UPM Getting Lost in Transmission: Exploring the Energy Bull Case

Research evidence excerpt

UPM Getting Lost in Transmission: Exploring the Energy Bull Case

outlook beyond (44-20) 7742-4181

2027. China continues to rapidly expand wood pulp production due to mukund.verma@jpmorgan.com

J.P. Morgan Securities plc

competitive wood fibre costs and a desire to integrate further. Over the next few

years, this is expected to weigh on market pulp demand to the extent that

producers such as Suzano are forecasting a demand CAGR of less than 1.5% Key Changes (FYE Dec)

to 2029 (~50bps below normal levels). Over the same period, we see pulp Prev Cur Δ

supply increasing at a CAGR of 3-4% and that is before we consider announced Adj. EBITDA - 26E (€ mn) 1,759 1,592 -9.5%

but unconfirmed capacity additions, mainly coming from cost advantaged

regions such as Latin America, which introduces further downside risk to pulp Quarterly Forecasts (FYE Dec)

price assumptions. Furthermore, lower pulp prices would likely drag graphic Adj. EBITDA (€ mn)

2025A 2026E 2027E

paper prices lower as well, weighing on graphic paper margins. Q1 421 395A 512

• Power debate heats up. While we have received little push-back on our Q2Q3 257251 318396 405440

bearish view on pulp, investors have become increasingly more optimistic on Q4 382 483 544

UPM’s Energy division as expectations for data centre demand and FY 1,324 1,592 1,900

electrification of industry increases the odds of a tight power supply balance

Style Exposure and therefore, higher power prices. Our analysis (here) suggests that Finnish

power prices of €66/MWh are being discounted in the share price today versus

our base case of €45/MWh. Our work suggests that in order to realise these sorts

of prices, the Finnish power market would need to be reliant on natural gas (the

highest cost energy source) for 57-72% of the year.