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.

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