Competitiveness and Europe’s
Pulp & Paper Industry:
The State of Play
Introduction
Gaining insights into the issues that impact global competitiveness is a constant concern for the paper industry.
The issue has been high on the agenda in recent years in particular as European industry faces de-investment in the region
and pulp and paper companies have seen strong downward pressure on margins and profitability.
However, the topic is crucial at any time, because it is only by analysing the elements that contribute to global competitiveness
that stakeholders can target their efforts to secure the industry’s long-term future in the most efficient manner. Given the pace
of change in the global business environment in recent years, the paper industry felt that this was the appropriate time to map
out the ‘state of play’ on the major issues that are impacting the global competitiveness of the sector.
The objective is to highlight some of the challenges and opportunities that could impact the long-term vitality of this key industrial
sector and hopefully stimulate debate about the future direction of the industry. Of course, the paper industry is well aware that
it has its own responsibilities in terms of boosting competitiveness and has been hard at work striving to meet that challenge,
especially in the context of the Lisbon agenda. But clearly there is still much work to be done.
If the European paper industry can help throw the spotlight on some of the big issues, then perhaps stakeholders can all work
together to help ensure the European pulp and paper industry of tomorrow remains a technological and competitive force.
Key Points
The SWOT analysis illustrates some of the main factors impacting the competitiveness of the European paper industry.
The headlines show that this is an industry operating in a mature market with rising costs for energy and raw materials.
But there is plenty of good news as well, as the sector boasts world-beating technology, the ability to target emerging
markets and almost unlimited potential to exploit new product developments.
Free trade and fair competition combined with simple and cost-effective regulation will be crucial in helping Europe’s
paper industry maintain its edge, while allowing the sector to grasp the opportunities that lie ahead.
General SWOT Analysis for Europe’s Paper & Board Industry in 2005
STRENGTHS
• Large regional market
• Quality of products and customer service
• Availability of recovered paper
• Efficiency of production facilities
• Environmental performance
• Skilled personnel and management
• Health and safety standards
• European paper cluster
• Ability to develop niche products
WEAKNESSES
• High and increasing energy costs
• High wood costs
• Increasing competition from wood - the promotion
of renewable energy sources and subsidies
• Relatively high labour costs and rigidities
in labour market
• Trends towards over-regulation and red tape
• Management of capacities
OPPORTUNITIES
THREATS
• R&D and other know-how advancement
• Market growth in Eastern Europe, Russia and Asia
• Increased and better mobilisation of wood
• Specialisation
• Consolidation
• Improvement of transportation infrastructure
• Better use of information technology
• Develop new value added products exploiting biotechnology
• Increasing energy and transportation costs
• Increased wood costs and lower supply due to renewable
energy sources promotion and subsidies
• Increased recovered paper costs and increasing exports
• Increasing competition from electronic media
and competing materials like plastic
• Investments flowing to new areas –
varying degrees of delocalisation
• New environmental requirements and less
ambitious standards in competing areas
• Declining investments in R&D
• Declining availability of skilled workforce
The Top 10 Competitiveness Factors
Set in a global context, it is fair to say that the European paper industry is in the unique position of being both sustainable
and competitive. However, there are a whole host of factors that influence overall competitiveness, ranging from demand growth
and the cost of energy right through to exchange rates and the influence of strict environmental regulation.
Some of these factors are outside the scope of corporate influence, so it is up to the industry to work with legislators and
other stakeholders to ensure that European papermakers maintain their leadership position – and their ability to deliver superior
environmental performance. Equally, the industry clearly recognises that it must do what it can to boost competitiveness in the
areas where it does have direct influence, e.g. R&D.
Given the cost structure indicated below, some of the competitiveness factors are obvious. However, the industry has gone further
to identify 10 key competitiveness factors that can be targeted to maintain Europe’s leadership in the future.
Energy: The deciding factor in European paper industry
competitiveness – dramatically increasing energy prices.
Dramatic increases in energy costs in Europe have placed
the European paper industry at a competitive disadvantage
in relation to most of its global competitors. Consequently,
industry is not only losing profitability, but also potential
investments to other regions. The unfinished liberalisation of
Europe’s energy markets has resulted in an oligopolistic, even
monopolistic market and the introduction of the emission
trading system has exacerbated this. The pace of liberalisation
must increase. If not, de-industrialisation in Europe will occur
leading to fewer jobs and reduced growth across the board.
Recovered Paper: Sustained efforts are needed
to boost collection rates, quality and recyclability
in this important asset base.
