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April 1, 2003
By Pulp & Paper Canada

During PaperWeek 2003 in Montreal, QC, Aron Gampel, VP and Deputy Chief Economist at Scotiabank, attempted the almost impossible task of summarizing the status of the current economy in half an hour.G…

During PaperWeek 2003 in Montreal, QC, Aron Gampel, VP and Deputy Chief Economist at Scotiabank, attempted the almost impossible task of summarizing the status of the current economy in half an hour.

Gampel explained how both inflation and economic growth in many countries are converging to low levels. He sees Canada as the healthiest of the world’s major economies and perhaps the only one where interest rates will rise. Data showed that the Canadian government debt is a rapidly declining fraction of the GDP, in contrast to other major countries.

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North American growth, Gampel predicted, will outperform the rest of the world in the foreseeable future and he is confident that Canada will outperform the US. Given the close relationship between the rate of economic growth and the fortunes of the paper industry, this bodes well for the short and medium term.

Gampel emphasized that the Canadian economy is still highly dependent on the US, although more integrated with the worldwide economy than a few years ago.

One of the best features of the overall Canadian economy is the diversification of the economy in most regions, which makes it more robust than it was in the past. This also means that, in some areas, the pulp and paper industry is no longer the dominant force it was 25 years ago.

The softest spot that Gampel sees in Canadian economy is that business investment is weak and profits are relatively poor, leading to aggressive cost cutting in many industries.

The growth engine of the world is China [ed.note: See China: Becoming the next superpower, p.18] but Chinese economy is still not large enough to have a major worldwide impact.

Newsprint’s big problem

Ross Hay-Roe, managing director of Equity Research Associates, has been analyzing the newsprint market for over 30 years, and feels that newsprint is at the bottom of the current business cycle, with the prospects of short term increases in sales prices. In the longer term, Hay-Roe sees a downtrend in North American newsprint demand. Peak newsprint production was in 1987, and has been declining ever since. Newsprint’s share of advertising expenditures, has been bypassed by direct-mail and television, and represents approximately 20% of current advertising expenditure.

Fortunately, newsprint demand in the Asia/Pacific region has grown rapidly and Canadians have been able to take advantage of this. After a blip in the late 1990s, demand in the region continues to rise rapidly, typically around 3% per year, which provides opportunity for Canadians. However, Asian newsprint production capacity has risen rapidly also.

European demand and capacity rose quite rapidly until reaching its peak in 2000. Worldwide demand for newsprint dropped in each of the past two years, which is the first time Hay-Roe says that he has seen successive declines.

In the Asian Pacific region, growth in capacity has been rapid, which results in much of the equipment being modern and highly efficient. Production by the aging equipment in North America has been slowly declining, which is becoming an increasing problem.

Hay Roe seemed to be cautiously optimistic that some increase in investment in the North American industry will take place in the next few years. However, the main increases in capacity and investment are likely to be in the areas of increasing demand in Asia.

What is real in the new economy

James Daly, a consulting editor for Forbes magazine and founder of Business 2.0, spoke next. He shared his ideas on the new economy, or, as he called it, the Networked Economy, an entirely new way of doing business.

While the image of the new economy was of over-valued, over-funded start-ups, he feels that the truth is that the new economy is a vastly improved global market, facilitated by the improved communications. There’s a big gap between perception and reality. Daly explains, “It’s about the transformational power of information technology and the personalization of commerce.”

He estimates that 10% of jobs in the US are based on paper products, economic activity he estimates at $833 billion annually. Paper consumption now amounts to approximately two pounds per day, up 43% since 1980. It has risen markedly since personal computers were introduced and, ironically, one of the best known websites on the Internet is Amazon.com, which sells books, among other things.

After a few years of being bemused by the Internet, the major paper companies are adapting rapidly. Companies like Weyerhaeuser have trimmed capacity and make better use of expanded capabilities, while International Paper, Georgia Pacific, Canfor and Bowater are cutting jobs.

The spectacular growth in high speed (broadband) Internet connections is giving birth to Internet based companies in many relatively remote locations, thus diversifying the economic developments. This will lead to more people working, selling and servicing customers from home or offices in relatively low-cost regions. One example cited was a company called printingforless.com that brokers print-shop work across the US for small printers. This did not exist three years ago, but is now a successful mid-sized business. Daly feels that one of key strengths of the many small and growing Internet companies is that they are not constrained by large scale operations. He cited giants like AT&T and IBM as examples, but could well have cited large paper companies.

Daly mentioned www.efiber.com www.paperonweb.com as examples of Internet marketing that could become important to the industry.

His key message was that paper companies examine Internet developments closely and adapt. He emphasized that effective electronic marketing requires much more than simply posting an electronic catalog on the web. Developers must use the new tools available to serve the needs of potential customers, and gain the customer’s attention.

Additional information from www.pppc.orgP&PC

North American growth, Gampel predicted, will outperform the rest of the world in the foreseeable future and he is confident that Canada will outperform the US.#text2#


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