Holmen considering options for its Madrid newsprint mill's one remaining paper machine amid continued decline in demand, including sale or conversion to containerboard, but is reluctant to permanently shut down any more capacity, says CEO

STOCKHOLM , June 16, 2014 () – Holmen AB is considering all options for its Spanish mill, including a sale, as the paper and packaging board company faces a shrinking newspaper market, Chief Executive Officer Henrik Sjoelund said. The Madrid plant, which has one machine left, uses recycled paper and Holmen has improved productivity and reduced costs, according to Sjoelund. Most of the newsprint that Holmen makes is now produced in Madrid, one of three mills the company’s paper unit operates.

“We have done everything we can,” he said in an interview. “Now it’s make or break. We are aiming to win, and that means someone else has to go.”

Since the Stockholm-based paper and packaging board maker entered Spain in 2000, Newsprint demand has almost halved, the CEO said. Europe’s papermakers have been struggling for a decade as consumers increasingly shun print media. Holmen’s response has been to move to more specialty papers and to focus investments on paperboard, a product used in consumer-product packaging.

Last year, Holmen shuttered paper machines with a total capacity of 340,000 metric tons in Sweden, and its peer Stora Enso Oyj dismantled 475,000 tons of newsprint capacity. That has contributed to a “reasonable” balance in the newsprint market, even as Spain is still “very difficult,” Sjoelund said. “If it continues like this, something needs to happen.”

Costly Conversion

Papresa SA, based in the Basque Country, produces a similar amount of paper on three machines as Holmen does with its single mill, which has an annual capacity of 330,000 tons.

Another option for Holmen would be to convert its machine to start making testliner and fluting, papers used for basic packaging from corrugated board. That’s a costly conversion, and to be successful, a company needs market knowledge that Holmen doesn’t have, according to the CEO.

“Unfortunately I don’t think Papresa has that either, but it would make it easier for us if they did that,” Sjoelund said.

Five years ago, publication-paper sales represented more than half of Holmen’s total revenue, and about a third of the value of the company’s assets was in the paper division. In 2013, Holmen Paper’s share of the company’s revenue had fallen to 44 percent, and its assets represented only 16 percent of the total value.

Falling Demand

Sjoelund forecast that the development for European printing paper demand in the coming years will be at least as lackluster as it is today, with an annual decline of 5 percent to 7 percent.

Sjoelund, who headed Holmen’s paper division until he became CEO earlier this year, said the restructured paper business should be able to generate “reasonable” cash flow for a number of years. For now, the priority for Spanish machine is to perform well enough to make it through the current tough situation, Sjoelund said.

“We only lack two things - recycled paper -- and customers.”

To contact the reporter on this story: Niclas Rolander in Stockholm at nrolander@bloomberg.net To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net Kim McLaughlin

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