Europe’s competitiveness depends on keeping manufacturing viable

Europe’s efforts to strengthen its industrial base and competitiveness should not focus exclusively on creating new manufacturing capacity, but also on allowing established industries to adapt to major structural changes in demand, according to Marco Eikelenboom, CEO of Sappi Europe. In an article addressing the future of European manufacturing and the graphic paper industry, Eikelenboom highlighted the scale of the transformation that has taken place in the European paper market over almost two decades.

European demand for graphic paper has fallen by more than 60% since 2007. A market representing more than 40 million tonnes in 2008 had contracted to approximately 13 million tonnes by 2025 and is projected to decline to just over eight million tonnes by 2030. The reduction reflects a long-term structural change in the way information is consumed and distributed, primarily driven by the continued migration towards digital alternatives.

The scale of this change creates a fundamental challenge for the European graphic paper industry: adapting a manufacturing base originally designed for a substantially larger market while continuing to serve customers reliably and maintaining the capacity to invest in sustainable European production. This challenge is currently being addressed by both Sappi and UPM through their proposed 50/50 joint venture, which would combine the companies’ graphic paper businesses in a new independent company.

The proposed structure is intended to create a broader industrial base capable of responding more effectively to the smaller European graphic paper market that is emerging. While the proposed transaction is specific to the graphic paper sector, Eikelenboom argued that the underlying issue is relevant to a much wider range of European manufacturing industries.

Digitalisation, changing consumption patterns, energy costs and global competition are reshaping long-established sectors throughout Europe. Companies are therefore being required to adapt industrial structures developed over decades while continuing to meet the quality, environmental and sustainability standards associated with European manufacturing.

For graphic paper, the scale of the adjustment remains particularly significant. Although European demand is expected to continue declining, a market of slightly more than eight million tonnes by 2030 would still represent a substantial volume of paper production. The challenge is therefore not whether demand will disappear completely, but whether sufficient competitive manufacturing capacity will remain in Europe to serve the customers that continue to require graphic paper.

Staying competitive requires continued investment

Paper mills are capital-intensive industrial operations that depend on skilled employees, wood fibre, energy, water, logistics infrastructure and significant long-term investment. When demand changes structurally, production capacity must eventually adjust to the new market conditions.

If this adjustment takes place too slowly, utilisation rates decline and operating efficiency deteriorates. Over time, lower utilisation can weaken the economic case for maintenance, modernisation and further investment. Eventually, decisions may be postponed until the number of available options becomes increasingly limited, resulting in the closure of individual paper machines and, in some cases, entire mills. Such decisions have consequences extending well beyond individual companies.

Paper mills are frequently major regional employers and support highly specialised workforces, suppliers, transport operators and other local industrial activities that have developed around production sites over many generations. Eikelenboom nevertheless argues that a smaller but economically viable European graphic paper sector remains achievable. This would require production to be concentrated around efficient industrial assets with sufficient utilisation levels and financial capacity to maintain, modernise and improve their operations.

European manufacturers are also required to meet increasingly demanding regulatory and sustainability requirements. Energy efficiency improvements, supply-chain traceability under the EU Deforestation Regulation and compliance with emissions legislation all require significant capital investment. Sappi continues to invest in these areas across its European operations.

Under the European Commission’s proposed revision of the EU Emissions Trading System, the continuation of free carbon allowances from 2031 would also become conditional on companies reinvesting their full value in European decarbonisation projects. Meeting these requirements requires both access to capital and a sufficiently strong underlying industrial business case.

According to Eikelenboom, fragmented production networks with persistently underutilised assets make both objectives increasingly difficult to achieve. European manufacturing should continue to operate according to high environmental and sustainability standards, but manufacturers also require sufficient financial strength to invest in meeting those standards.

Preserving viable European production

The central issue is therefore the long-term viability of European graphic paper manufacturing. Declining demand does not mean that the market disappears. European publishers, printers, distributors and other customers will continue to require graphic paper even as total consumption decreases. If European production becomes structurally uncompetitive and manufacturing capacity continues to leave the region, that demand could increasingly be supplied through imports.

