Thursday, November 29, 2007

Paper products industry to lose $400M this year

Paper products industry to lose $400M this year, turnaround to start in 2008
3 hours ago

OTTAWA - Canada's paper products industry will be in the red again this year, recording about $400 million in losses as a result of the surging loonie and falling demand, the Conference Board of Canada says.

That would mark the third straight year of losses in the $11-billion pulp and paper industry, which has been in a deep funk for most of the decade.

But the Conference Board report released Thursday forecasts a turnaround for the industry starting in 2008 as prices begin to rebound modestly and demand increases from such expanding economies as China.

The report predicts the industry will make a modest $6 million profit in 2008, but earnings will rise to $600 million in 2009 and continue building to $1.7 billion in 2011.

"Much of the industry's profit will be generated by the pulp segment, boosted by strong demand in China and Western Europe," the report states.

Despite the brightening prospects, the board does not see the same bright picture for employment.

The industry has shed about 21,000 jobs in the last four years. But despite expected increasing profits, the board forecasts only minimal job growth starting in 2008.

The key factor ailing the industry is the high loonie - the board estimates that every cent rise in the Canadian dollar has shaved $200 million in profits from the sector's bottom line.

As well, the increasing computerization and Internet use in North America has cut into the demand for certain types of paper, the report says.

"The death of paper has been forecast many times since the 1990s," the report notes.

"Yet the industry - especially in North America - has still been hit by the rise of computers and the Internet," it adds. "Newsprint has been worst hit as circulation and classified advertising continue to decline and as environmental concerns multiply."

The Pulp and Paper Products Council pegged newsprint consumption decline at 12.2 per cent in the first three quarters of 2007.

In the wake of increased competition and mounting losses, many companies have either merged their operations, shut down money-losing mills or made other streamlining moves to remain profitable.

For example, Montreal-based paper giants Domtar and Abitibi have struck deals to merge with major U.S. forestry companies and are moving forward with efficiency drives to improve their finances.

Domtar Corp. (TSX:UFS), formed by the merger of Domtar Inc. and the fine-paper business of U.S. forestry giant Weyerhaeuser Co. (NYSE:WY), is the largest integrated producer of uncoated freesheet paper in North America and the second-largest in the world based on production capacity, and is also a manufacturer of paper-grade pulp.

The company, with nearly 14,000 people, also produces lumber and other specialty and industrial wood products.

Meanwhile, AbitibiBowater Inc. (TSX:ABH) is launching a review of operations as the newly combined company attempts to improve operations and reduce debt by $1 billion over three years. The review could lead to mill shutdowns in Canada and the United States.

The combination of Abitibi-Consolidated Inc. of Montreal and Bowater Inc. of South Carolina was completed Oct. 29.

Earlier this week, Vancouver-based Catalyst Paper Corp. (TSX:CTL) extended the shutdown of its No. 1 paper machine at the Elk Falls newsprint mill at Campbell River, B.C. until the end of March because of a shortage of fibre.

Other pulp and cardboard operations at the mill will also be shut down over Christmas, affecting 600 employees.

Tuesday, November 27, 2007

Expected Rise in Paper Costs Leaves Publishers Shuddering

Expected Rise in Paper Costs Leaves Publishers Shuddering
Mags Could Be Paying 25% More Next Year Due to Mergers in Pulp Biz
By Nat Ives

Magazine publishers are already facing way too many rising costs: technology investments, postage, editors both diva and deserving. But the seemingly mundane budget line for glossy paper is suddenly the one everyone is worried about.

Welcome to our hell, publishers said last week.

"I frankly became more of a quasi-expert than I would want to be, only out of necessity," said John P. Loughlin, exec VP-general manager at Hearst Magazines.

The weakness of the American dollar is increasingly restricting publishers' overseas options.

Seller's market
More worrisome, paper seems to be emerging from a competitive era of cyclically rising and falling prices. This year already has seen increases implemented and announced. Now structural changes, including mergers and a growing role for aggressive private equity, look likely to drive prices up next year by another 20% to 25%, Mr. Loughlin said.

The industry hasn't seen a spike like that since 1995, when announced increases led to a brief run on the paper market that echoed Dutch Tulip Mania. This isn't spare change, either: Paper comprises some 15%-20% of publishers' costs, Mr. Loughlin estimated. One big publisher said it's still unclear how big a hit is bearing down. "We're still examining what we believe specifics amount to, and whether there are benefits to our scale," an executive there said, speaking on the condition of anonymity.

Planning the right strategic response is complicated by that fact that visibility, beyond such rough projections, remains limited. Paper manufacturers aren't too helpful on this score. A spokesman for AbitibiBowater, the result of an October merger and now the third-largest publicly traded paper company in North America, declined to discuss publishers' fears. "We cannot speculate on pricing on a going-forward basis," he said.

A spokeswoman for NewPage, which hopes to close on the acquisition of Stora Enso's North American operations by the first quarter, did not respond to a voicemail and an e-mail seeking comment Nov. 21.

Hearst ready
Mr. Loughlin said Hearst would get by. The company increased cover and subscription pricing on many of its magazines this year and is considering a couple more hikes next year. "We have tried to be thoughtful about our structure in the good years and in the tough years relative to paper prices," he said. "Nobody wants to be here, but frankly we're in a good position in that we've managed our costs and don't have to change the physical specs on the magazines."

The other obvious recourse, trying to pass costs along to advertisers, just won't work well enough for everyone, said Malcolm Campbell, publisher of Spin. "It's going to put some people out of business," he said.

And he didn't just mean the indies. "Don't kid yourself," he said. "There are a lot of large-publishing-company old titles that are very marginal anyway. You're going to see a lot of icons going down if paper prices go up that much."

Spin, he said, will continue just fine in print, even without exploring options like switching to cheaper paper stock or reducing the magazine's size. "There may be some adjustments," he said. "I don't think we're going to go that route. We'll find other ways."


Paper prices "must double" says M-real chief

BY William Mitting, PrintWeek

Paper prices must double to make the paper industry economically and environmentally sustainable, Andrew Gun­man, regional director of paper manufacturer M-real, has warned.

Speaking at the annual PPA Magazine Conference at London's Millennium Hotel last week, Gunman said the industry had to "pay the right price" for paper to save the environment and secure its future.

"Increased paper costs would reduce waste and force the industry to consume less," he said. "The paper industry needs more money to build a sustainable future."

Gunman added that, while most publishers do not insist on the environmentally friendly FSC certified paper, there has been increased demand from large retailers such as Sainsbury's.

"We have seen a 100% increase in demand for FSC paper in 2007 which is pushing up prices," he added.

Bemoaning the cheap price of paper in Europe, Gunman said the supply and demand mismatch was the fault of the paper industry, which had sold too cheaply.

He added that the low prices were destroying communities across Europe as paper mills are forced out of business.

Gunman's comments will be met with concern among the printing industry which is already struggling with increased paper prices.

One industry insider said that paper-based marketing and information communication has to stand up economically against other delivery channels. As paper prices increase, it makes these other channels more viable, threatening the industry.

In 2006, the dollar price of softwood kraft pulp increased by 22%, a cost which was passed onto printers.