New report slates pulp & paper firms

European forest product companies can expect earnings to fall by at least 50% in 2002, according to a new report.

Industry consolidation is also failing to create a balance between supply and demand, according to Paper Strategy 2002, the latest paper and packaging industry report from Credit Lyonnais Securities Europe.

The report said that the continued pursuit of consolidation would only release forces destructive to those who try to control the markets.

Although consolidation has reduced the number of suppliers, the industry has overestimated the level of demand and underestimated the strength of supply, it added. Customers are using less paper but finding new sources of supply.

Only two firms, Norske Skog and Holmen Paper, were named as correct strategic thinkers.
The report predicted contrasting fortunes for pulp and paper prices for the next year. It forecast that the price of pulp would rise 5% to 306 (e500) per tonne in 2003, but that the average fine paper price would drop 2% to 528 per tonne.

Burgo was highlighted as one of the producers to watch, with 600,000 tonnes of coated woodfree capacity set to come on-stream at its Ardennes mill in Belgium. Despite closures and production curtailments, the report predicted continued growth in capacity, with publication paper capacity set to rise 14% in Western Europe to 26.8m tonnes.

The report said the future was bleak for slower moving listed firms such as Stora Enso, UPM-Kymmene and M-real.

The report concluded that consolidation may have worked if it had taken place in the 1990s, but that it was the wrong remedy given the current economic climate.

Story by Andy Scott