An economic slowdown in debt-burdened Europe may force the region's paper industry toward massive mill closures and consolidation in the coming year.

While the industry has already been grappling with weak demand and overcapacity for several years, analysts say rising costs and an accelerated decline in print media mean executives need to do more, and faster, than previously planned.

The sectors' top executives are due to outline their strategies at Reuters' Forest Forum this week, with investors focusing on how they plan to cut costs, expand into new business areas, and cut more M&A deals. Interviews for the forum will be held with forestry company executives in Helsinki, with contributions from Johannesburg and Stockholm.

Shares in Europe's top paper and board maker Stora Enso and the world's leading graphic paper company UPM-Kymmene , both of Finland, have fallen around 40 percent so far this year.

While some analysts see them as bargains, investors have been reluctant to take a punt before seeing how much and how soon the industry's capacity will be cut down.

Lower capacity is seen crucial in supporting paper prices ahead.

Analysts say UPM-Kymmene's acquisition of debt-laden rival Myllykoski earlier this year was just the start of a round of consolidation and capacity cuts in Europe.

UPM, after the deal was unconditionally approved in July, said it would announce mill closures by mid-September.

UPM is expected to cut up to 1 million tonnes of paper capacity, or 2 percent of Europe's total of around 51 million tonnes. One analyst said any cut smaller than 1 million tonnes would be a disappointment.

South Africa's Sappi , the world's biggest fine paper maker, is about to close down a paper mill in Switzerland with an annual capacity of 500,000 tonnes.

Also M-real , which is looking to focus on making board products for consumer packaging, wants to either sell or close paper mills in France and Germany.

SHAKING UP NEWSPRINT

The graphic paper industry is roughly divided into newsprint, magazine paper and fine paper. Analysts say the paper grade that now looks the weakest, and in most need of consolidation, is newsprint.

In the last round of crisis, it was Myllykoski who fell. Now again we see more pain for the weakest producers as pulp and recycled fiber prices are high and the underlying paper market is on shaky ground, said Katja Keitaanniemi, head of research at Swedbank Finland.

She added the companies that are most likely to restructure their assets include Norway's debt-laden Norske Skog as well as Italian Burgo.

Last year Helsingin Sanomat said in an unsourced report that Stora Enso, Norske Skog and Sweden's Holmen held talks on forming a venture to pool their newsprint production.

WEAKER FORECASTS

During the first half of this year, the paper business managed to bolster profits by hiking publication paper prices.

But if Europe's economy weakens as many analysts expect, businesses are likely to cut back on advertising, while consumers buy fewer papers and magazines, meaning prices may come under pressure again.

That, combined with higher fiber costs and volatile energy prices, could hit the industry harder than the 2009 recession.

Both UPM-Kymmene and Stora Enso spooked investors in recent weeks by forecasting, in their quarterly reports, weaker demand and increasing uncertainty ahead.

After those reports, analysts in a Reuters poll cut their full-year core operating profit forecasts for UPM by 9 percent on average to 815 million euros ($1.15 billion) and cut their view on Stora Enso's by 6.5 percent to 927 million euros.

Analyst Keitaanniemi noted that UPM and Stora were helped by their integrated production chains, with more than self-sufficient pulp production. UPM also holds huge energy assets, while Stora benefits from the booming packaging board business.

Analysts are particularly concerned about the outlook for M-real: following the company's latest quarterly report, analysts slashed their view on the group's full-year profit by 32 percent to 123 million euros.

(Editing by Will Waterman)

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