Mar 19, 2004. /Lesprom Network/. Demand for coated fine paper, often a leading indicator for overall paper demand, is showing signs of underlying improvement in Europe, Finnish paper maker M-real's chief executive said on Thursday. Jouko Jaakkola added in an interview he had high hopes that the firm's recently announced price hikes would be accepted by customers and go into effect in April. Like its global peers, Europe's leading fine paper maker has suffered for the past few years from weak demand and sliding prices as a slump in advertising hit its customers. The global economic recovery and a rise in the ad market have not yet translated into clearly higher paper demand despite investors' hopes that 2004 would be an upturn year. "When we look at recent developments, demand for coated papers in Europe has been stronger than before," Jaakkola told Reuters. "Most of it is likely due to the usual seasonal improvement in fine paper at this time of the year, but one has to hope at least part of this is because of cyclical recovery.... Demand is quite satisfactory now," he added. Coated papers are used in printing high-quality art books, calendars, magazines and catalogues, while less-expensive uncoated grades are used for general printing and photocopying purposes. Last month, M-real said in its fourth-quarter report it had seen no marked improvement in demand in its key European market. An improvement in fine paper demand has historically been an early indicator of an upturn in the cyclical paper industry, followed by newsprint and magazine paper grades, which have a narrower customer base. Upbeat on price hikes Jaakkola said he was optimistic about recently announced price increases even though the European industry still has overcapacity in fine paper grades. "We have seen (demand) strengthening to such a degree that we have announced price increases in coated grades. Price talks with customers are going on and we hope to achieve something this time," Jaakkola said. M-real plans to raise European prices for its key products by 5-7 percent from April, and Jaakkola said another major producer had announced similar plans recently. M-real's main competitors are South Africa's Sappi , the world's largest fine paper maker, and Swedish-Finnish Stora Enso , the leading global paper and board maker. Jaakkola said there was 15-16 percent overcapacity in coated fine papers in Europe last year, with exports accounting for some 20 percent of total capacity. Overcapacity was lower in uncoated grades, but Jaakkola said the price situation in uncoated paper grades was tougher due to cheaper imports from Asia and South America, which were supported by the weakening of the dollar versus the euro. Jaakkola said M-real was comfortable with the profitability of its overseas exports at the current dollar-euro exchange rate , but added the firm had been quite close to break-even on its exports in recent months when the euro reached record highs against the U.S. currency. "If it (the exchange rate) would go beyond 1.30, it would be rather difficult to break even in terms of our main (export) markets," he said. The euro was fetching about $1.24 in late European trade on Thursday. HELSINKI, March 18, 2004 (Reuters)