UPM-Kymmenes acquisition of Haindl is set to fail, and the price of pulp could fall by a further 25% in 2002. These are just two of the conclusions reached in Get Reel, the latest paper and packaging industry report from Credit Lyonnais Securities Europe.
Other lowlights include: The industrys consolidation strategy allied to production downtime is also set to fail; and integrated papermakers earnings are set to slide further over the next 18 months, with more profit warnings likely as the third-quarter results are issued.
The report reveals a bleak long-term outlook, further depressing an industry blighted by mill closures, strong currency and weak demand.
The report warns to avoid at all costs investing in Stora Enso or UPM-Kymmene, because the largest integrated producers stand to lose most from a weakening magazine market and the pulp price collapse.
M-real has also been weakened dangerously by its aggressive acquisition strategy, and further losses cannot be ruled out in the second half of 2001.
Investment opportunities are highlighted though, with DS Smith and SCA marked up as buy targets. But Smurfits UK operations could be set for further rationalisation due to difficult trading conditions.
The pulp producers are also targeted, with no pulp price recovery in sight until 2003 at the earliest.
The likelihood of currency devaluation in emerging markets and alternative supply availability from non-traditional sources are all cited as reasons.
The restraint on new capacity is also set to fall by the wayside. The coated woodfree market in Western Europe is set to grow by 27% or 2.3m tonnes due to new machines coming on stream and conversion from other grades.
Story by Andy Scott