Lower margins and challenging markets still require substantial measures, paper makers Norske Skog and UPM-Kymmene say in their quarterly reports. Both companies issued statements today.

Norske Skog says it is responding to lower margins – due to lower selling prices and seasonal demand fluctuations – with the closure and conversion of paper machines.

“Price increases are expected during the second half as a result of the considerable capacity closures that have been announced,” president and chief executive Sven Ombudstvedt says.

“Norske Skog continues to cut costs and improve productivity. Investments are also being made to improve profitability on certain machines.”

The company announced gross operating earnings (EBITDA) in the first quarter of 2013 of NOK 174 million, down from NOK 385 million in the first quarter of 2012 mostly as a result of lower prices.

It attributes a decrease in cash flow to weaker margins, restructuring activities in Australia and seasonally increased working capital.

The result was weakened by lower prices and weak demand. Permanent capacity cuts in Europe of more than a million tonnes have been announced this year. “We are continuing our efforts to improve productivity and reduce costs in order to improve margins,” Ombudstvedt says.

Investment projects have progressed “according to plan” in the quarter. Norske Sjkog is investing A$84 million (NOK 480 million) to convert a machine at Boyer in Australia from newsprint production to catalogue paper, and has a NOK 220 million project at Saugbrugs to reduce energy consumption and fixed costs. It has also announced a temporary production stop at Skogn in Norway, and a smaller reduction in the remaining production at Tasman in New Zealand, where one machine closed permanently on January 9.

• UPM-Kymmene Corporation reported operating profit excluding special items of Euros 144 million, 5.8 per cent of sales (down from 156 million, 6.0%)

Chief executive Jussi Pesonen says the first quarter was “well in line with our expectations”, with paper market developments “as challenging as anticipated”. In Europe, the profitability of the paper business was negatively impacted by publication paper prices, adverse currency development and lower delivery volumes.

“The market realities are currently tough and these savings were not sufficient to offset the market impact in paper,” Pesonen says. “Therefore, we will go ahead with the restructuring and streamlining plans announced in January to achieve Euros 90 million annual fixed cost savings. UPM is closing two magazine paper machines this month, one in Rauma, Finland, and one in Ettringen, Germany. The sale of the Docelles paper mill, the Pestovo sawmill and the Aigrefeuille further processing mill is also ongoing, as is the streamlining of other functions.