Prices plague world's forestry sector, report says

Globe and Mail Update

Depressed prices pushed profits down 20 per cent for the world's top forest an paper companies last year and the industry faces a slow recovery in 2003, a new survey said Tuesday.

In its assessment of 2002's industry performance, PricewaterhouseCoopers said net earnings for the world's top 100 forest and paper companies last year totalled $5.2-billion (U.S.), down about a fifth from the pervious year's $6.8-billion.

"It looks as if the rate of demand and pricing will recover somewhat in 2003 to allow a slight improvement in overall earnings," Craig Campbell, a Vancouver-based partner with PricewaterhouseCoopers' global forest and paper practice, said.

"This is only a small step towards more robust, long-term recovery."

Economic and political tensions, he added, are also complicating a recovery in the industry.

Last year, market pulp, paper and board production actually rose, but poor prices resulted in lower shipment values than in 2001, the report said.

In Canada, lumber production also increased last year, although that led to an oversupply in the marketplace, even with U.S. housing starts hitting record levels.

"As a result of this oversupply, average lumber prices fell 4 per cent during 2002," the report said.

"The burden facing the Canadian lumber industry was exacerbated by countervailing and anti-dumping duties of 27 per cent on all shipments to the U.S. since May 2002."

In Eastern Canada, — where the focus is on higher value, specialty grade papers — net earnings were up 22 per cent last year, while British Columbia's industry managed to post profit of $150-million (Canadian). That compared with a loss of $89-million in 2001.

"The B.C. industry was less severely impacted by the weaker pulp and paper prices than other geographic regions because it is more dependent on solid wood products such as lumber and plywood," PricewaterhouseCoopers said.

In Canada as well as globally, however, return on capital employed — a key indicator — was "well below the generally accepted minimum" as well as below levels seen in the 1990s.

"Globally, the industry's average ROCE in 2002 was 4.3 per cent," the report said.

"It was 4.6 per cent in 2001, down from 6.6 per cent in 2000, and far below the generally accepted minimum return of 8 per cent to 11 per cent"