UPM and Stora Enso face profit decline due to China market difficulties

Nordic forestry giants UPM and Stora Enso are feeling the pinch as margins shrink due to reduced Chinese demand and falling prices.

What does this mean?

UPM-Kymmene's third-quarter profits took a hit, mainly due to weak demand and falling prices in China's premium paper and hardwood pulp sectors. China contributes €1.53 billion, or 15% of UPM's net sales in 2023, and the decline poses a major challenge. Meanwhile, Stora Enso faces similar problems as falling Chinese pulp prices hurt its third-quarter results and threaten future results. Both companies are facing high wood costs and a weak market recovery, which has been exacerbated by customers cutting inventory. Earlier this month, UPM adjusted its full-year forecast, acknowledging that market pressures persist and wood costs are high in Finland.

For the market, the paper and pulp landscape is changing.

China’s economic slowdown has reverberated across global markets, hitting China-dependent Nordic forestry companies such as UPM and Stora Enso hard. These companies are struggling to cope with lower Chinese demand and reduced pricing power, which is critical to their operating strategies. Their stock performance and market recovery depend on how quickly they adapt by exploring new markets or innovating existing products.

The challenges facing UPM and Stora Enso are part of the interdependence of the global economy. As growth in China, a major player in international trade, slows, industries around the world, especially those with large exports to the region, are affected. The situation highlights the need for companies to diversify market risks to cope with geopolitical risks and economic uncertainties.