UPM will reorganise its business structure, streamline operations and plan for the "possible closure" of its Finnish-based Kajaani mill and Tervasaari pulp mill by the end of 2008. This will affect around 1,600 staff in 2009-2010.

UPM has 670 staff at its Kajaani mill and annually produces 640,000 tonnes of paper. Its potential closure will take out 13% of its newsprint capacity in Europe, 25% of its special newsprint capacity, and around 9% of its SC (supercalendered) paper capacity.

The potential closure of the Tervasaari pulp mill will reduce UPM's pulp production by 10%. It employs 680 staff and has an annual production capacity of 210,000 tonnes of pulp and 370,000 tonnes of speciality papers.

According to Newsroom Finland, workers at UPM Kajaani and Tervasaari have protested against the paper maker's plan to close the pulp mills. UPM said it had no further comment at this time.

UPM's president and chief executive Jussi Pesonen said: "Demand growth for paper in traditional markets has slowed. Overcapacity still exists in Europe and slowing economic growth imposes further challenges.

"With today's market outlook and the recent cost developments, UPM's paper and pulp production in Finland can not continue in its current form."

UPM also said it will record an impairment charge of around €230m (£183m) from the Newsprint Division's goodwill in the third quarter.

The company's view of the newsprint market's outlook has weakened, and the impairment relates to the lower-than forecast realised newsprint market demand across Europe and continued overcapacity. Due to the impairment, deferred tax liabilities will be decreased by around €28m.

UPM will also adopt a new business structure that will consist of three business groups, energy and pulp, paper and engineering materials.

The European newsprint market is currently experiencing a turbulent time, with a number of Scandinavian and overseas producers closing mills to reduce capacity.

European selling prices have had to increase in an attempt to reflect cost increases and manufacturers are still expecting a significant increase in newsprint selling prices to take effect next year.

Mills have also faced significant increase in energy and fibre costs, which are a continuing theme for the industry.

Marcus Moir, chief executive of Teesside-based Ecco Newsprint, said: "The viability of certain production capacity, particularly [of that] which focused on virgin fibre, continues to be challenged."

"It is now clear that the major players are prepared to continue removing capacity where appropriate, both to eliminate poor financial performance and take into account current and anticipated demand levels."

UPM's restructuring announcement was around the same time as Stora Enso, although UPM said this was a coincidence.

Stora Enso has announced plans for permanent closures of assets with poor profitability, totalling 600,000 tonnes of paper and board.

Around 1,700 staff will be affected by the permanent capacity reduction and restructuring plans. The company has also said it plans for significant reductions in Russian wood-sourcing organisation.

Stora Enso will permanently close down the cartonboard machine at Balenfurt, Germany, and machine one at its Imatra plant in Finland.

Its PM three-paper machine in Kabel, Germany, will also be permanently shut down, as will its Corenso's coreboard machine at Varkaur, Finland.

Chief executive Jouko Karvinen said the reasons for the closures were to allow the group to become more focused with fewer product lines.