The massive increase in paper collection and recycling
has been mainly driven by the European paper industry
with average collection rates at 59% in 2004 - considerably
higher than Asia or North America.
However, most quality recovered paper sources are already
being utilised particularly in Western Europe. This means that
greater efforts are required to increase collection rates,
increase recovered paper quality and improve the recyclability
of paper products. It is also important that new regulations
promoting biofuels do not lead to the wholesale incineration
of valuable raw material.
Average Weighted Cost Structure of Paper Industry
for CEPI GmbH/S.A./Ltd./etc. (2005)
Capital costs
18%
Wood Resources: High wood costs, use of pulpwood
for bio-energy, and difficulties in mobilising resources could
all impact competitiveness.
Europe is at the high end in terms of wood costs and this is
unlikely to change. Faster growing plantations in Latin America
and Southeast Asia, along with sources in Russia, represent
competing wood supply regions with significant potential for
increasing supply at lower wood cost.
In terms of wood availability, Europe appears to be well
positioned. In practice though, the mobilisation of wood
resources in Europe is hindered by factors such as the
fragmentation of ownership, increasing numbers of areas
barred to industrial use and transportation costs. Another
threat comes from the EU’s renewable energy policies, which
means subsidised wood being used only for bio-energy
production rather than being used first as a raw material,
adding value and jobs.
Labour: Skills and greater productivity have to balance
high labour costs across the paper industry.
Europe has markedly higher direct and indirect labour costs
than competitors in many markets including Indonesia, China,
Brazil and Chile. On the other hand, quality and productivity
levels are favourable for European producers.
While labour costs still vary widely within Europe,
labour productivity remains a positive factor in terms
of competitiveness, but it will require continued investment
in training and skills development.
Example of Energy Costs Facing New Investment in Europe
Germany Electricity Spot price (€/MWh)
Fibres
32%
70
60
Other
manufacturing
costs
11%
50
40
Chemicals
12%
Energy
13%
30
Personnel
14%
Source: Jaakko Pöyry Consulting
Average 2004: 28.5 €/MWh Average 2005: 46.0 €/MWh Diff 05/04: +61 %
Source: EEX Jan 06
06
JA
N
NO
V
PT
SE
LY
JU
AY
M
AR
M
05
JA
N
NO
V
PT
SE
LY
JU
AY
M
AR
M
JA
N
04
20
Chemicals: The European pulp & paper industry
benefits from an efficient chemical cluster that
delivers high-tech products.
Transportation: Good infrastructure remains an asset
but road charging and congestion means increasing costs.
Chemical prices around the world have started to converge,
but the combination of price, availability and technology still
gives Europe a slight edge over competitors.
Cooperation between European chemical producers and pulp
and paper companies is an advantage in the development of
new grades. At the same time, skilful use of chemicals
increases production speed and efficiency, as well as
reducing costs. Competitors in Asia and North America
do not enjoy the same fruitful cooperation.
REACH will have impact though, and the costs are likely
to be considerable.
Capital Costs: The European paper industry enjoys
a small competitive advantage.
In terms of capital costs, the European paper industry has
a marginal advantage over some of its global competitors.
Interest rates are slightly lower than those in North America
and Japan, and clearly lower than in developing countries. The
differences are narrowing worldwide though, which means that
Europe’s advantage diminishes as well.
Financiers have also become increasingly cautious about
the sustainability of business fundamentals, including
environmental and socio-economic issues. Sound projects can
get competitive financing and there are several good examples
of this, especially in Latin America. Consequently, the capital
advantage will become less relevant for European industry.
Regulatory Framework: Red tape, inconsistency
and the sheer volume of regulations result in high
costs for the industry.
Sensible measures are always needed to regulate industry and
have driven large environmental improvements, but excessive,
poorly targeted legislation, inconsistent or “one size fits all”
regulation and red tape can all put a brake on competitiveness.
In the environmental arena, it is safe to say that Europe boasts
global leadership, but this comes at a cost. As the cost of
legislation mounts, the competitiveness of Europe’s paper
industry declines in relation to competitors where
environmental requirements are on a much lower level
or their enforcement is lax.
Price of Softwood Pulpwood1 in Europe and in Main
Competing Countries (2005)
The bulky nature of pulp and paper products puts transportation
and logistics high on the competitiveness agenda.
