Finnish forestry giant UPM announced its intent to move its graphic paper business into a new joint venture with South Africa's Sappi, a move that confirms the deep structural challenges facing a once-dominant national industry. The plan involves transferring three remaining Finnish mills in Kymi, Rauma, and Jämsänkoski to the new entity, which aims to rationalize supply in a sector burdened by falling demand, chronic overcapacity, and high energy costs. This strategic shift underscores a decades-long decline in paper production within Finland, with 15 mills shuttered since the turn of the century, including the UPM Kaukas mill in Lappeenranta last November, leaving only 13 operational facilities nationwide.
The core issue is a steep, persistent drop in demand for communication paper, a trend established at the start of the millennium and accelerated by digitalization. Professor Emeritus Karl-Erik Michelsen, a forest industry specialist, noted the ominous signs without predicting a specific timeline for the remaining mills. He stated that in any industry, a long-term downward trend often reaches a point of accelerated decline. Yet, he also pointed to historical precedent for industrial renewal, citing the Finnish mining sector's unexpected resurgence after being written off in the 1980s. "Innovation activity can lead to something else being produced there someday," Michelsen said, while acknowledging that "the omens certainly do not promise a terribly long future for the paper industry."
Finland's position within this global industry is increasingly challenged by specific geographic and logistical disadvantages. The cessation of wood imports from Russia has driven up raw material costs and reduced supply. Furthermore, Finland's distant location from core European markets results in high transportation costs, a critical factor when recycled paper has become a key raw material. "It was seen already when the use of recycled paper began to grow that mills are established where recycled paper is readily available," Michelsen explained, highlighting a fundamental shift in production geography away from traditional Nordic hubs.
The UPM-Sappi joint venture is a clear supply-side consolidation play. In its stock exchange release, UPM stated the move would "promote a more balanced and resilient European graphic paper market" and improve the sector's ability to withstand market challenges and growing imports into Europe. In plain terms, by reducing overall production capacity, the companies aim to support paper prices at a level that makes continued operation viable. This aligns with long-standing arguments from figures like former UPM CEO Jussi Pesonen, who has emphasized the necessity of cutting production to maintain higher prices.
The strategic calculus for Finland is stark. The industry is visibly concentrating in regions with abundant raw material and proximity to consumers, criteria that do not favor Finland's current setup. While some domestic machines have been converted to produce packaging board, which benefits from e-commerce growth, the future of large-scale graphic paper manufacturing in the country is uncertain. UPM's own strategic pivot toward renewable fibers, advanced materials, and carbon reduction solutions—all targeting growing markets—received investor approval, with its share price rising significantly on the announcement. This corporate evolution reflects a harsh economic reality: Finland must navigate a painful industrial transition as global market forces reshape its traditional economic pillars, with the government and EU policy frameworks under pressure to manage the social and regional impacts of this ongoing decline.