Canada’s paper profits may triple by 2006

Profits in Canada’s paper industry are going up after hitting the bottom of a cyclical downturn in 2003, according to the Conference Board’s
Industrial Outlook: Canada’s Paper Products Industry, published in September.

“The good news for the industry is that profits have passed their lowest point; however, the recovery will be gradual,” said Louis Thériault, associate director, Industrial Outlook. “The stabilization of the Canadian dollar will translate into price increases for exporters, and growing demand for paper products will boost production,” he said in statement from Ottawa, Canada’s capital.

In 2003, weak prices and the surge in the Canadian dollar restrained exports to the US. As a result, profits were all but eliminated, as the industry ended up only $40 million in the black.

Revenues are expected to rise 8.7% in 2004 and a further 10.2% in 2005. This revenue growth will offset increases in material costs, producing profits of $1.2 billion in 2004 and $2.6 billion in 2005.

Profits will climb again in 2006 to $3.4 billion and hold close to that level through the remainder of the forecast period, which looks ahead to 2008.

Most of the industry’s struggles in recent years occurred in the pulp, paper and paperboard segments of the industry, and therefore, they will enjoy the largest rebound. Asia represents the best opportunity for pulp producers. China now accounts for 12% of all exports, four times what they were a decade ago. The converting sector has been more stable and will not experience a wide swing in output or
profitability.

The major risk for the industry remains a further increase in the Canadian dollar. Soaring energy prices also pose a risk, as the industry is a major consumer of fuel oil, natural gas and electricity. (On Sept. 29, the $C hit 78.62 cents, almost its 10-1/2-year high, and oil hit $50 a barrel.)

The Canadian Industrial Outlook Service is a Conference Board economic forecast, providing mediumterm outlooks of revenues, costs and
profitability for 10 major Canadian industries. www.conferenceboard.ca. PI

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