Unfortunately, transport costs in Europe are rising and look set
to rise further. Labour costs, oil prices, road tolls, and security
are all likely to drive up the total logistics cost, especially in
Central Europe. Meanwhile, traffic forecasts for 2010 indicate
that costs attributable to congestion are likely to increase by
142% to EUR 80 billion, which amounts to 1% of EU GDP.
Taxation: European tax rates offer advantages but
additional national and local taxation has a significant
impact.
The average European2 corporate tax3 rate is 26.8%. However,
if the European corporate tax rate is weighted by the paper and
board production capacity the average tax rate rises to 31.5%.
This still represents a slight competitive advantage for
European paper producers compared to several of their main
competitors. However, there is also the cumulative effect of
national and local taxation in addition to corporate taxation.
The real tax burden depends on how the authorities treat debt,
depreciation and other items. Unfortunately, the capitalintensive nature of the paper industry means that it is often
penalised by heavier taxation and excessive administration.
Ability to Innovate: Europe holds a technological
lead over competing regions but R&D and a skilled
workforce are vital for the future.
Europe boasts a skilled labour force and technological
advantages over competing regions. However, R&D levels
in the paper industry are somewhat lower than other sectors.
Progress does seem to have been made in this respect with the
Forest-Based Sector Technology Platform (FTP). The FTP was
launched by the Forest-Based Industries in February 2005 and
outlines a high level strategy for innovation and research across
the sector.
The goal is to focus and coordinate research throughout the
value chain to help the industry exploit opportunities in areas
such as wireless, biotechnology, nanotechnology and IT.
Labour Costs** in Europe and in Main Competing Countries
(2005)
EUR/operating person*/a, including all fringe benefits
60000
EUR/m3 sob
50
50000
40
40000
30
30000
20000
20
10000
10
A
FR
h
ut
h
so
Personnel
European average weighted on P&Pb capacity
A
US
N
CA
N
JP
L
CH
A
* Operating person is a person, who has an official valid contract of employment with a paper or a pulp company
** Labour cost is the part of the cost of a product that is attributable to wages (including all fringe benefits)
Source: Jaakko Pöyry Consulting
Source: Jaakko Pöyry Consulting
BR
S
RU
European average weighted on P&Pb capacity
N
FI
st
ea
so
ut
N
U
DE
CA
R
AU
T
h
ut
so
E
SW
GB
ut
h
L
US
A
so
A
CH
BR
NZ
L
n)
AU
S
pe
a
ur
o
(E
S
RU
Wood cost at mill
CH
ID
N
N
0
0
The Battle for Competitiveness
It is clear that the competitiveness of the European paper industry depends on a multitude of factors –
some of which the industry can control, and others that are firmly outside the influence of the companies involved.
The industry does hold some key strategic advantages and in the battle for global competitiveness Europe’s best opportunities
lie in using multiple advantages together. That will mean enhancing the sector’s R&D performance through the Forest-Based Sector
Technology Platform and other initiatives, for example. It will also mean increasing the mobilisation of the wood resources that
already exist, as well as boosting the quality and quantity of the recovered paper streams that deliver much of the industry’s
raw material base.
At the same time, the European paper industry will benefit greatly by coordinating and cooperating with other stakeholders,
especially in areas where it has little direct influence. Energy is of course a major issue here as it has the potential to be
one of the most damaging competitiveness factors.
Ultimately, the European paper industry is a competitive and sustainable sector. The companies involved in the sector are
determined to ensure that this remains a key strategic asset for Europe and by working with other stakeholders across all
the competitiveness measures included here, particularly in encouraging a coherent policy framework, it aims to maintain
its global leadership position in the future.
KEY ASSETS FOR COMPETITIVE EDGE
European paper industry
+ Asset
...unless -
Chemical industry and know-how
Industry ignores added value
Recovered paper
Loop leaks to Asia
R&D
Cooperation with cluster fails
Infrastructure to support inbound
and outbound logistics
Transport costs increase
KEY VULNERABILITIES
European paper industry
- Disadvantage
...unless +
Energy price upwards trend
Playing field made even globally
Excessive environmental regulation
Simplified and purposeful legislation
for sustainability
Fibre cost differential
Improved mobilisation of fibre resources
Tariff and non-tariff barriers
Free trade and fair competition
1 Softwood from mechanical pulping
2 EU25 + Norway + Switzerland (excluding Baltic States, Malta and Slovenia)
3 Corporate tax refers to direct taxes charged by various jurisdictions on the profits made by companies
Source: Jaakko Pöyry Consulting
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