Q2 EBIT miss driven by weak biofuels performance
UPM''s Q2 comp. EBIT rose 60% yoy but was EUR34m/ 16% below consensus. The beat in Fibres (pulp) segment was offset by small shortfalls in Comm. Paper and Energy with the net miss attributable to ''Other'' (biofuels). Current big projects are on track with Paso de los Toros (pulp) now at full run rate and Leuna (biochems) on track for Q4 startup. An investment decision on Rotterdam is now at least 2 years away - a positive in our view given current EU biofuels market uncertainties, meaning capex should fall further next year. Our forecasts now imply a 9% 2025 FCF yield - Outperform.
UPM''s Fibres volumes now at full run rate
Having completed its first maintenance turnaround at PdlT (and more established mills), UPM should see full target volumes in Q3. This should aid continued progress of production costs from USD500-550/tonne today to the longstanding USD280/tonne target. We do anticipate market pulp prices to decline from here, as other new industry capacity also ramps, but still anticipate Fibres profits rising in 2025. Overall whilst UPM is a beneficiary of higher pulp prices, this decline would at least provide a tailwind to the input costs of Comm Papers and Specialty Papers segments too.
Biofuels hit by lower market prices; Rotterdam investment decision now 2026 (prev. 2024)
The decline of biofuels prices, driven by higher imports, is weighing on UPM''s existing refinery profits. However, with the EU imposing anti-dumping duties on imports and investigating fraud in the GHG offset market we expect to see improvement in market pricing towards year end. The company also announced postponing its investment decision on its 500kT Rotterdam biofuels project for two years whilst the company works on technology for innovative and flexible feedstock options. An outright cancellation would probably have been better greeted by investors, but this is a reassuring compromise. We trim our EBIT forecasts by 4-5%...