Sappi points in particular to lower-cost Asian producers that have already increased exports to Europe and could redirect additional volumes to the region as global trade flows evolve. These imported products may be manufactured outside the environmental, regulatory and sustainability framework applicable to European mills.

For this reason, Eikelenboom argues that Europe has an economic and strategic interest in creating conditions that allow established manufacturing industries to adapt while they still possess the financial strength necessary to invest.

Competition policy also forms part of this discussion. The European Commission is currently examining the proposed Sappi-UPM graphic paper joint venture under EU merger-control rules. As in any merger investigation, the Commission is assessing the potential implications for customers, including pricing, quality, choice and security of supply. However, Sappi argues that such an assessment must also take account of the future structure of a market experiencing a sustained structural decline in demand.

Understanding whether suppliers will remain capable of investing in their production assets, maintaining equipment and reliably serving customers over time is therefore relevant to assessing the future competitive environment. Digital substitution is continuing, while customers can also source graphic papers from other European producers and from imports. At the same time, prolonged low utilisation rates affect manufacturers’ ability to maintain assets and justify new investment.

In industries characterised by structural demand decline, significant excess capacity and rapid market transformation, a more important consideration is whether sufficient viable and investable capacity will remain available to supply European customers reliably over the medium and long term.

Building an industry for future demand

The proposed Sappi-UPM joint venture is presented by the companies as their response to these market conditions. A European manufacturing network built to serve graphic paper demand exceeding 40 million tonnes cannot continue indefinitely in its existing form if the market is moving towards approximately eight million tonnes.

Once established, the broader asset base of the proposed joint venture would allow the new company to manage production across a wider manufacturing network. This could improve capacity utilisation and provide a stronger financial basis for maintenance and investment. It could also create a more sustainable framework for adjusting production to market demand while maintaining reliable supply for customers.

The objective would be to create a graphic paper industry capable of continuing to serve the European market while investing in production assets and complying with the standards expected from European manufacturing. Customers also benefit when suppliers operate efficient industrial networks, invest in product quality, maintain security of supply and respond reliably to changing market requirements. For this reason, maintaining a viable manufacturing base is not solely an issue for paper producers. It also affects publishing, printing, distribution and other businesses that depend on a reliable supply of graphic papers.

Sappi maintains that the future industrial structure of the sector must therefore be designed around expected demand rather than around historical production volumes.

A broader challenge for European industry

The graphic paper sector is unlikely to be the only European industry required to confront this type of structural adjustment. Across Europe, long-established manufacturing sectors are facing similar pressures from changing demand, global competition, higher operating costs and technological transformation. These industries represent skilled employment, industrial infrastructure, supply chains and technical expertise accumulated over decades.

The challenge is therefore not simply to preserve existing industrial structures unchanged, but to ensure that European manufacturing remains sufficiently competitive and investable to adapt to changing economic conditions. There are strong reasons for Europe to retain viable manufacturing capacity.

Industrial production supports regional employment and supply chains, gives customers access to domestically manufactured products and anchors investment in facilities operating according to European environmental and sustainability standards.

However, maintaining manufacturing in Europe can also require significant structural changes.

Eikelenboom argues that acting while companies remain financially strong provides more alternatives than delaying decisions until individual production assets reach a critical point. Europe’s competitiveness strategy should therefore recognise that preserving viable industrial production can require industries to adapt before market pressure leads to more disruptive outcomes. For graphic paper, the future European market is already becoming increasingly clear.

The objective, according to Sappi Europe, should be to create an industry structured around that future demand: one capable of meeting Europe’s environmental and manufacturing standards while continuing to supply customers reliably over the long term.

As Eikelenboom concluded: “Demand may change, but customers remain. Europe’s challenge is to ensure that competitive, sustainable manufacturing remains here to serve them.”