The world's top magazine paper maker UPM-Kymmene posted lower second-quarter profits on Tuesday due to weak paper prices but said growing demand would help raise prices and keep operating rates high this quarter.
Shares in the Finnish company rose after it said paper deliveries were likely to improve in the July-to-September quarter versus the second quarter and that it would hike prices for magazine and graphic fine papers by 5 to 8 percent in Europe in September.
"Our order stock was further strengthened (in Q2), and operating rates will be high in the coming months," Chief Executive Jussi Pesonen said in a statement. "In particular magazine paper markets are expected to pick up during the autumn, when demand reaches its seasonal peak."
The global paper sector has battled a three-year downturn marked by weak demand and low prices and is only now starting to benefit from a world-wide economic recovery. Nordic firms also are hampered by a weak dollar, which has crimped exports.
UPM's second-quarter pre-tax profit fell 19 percent year on year to 83 million euros ($101 million), but this topped all estimates in a Reuters poll mainly due to lower-than-expected net financial costs.
Its operating profit fell 19 percent to 91 million, broadly in line with estimates.
Net sales rose slightly to 2.5 billion versus the poll forecast of 2.47 billion. First-half paper deliveries increased 7 percent.
"It's a good set of numbers, but I think the real surprise is how bold the company's outlook is; (it's) the first time in three or three-and-a-half years," said Lars Kjellberg, a London-based analyst with CSFB, who rates UPM at "neutral".
"UPM has previously been talking down the volume argument. Now they say the volumes are going to be up and they expect high utilisation rates. It means their earnings in Q3 are going to be materially up on Q2; that's really what they are saying."
UPM's capacity utilisation rates were 87 percent at its key magazine paper unit, 94 percent for newsprint and 90 percent for fine and speciality papers. Analysts say producers gain pricing power at levels above 90 percent.
"It's one thing that you are going to raise prices, but another thing is if you also expect operating rates to stay high in coming months," said a Stockholm-based analyst, adding that 2004 consensus estimates may also be revised slightly upwards.
UPM also said its 200-million-euro cost saving plan had been fully met by the end of June, six months ahead of time, with some further savings expected.
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