Price erosion and further profit warnings from companies within the paper industry can be expected in the third quarter, according to Downturn Happening Now, the latest report from Credit Lyonnais Securities Europe.

It predicted that third-quarter profit warnings would prompt a 20-30% de-rating of the sector. Earnings were also set to fall by around 40% in 2002, it added.

The continued demise can be attributed to low price and volume. Pulp is unlikely to recover, given additional production capacity and probable currency devaluations in Asia and South America.

The newsprint market is set to suffer because the more attractively priced European market will spark a three-fold rise in import volumes, particularly from Canada and Russia.

A similar tale is expected in the magazine papers market as new capacity comes on-stream at Burgo in Italy, adding to capacity increases last year at UPM-Kymmene in France, Haindl in Germany and Perlen in Switzerland.

The report said prices of super-calendered grades would be squeezed by lower-quality newsprint and higher-quality lightweight coated paper.

The market also faces the start-up of two new machines at SCA in Austria and Stora Enso in Belgium, leading to an extra 900,000 tonnes a year.

The report concluded that by January 2002 selling prices would have "reverted to the level of 2000".