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Industry trend is positive but short of financial targets Despite currency fluctuations and market volatility, the global forest and paper industry showed some improvement in 2004, according to results released June 1 by PricewaterhouseCoopers LLP, Canada (PwC) at its 18th annual Global Forest and Paper Industry Conference in Vancouver, BC. Return on capital employed (ROCE) was estimated at 5.4% in 2004, an improvement over the past four years. However, the numbers still fall short of the 10-12% ROCE target required for the industry to be competitive in the capital market. British Columbia was the industry’s top performing region in the world, earning ROCE of 11% in 2004. According to the PwC analysis, global forest and paper revenues were up 8% to $US343 billion in 2004 from $US319 billion in 2003. Net earnings almost doubled to $US14 billion in 2004 from $US7.3 billion in 2003. Craig Campbell, leader of PwC’s performance improvement practice for the global forest and paper industry, said many sectors are still struggling with overcapacity due to new production coming onstream in the southern hemisphere. “Further consolidation and closure of high-cost production is needed to make the industry attractive to investors.” Lumber producers in British Columbia were among the best performers globally. There, capital investment has created large, efficient mills with a focus on solid wood products. Pulp prices have increased over the past three years, up to the current price of $US650/tonne, off slightly from last month’s four-year high price of $US680, but far from the cyclical highs in 1995 and 2000. The outlook is for prices averaging around $US640/tonne through the balance of the year. “Despite this current cyclical high, pulp is the worst performing sector,” said Campbell. “It is the most fragmented global commodity and needs fundamental restructuring. We believe a minimum five-million-tonne producer is required to create such critical mass to allow for permanent closure of high-cost, excess production.” Newsprint’s improvement is on the backs of some very difficult curtailment and closure decisions. “Newsprint has been in a serious oversupply situation since 9/11, when demand dropped by 13%, the only time it has ever dropped double digits — and it hasn’t recovered since,” said Campbell. www.pwc.com/forestry. PI |
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