The forest industry in Finland may be forced to reduce capacity due to rising raw material costs and weaker market conditions.

These warnings come from Juha Varis, a senior portfolio manager at S-Bank, who recently said the environment is becoming increasingly challenging for pulp and paper producers.

Wood prices have remained elevated, even as demand for a range of forest industry products has fallen short of expectations, increasing market speculation that production curtailments may follow.

According to Varis, overcapacity in the European forest industry is evident across several segments. Significant excess capacity remains in pulp, paper, and packaging, contributing to a decline in competitiveness among some Finnish pulp mills.

Varis added that investors should expect some reduction in capacity, although it remains unclear which plants might be affected.