VANCOUVER, May 11, 2006 — Strong global economic growth is presenting challenges to the forest, paper and packaging industry, which relies heavily upon raw materials, labour and energy. Competition for limited resources is driving up the cost of the industry’s inputs. In the northern hemisphere, the industry is grappling with the rising fuel cost at sawmills, and pulp and paper mills that are typically smaller, older and less efficient than those in the southern hemisphere. Hardest hit are the paper mills relying primarily on recovered fibre. These and other findings of a recent survey of forest, paper and packaging CEOs were discussed today at the 19th annual PricewaterhouseCoopers (PwC) Global Forest and Paper Industry Conference held in Vancouver, British Columbia.
“At current prices, the cost of fuel is having a major negative impact on the bottom line of forest products companies.” said Robert Barnden, leader of PwC’s global forest, paper and packaging industry practice. “Almost all the industry CEOs in our survey reported their operating costs have shot up with the cost of fuel. Producers in Brazil, with a greater reliance on bio-fuels and ethanol, have been less affected by rising fuel prices. In Sweden, with some of the most efficient sawmills and pulp mills in the world, producers have few costs remaining to squeeze out of their plants to offset the fuel price increase.”
Barnden said the industry CEOs surveyed by PwC reported a strong focus on customer retention and defending market share. One strategy to retain customers is for producers to invest in learning more about their customer’s business and partner with them to help develop new products and expand markets, to mutual benefit.
The CEOs surveyed had mixed views on emerging markets such as China, eastern European and Latin American countries. The producers with newer mills in the emerging regions generally enjoy low fibre and labour costs; some mature forest products companies in traditional producing regions are struggling to compete at today’s market prices. In some emerging regions the producers are faced with political instability, infrastructure and transportation limitations and fibre supply problems. CEOs also saw the emerging markets of the world, with growing demands for lumber, paper, packaging and household products, as good opportunities for capital investment.
Other key survey findings include:
- North American forest products companies are expected to continue divesting their timber resources.
- Mergers, acquisitions, and industry consolidation is inevitable for producers to stay competitive.
- Private equity could become a larger source of capital. The fiscal accountability that comes with it is expected to bring positive changes. However, the long-term planning horizons of the forest products industry may not be suitable for private equity investors.
- Environmental sustainability rated very high on the list of CEO priorities. Regions with low environmental awareness and controls were viewed negatively.
A total of 17 CEOs of forest, paper and packaging companies in North America, South America, Europe, Russia, China, India and South Africa were interviewed by PwC for this survey. Data was collected in person and by telephone on the topics of general economics, global competition, emerging markets, mergers and acquisitions, sustainability, strategy and supply chain.
For more information about PwC’s forest, paper, and packaging industry CEO survey, or to arrange an interview with one of the survey’s editors, please contact:
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