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UPM-Kymmene Drops as Limited Product-Pricing Growth Seen

Jan. 18 (Bloomberg) -- UPM-Kymmene Oyj retreated from a two-week high after analysts at banks including Nordea Bank AB recommended selling stock in Europe’s second-largest paper maker because capacity cuts are unlikely to help product pricing.

UPM dropped as much as 2.4 percent to 9.06 euros and was trading down 1.3 percent at 1:29 p.m. in Helsinki, partly reversing a 5.7 percent gain yesterday that put the stock at its highest since Jan. 7. Volume was 73 percent of the three-month daily average, and shares’ decline was the steepest on the Stoxx 600 Basic Resource Index.

A protest against plans to cut jobs prompted a walkout by about 500 workers today at UPM’s paper plant in Rauma, Finland. The Helsinki-based company, which booked writedowns and other charges reducing fourth-quarter profit by 1.6 billion euros ($2.14 billion), said yesterday that it plans to close or sell sites in its home country, Germany and France.

A decision to close two large paper operations “isn’t enough to deal with current overcapacity,” Jesper Bamberger, a stock adviser at Nordea Markets in Copenhagen, said in a report to clients. Nordea cut its recommendation to sell from hold today. “The recent share price advance offers a good opportunity to bring home profits on the stock.”

In addition to online media and Europe’s sovereign debt crisis reducing demand for newsprint, Nordic papermakers are facing costs from tightening sulfur emissions limits regarding marine transports in the Baltic Sea.

Yesterday’s share price gain was probably “too positive” a reaction to Helsinki-based UPM’s plans to reduce production, as the measures won’t be enough to help paper prices, analysts at Danske Bank A/S said in a report, reiterating a sell recommendation on UPM stock. “We continue to see a need for downward consensus estimate revisions and consider the valuation for the shares to be too high at the moment.”

To contact the reporter on this story: Kasper Viita in Helsinki at kviita1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net

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