Finland's UPM to press on with $3 billion Uruguay pulp plant

(Reuters) - Finnish pulp and paper maker UPM UPM.HE said on Tuesday it will build a pulp plant in Uruguay and invest around $3 billion in the project.

FILE PHOTO: Magazine paper rolls are seen at UPM-Kymmene’s paper mill in Kaukas, Lappeenranta, Finland March 9 2016. Reuters/Jussi Rosendahl/File Photo

UPM’s plans in the region -- home to several wood pulp plants thanks to a beneficial climate for eucalyptus trees -- are part of its shift from a declining print paper market to pulp, which is expected to grow due to rising demand for tissue and packaging board.

“The highly competitive mill investment ... will grow UPM’s current pulp capacity by more than 50%, resulting in a step change in the scale of UPM’s pulp business as well as in UPM’s future earnings,” the company said in a statement.

UPM said it will invest $2.7 billion in the mill itself - which will have capacity of 2.1 million tonnes of pulp annually - and $350 million in port operations in Montevideo and local facilities in Paso de los Toros.

The company said the global pulp market was set to grow at around 3% each year, “...based on global consumer megatrends that drive the demand for tissue, hygiene, packaging and specialty papers,” it said.

UPM said it will directly and through subcontractors employ some 4,000 people at the mill. “Thousands of good jobs will be created as a result of this venture,” according to a statement from Uruguay’s government.

The investment decision came as the company reported a rise in second-quarter sales and profit, but said it expects prices to fall in the second half of the year.

Operating profit excluding one-offs, rose 3% to 345 million euros ($386 million), roughly in line with the 353 million expected by nine analysts in a Refinitiv poll.

April to June sales grew 1% to 2.61 billion euros, driven by growth at its Biorefining, Raflatac and Energy units, while its paper and plywood businesses saw a fall in revenue.

Shares in UPM jumped 10.2% to close at 24.53 euros per unit, valuing the firm at around 13 billion euros.

UPM forecast its business will continue to perform well for the rest of the year, with modest demand growth in all areas, except units producing newspaper and magazine paper.

UPM said it expects global pulp prices to fall in the second half of the year, with paper prices in Europe and North America also slipping.

Reporting by Tarmo Virki in Tallinn and Fabián Werner in Montevideo; Editing by Louise Heavens and Lisa Shumaker