Expect deals like the $3.3-billion US merger of Domtar and Weyerhaeuser's pulp and paper assets to be repeated as companies struggle with greater competition and shifting markets, a report from PricewaterhouseCoopers suggests.
PricewaterhouseCoopers (PwC) surveyed the CEOs of 17 companies in North America, Europe, Asia and South America, who had a combined $70-billion in sales, to take the pulse of the industry and see where it is headed.
"We're pretty familiar with the fact there are a lot of cost pressures," Bruce McIntyre, PwC's forest and paper sector practice leader, said in an interview.
Mergers are underway or being contemplated as ways of streamlining company expenses.
"We saw that with Domtar and Weyerhaeuser, and that's a high priority for the industry in terms of survival."
McIntyre said it is the profit squeeze that is driving the industry. Executives are determined to improve their supply chains and improve competitiveness by reducing costs, which will mean more consolidation and reduction of capacity by closing down mills.
McIntyre added that CEOs said, while traditional markets for wood and paper -- the United States and Europe -- will remain stable, the growth in demand will shift to Asian markets such as China and India.
"[In] a B.C. context, what we're looking at [are countries] that would be competing with British Columbia [producers] as market opportunities for B.C. products," McIntyre said.
He added that for B.C., which has well-established, older-technology pulp and paper mills, re-investment will be needed if mills expect to compete with newer, bigger, high-capacity mills being built in South America.
Kevin Mason, a forestry analyst with Equity Research Associates Inc. in Sechelt, said re-investment for a lot of B.C.'s forest industry will be a hard sell.
Mason said the growth areas for paper are in tissue paper, packaging and coated papers for magazines. B.C. has some of those producers, such as Catalyst which has moved more into coated papers in recent years.
The outlook for pulp and newsprint, however, is bleak because there is global over-capacity and the markets for newsprint are in long-term decline.
"I think there's an aspect of hanging on as much as you can," Mason said. "B.C. interior pulp [mills] have a future for as long as we have cheap wood chips."
Mason said B.C. continues to have a more solid footing in lumber.
"For the solid wood business, lumber and panel [boards], it's still a growth business," Mason said, "although we're going to have short-term pain [with a downturn] in the U.S. housing market."
Looking at broad demographic trends, however, Mason said that as long as there is population growth in North America, there will be a positive market for housing, and for lumber.
Mason added that the U.S. will remain Canada's key customer for lumber. China, he added, "isn't even a blip on the radar," when you look at that country's consumption.
"And understanding that [China] is right next door to Russia, which has far more wood that Canada, it's hard to think of China as a big market, but perhaps it will turn around to be a big competitor."Vancouver Sun
