UPM Plywood’s Labor Deal: A Step Toward Stability Amid Persistent Challenges

The prolonged labor dispute between UPM Plywood and the Industrial Union, which began in August 2024 and halted production at four Finnish mills for eight weeks in April 2025, has finally concluded with a collective labor agreement. While the resolution marks a critical step toward operational stability, the deal’s financial and strategic implications remain fraught with challenges. Investors must weigh the immediate relief against lingering risks to UPM’s financial health and long-term competitiveness.

The Labor Agreement: More Than a Wage Settlement

The agreement, effective as of May 2025 and valid through 2027, includes a 7.8% total wage increase over three years—structured as 2.5%, 2.5%, and 2.8% annually—along with additional benefits. Key components include:
- A 1.2% annual cost-of-living adjustment (COLA) tied to inflation, with quarterly reviews.
- A €500 signing bonus for permanent employees and retention incentives of up to €2,000 for long-tenured staff.
- Performance-linked bonuses for production workers, technicians, and management, contingent on output, skills training, and efficiency metrics.
- Overtime pay hikes (25% over standard rates) and weekend double-time pay.
- A 1.5% profit-sharing clause and €2,000 annual tuition reimbursement for skill development.

These terms aim to balance worker demands with UPM’s financial constraints, which include record-high wood prices and weak construction demand. However, the deal’s structure—particularly the reliance on productivity and profit-sharing—suggests UPM is betting on operational efficiency to offset rising labor costs.

Financial Outlook: Recovery Hinges on Execution

UPM Plywood’s sales in 2024 fell to €430 million, down slightly from €422 million in 2023, but the April 2025 strike caused further revenue erosion. The parent company’s Q1 2025 comparable EBIT dropped 14% year-on-year to €287 million, with plywood operations described as “steady” despite disruptions.

While the agreement ends the strike, UPM faces significant hurdles to stabilize its financials:
1. Input Cost Pressures: Wood prices remain at record highs, squeezing margins. UPM estimates a €10/MWh increase in Finnish electricity costs could reduce annual EBIT by €30 million.
2. Customer Attrition Risk: Key clients in construction and shipbuilding may have shifted suppliers during the strike, threatening long-term market share.
3. Geopolitical Uncertainties: Tariffs and currency fluctuations (notably in USD, UYU, and CNY) could disrupt supply chains and pricing strategies.

Operational Challenges: Beyond the Strike

Even with the labor dispute resolved, UPM must address deeper operational issues:
- Production Capacity: Finnish mills, idled for eight weeks, will require time and investment to fully restart. The Estonia-based Otepää mill, which remained operational, cannot fully compensate for lost production.
- ESG Reputational Risks: Prolonged labor disputes may undermine UPM’s sustainability credentials (e.g., DJSI inclusion, EcoVadis gold rating), critical for attracting ESG-focused investors.

Risks and Uncertainties

• Strike Relapse: While the deal ends the current dispute, future negotiations could reignite tensions if productivity targets or profit-sharing clauses are not met.
• Demand Volatility: The construction sector’s stagnation remains a headwind, with UPM’s plywood division particularly vulnerable.
• Competitor Threats: Competitors like Finnish rival Ahlstrom-Munksjö or Baltic producers may capitalize on UPM’s operational disruptions.

Conclusion: A Fragile Turning Point

The labor agreement is a necessary step for UPM Plywood to resume production and stabilize its financial trajectory. However, investors must remain cautious. Key data points underscore the fragility of the recovery:
- 2025 EBIT Guidance: UPM projects H1 2025 EBIT between €400–625 million, down from €515 million in 2024, reflecting ongoing pressures.
- ESG Risks: UPM’s sustainability reputation, a cornerstone of its brand, is now entangled with labor relations.
- Strategic Diversification: While new mills in Uruguay and acquisitions like Metamark offer growth, plywood’s recovery depends on resolving customer attrition and cost management.

In the short term, the stock may see a rebound as production resumes, but long-term success hinges on UPM’s ability to navigate cost inflation, retain customers, and maintain its sustainability leadership. For now, the deal is a stopgap—not a cure—for a company facing structural headwinds. Investors should monitor UPM’s EBIT trends, plywood sales recovery, and labor relations closely. The path to sustainable growth remains fraught, but the labor agreement at least clears the immediate hurdle.