* Says European paper volumes to fall in H1 sequentially
* Sees mostly flat paper prices in Europe
* Shares fall 3.5 percent
* CEO says remains open to merger talks
(adds CEO and fresh analyst comment, details on industry trend)
HELSINKI, Jan 30 Finnish pulp, paper and energy
company UPM-Kymmene gave a cautious outlook for its
European paper business for the months ahead, disappointing
those who had expected to see signs of an improvement in the
While cost cuts helped to bolster UPM's underlying profit in
the fourth quarter, the company forecast lower delivery volumes
and little change in prices at its European paper business in
the first half of 2014 compared to the latter half of 2013.
UPM, along with its main rival Stora Enso has
been closing paper mills in Europe for years in an attempt to
stem the decline in paper prices.
Consumption of graphic paper grades such as newsprint and
magazine paper has fallen more than 20 percent since 2008 as
European consumers shift from printed media to digital devices.
The industry closed some 10 percent of the European capacity
last year, but UPM executives said on a conference call that
such steps weren't enough for it to lift prices in recent
negotiations with customers such as publishers.
"Their outlook is disappointing, there were hopes of
somewhat higher prices and improving paper results," said Karri
Rinta, analyst at Handelsbanken.
Shares in the company fell 3.5 percent to 11.99 euros by
1303 GMT and analysts said they may need to lower expectations
for 2014. A Reuters poll showed analysts on average had forecast
an 11-percent rise in the company's adjusted operating profit
UPM's shares had been on an uptrend in the past six months
on expectations of further industry consolidation. Some
investors have speculated that UPM and Stora may merge most of
their paper assets into a joint venture, although many analysts
see it as too difficult a task.
UPM chief executive Jussi Pesonen said he remains open to
"We are prepared to have discussions, as there are obvious
needs for consolidation... in the paper industry," he told a
UPM has been shifting its focus to pulp and energy while
continuously cutting costs and paper production. Its quarterly
adjusted operating profit grew to 207 million euros ($282
million) from 146 million euros a year earlier.
($1 = 0.7329 euros)
(Reporting By Jussi Rosendahl; Editing by Ritsuko Ando and