UPM Maintains Commitment to Sappi Joint Venture Amid Structural Overcapacity in Graphic Paper

Q3 2026 Results Reflect Market Pressures

UPM has released its financial results for the third quarter of 2026, revealing a challenging environment marked by customer destocking and rising variable costs. The Finnish company reported sales from continuing operations of €2,202 million, slightly down from €2,226 million in the same period last year. Comparable EBIT fell by 8% year-on-year to €131 million. Despite these headwinds, UPM demonstrated strong working capital management, generating an operating cash flow of €420 million, a significant improvement from the €218 million recorded in Q3 2025.

Massimo Reynaudo, President and CEO of UPM, acknowledged the softer quarter following a strong first half of the year. The results underscore the ongoing structural pressures facing the graphic paper markets, a segment where UPM Communication Papers experienced a particularly difficult quarter.

Progress and Hurdles in the Sappi Joint Venture

A central element of UPM's strategy to navigate the structural decline in European graphic paper demand is its proposed 50/50 joint venture with Sappi. Announced earlier this year, the JV aims to create an independent entity with an estimated combined enterprise value of €1,420 million, targeting approximately €100 million in annual synergies.

During the Q3 presentation, UPM confirmed that operational preparations for the JV have progressed well. The transaction has already secured regulatory clearance in several major jurisdictions, including the United States, China, and South Africa. However, the European Commission remains a significant hurdle. In early October 2026, the Commission issued a Letter of Facts restating its serious concerns regarding the merger's potential impact on competition within the European market.

UPM and Sappi are actively engaging with the European Commission to address these concerns. The companies are discussing potential specific remedies to secure approval. Crucially, UPM has stated that divestments are not being considered as part of these remedies, given the underlying rationale of the transaction to consolidate and optimize operations in a shrinking market. A final decision from the European Commission is expected by the end of 2026 or shortly thereafter.

Pulp Production Curtailments in Finland

Beyond graphic paper, UPM is also adjusting its operations in the pulp sector to align with current market conditions. The company implemented an eight-week production curtailment at its Kaukas pulp mill in Finland during the third quarter. This move was designed to optimize production levels and wood sourcing, ensuring profitability amid challenging dynamics in the softwood pulp market.

Looking ahead, UPM has announced further adjustments. The company plans a five-week production curtailment at the Pietarsaari pulp mill during the fourth quarter of 2026. These strategic pauses reflect a disciplined approach to capacity management, allowing UPM to balance supply with fluctuating demand and manage input costs effectively.

The combination of strategic consolidation efforts in graphic paper and tactical capacity management in pulp highlights UPM's proactive stance in a complex industrial landscape. As the company awaits the European Commission's verdict on the Sappi JV, its focus remains on operational efficiency and adapting to the structural realities of the global paper and pulp markets.