The global forest, paper and packing (FPP) industry experienced heavy losses in 2008, taking a 157% nose-dive on net income, with actual dollar figures dropping from a profit of US$14 billion in 2007 to a loss of (US$8) billion last year. These and other financial performance metrics were released by PricewaterhouseCoopers LLP (PwC) at the PwC LLP Global Forest and Paper Industry Conference.
Return on Capital Employed (ROCE) is a key metric of industry financial health. Preliminary ROCE figures released regarding the Global Top 100 company list show that global ROCE decreased to an estimated 2% from just under 5% in 2007. Eighty companies generated ROCE of 7% or less; only five companies recorded ROCE of 10% or greater. Twenty-six companies generated negative ROCE in 2008 compared to only eight in 2007.
All regions are down from 2007 with Canada and South America experiencing the biggest drops. British Columbia and the rest of Canada are at the bottom of the pack (both at -5%), and the only regions showing negative returns on investment as mills are shutting down and production moves to the southern hemisphere. “We are less diversified, geographically and from a production point-of-view, compared to other regions. This is part of a massive shift in production from the northern hemisphere to emerging market countries, primarily in the southern hemisphere,” says Craig Campbell, leader of the performance improvement practice for PwC’s global FPP practice.
In Canada, net losses for the largest public forest, paper and packaging companies in 2008 grew to (US$4) billion in 2008 from (US$900 million) in 2007 due to the collapse of the pulp and paper market which had provided buoyancy throughout 2007. The collapse of newsprint giant, AbitibiBowater, has brought the challenges of the North American newsprint industry to the forefront. Consumption of newsprint in North America has fallen by 50% in the past ten years, from 16 million tonnes in 1990 to an estimated 9 million tonnes in 2009.
When it comes to pulp prices, last year saw the highest levels in US dollars since 1995. NSBK prices peaked at US$880/ton in the first and second quarters of 2008 but the tough fourth quarter of 2008 took a toll and was exacerbated by the black liquor tax regulations in recent months leading to current prices of US$690/ton.
“The economic tsunami that hit last fall washed away hopes of an upswing in the sector,” says Campbell. “We’re working with this new version of normal where low prices, low earnings, and pessimistic forecasts are the way things are. The sector is learning to use all available options to weather this perfect storm and find a way to survive.”
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