Chief executive Jouko Karvinen said the planned capacity cuts would help the paper business “avoid running cash zero or even negative.”

“The past six years have been persistently challenging in some of our markets, with both structural deterioration and cyclical economic weakness,” he said.

The company, looking to shift its focus from paper to more profitable products such as pulp and packaging board, is currently building a $2 billion pulp mill in Uruguay together with Arauco, a unit of Chile’s Copec.

It is also planning an integrated pulp and packaging board mill worth 1.6 billion euros to Guangxi, China.

$1 = 0.7376 euros Reporting By Jussi Rosendahl; Editing by Ritsuko Ando

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