MercoPress. South Atlantic News Agency

Pulp and paper maker Stora Enso freezes huge mill expansion in Brazil

Europe’s largest paper and pulp maker Stora Enso anticipated a drop in first quarter earnings and said it is freezing the expansion of a mill in Brazil because of sliding demand for wood and fine paper used in offices and magazines.

Operating profit before one-time items will be “clearly” down from the 28.4 million Euros reported in the fourth quarter, Helsinki-based Stora said Wednesday in a statement.

Aracruz Celulose and joint venture partner Stora Enso announced in a release the decision to postpone expansion plans for Veracel, in Bahia, for at least one year. Capital expenditures scheduled for 2009 will be canceled, including the purchase of land, the formation of forests and a feasibility study.

According to the statement partners believe that this is a prudent action in light of the current and short term market outlook. The Veracel II project would involve construction of a second pulp production line with capacity for about 1.4 million tons per year.

Stora Enso Chief Executive Officer Jouko Karvinen said plans are to cut capital spending by 100 million Euros, or 20% as the company idles about one fifth of its paper and board capacity in the first quarter.

“We are predicting that at least the first half of this year will be challenging and demand will remain weak” said Chief Financial Officer Markus Rauramo. “It’s very difficult to predict beyond this”.

With weaker demand and pulp prices slipping Stora is forecasting a weaker first quarter after having posted two straight quarterly losses. Finnish forest industry production fell 35% overall in January from a year earlier, according to Statistics Finland.

Of the remaining 400 million Euros in capital spending this year, about half will be general upkeep and the rest will go to projects including power-related investments in Germany and Belgium and refurbishment of a board machine in Finland, Rauramo said.

The joint venture of Aracruz (50%) and Swedish-Finnish Stora Enso (50%), Veracel is located in the municipality south of Bahia, with annual production capacity of 1 million tons of bleached eucalyptus pulp.

The company owns 211,000 hectares of land, of which 90,000 hectares consist of plantations and about 104,000 hectares are native forest reserves, including the Veracel Station and Permanent Preservation and Legal Reserves.