Consolidation to Continue in Forest Industry
12/26/97
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Headline: Consolidation to Continue in Forest Industry
Source: Canoe Limited Partnership
Date: 12/26/97
Copyright: 1997 Canoe Limited Partnership.
MONTREAL (CP) - Canadian forest companies spent 1997
catching their breath after the unprecedented plunge in
pulp and paper prices of the previous year.
There was a spate of sales, mergers and acquisitions as
executives looked for ways to cut costs and prepare for
the next jolt in the notoriously boom-and-bust industry.
The outlook for 1998 appears cautiously better, as a
couple of pulp and paper price increases managed to
sneak through, signalling that prices have finally
bottomed out.
Industry consultant Price Waterhouse expects the whole
industry will break even in 1997, on sales of around $50
billion.
The year before the companies had a small combined
profit of $804 million and in 1995, a robust $5.8
billion profit.
Based on the first three quarters, B.C.'s
lumber-intensive industry was headed for a much more
profitable year in 1997 than the year before, while the
eastern Canadian forest industry, mainly pulp and paper
mills concentrated in Quebec and Ontario, expected a big
loss.
However the east-west comparison could flip the other
way in 1998.
Analyst Craig Campbell with Price Waterhouse said the
B.C. industry is starting to hurt because:
- The NDP government is putting more land off-limits to
logging.
- B.C. has the highest stumpage (tree-cutting) fees in
Canada.
- Ailing Japan has cut back on B.C. lumber purchases.
Analysts expect asset sales and layoffs in the coming
year at B.C.'s biggest forestry company, MacMillan
Bloedel Ltd., after a difficult year.
Meanwhile pulp and paper prices are inching up, which
should give a boost to those producers, mainly in the
eastern half of the country.
"The fundamentals are in place to firm up prices and
return the industry to some kind of profitability in
'98," said Campbell.
Newsprint, for example, which spiked at $750 US a tonne
in the first quarter of 1996, dropped to $500 a year
later, to the delight of newspaper publishers.
By the end of this year, newsprint had climbed to $590,
and industry leader Abitibi-Consolidated is raising its
price by $50 US in April.
Patricia Mohr, who tracks commodity prices for the Bank
of Nova Scotia, says newsprint is one of the few
commodities that's bucking a downward price trend.
For 1997 the biggest event in the industry was the
merger of Abitibi Price of Toronto and
Stone-Consolidated of Montreal, to equal MacMillan
Bloedel as the country's top forest company with annual
revenues of nearly $5 billion.
At year's end, Abitibi staff were moving to a new head
office to Montreal to solidify that city's role as the
pulp and paper capital of Canada.
Several other companies bought and sold assets,
including once-mighty Repap Enterprises of Montreal
which ditched all its divisions except one in New
Brunswick.
There is a trend for companies to specialize in fewer
products, and to diversify geographically.
For example St. Laurent Paperboard bought mills in the
U.S. to double its production of white paperboard.
"We're going to see lots more of these acquisitions and
restructures," said Campbell. He cited MacMillan Bloedel
and Avenor as likely candidates for asset sales.
While Canada is the largest exporter of pulp and paper,
its individual companies are small on the world scale.
Of the 50 largest forest companies in the world, only
three are Canadian. Abitibi-Consolidated and MacBlo rank
21st and 22nd, while Noranda Forest ranks 45th.
The sudden slowdown in Asia is expected to have a
kickback effect on Canada's industry, which shipped 4.8
million tonnes of pulp and paper to Japan and other
Asian countries last year.
On the other hand, projects to build paper plants in
Korea, Indonesia, Malaysia and Thailand, which would
have contributed to expanded world capacity, now may be
delayed or even abandoned, a positive signal for
Canadian producers.