Forest Sector Downturn slowed in Q2 2009

Canada's forest, paper & packaging (FPP) sector continued to be negatively impacted by the global economic downturn during the second quarter of 2009.

According to the PricewaterhouseCoopers (PwC) quarterly net earnings review, weak commodity prices and low demand throughout most of the period resulted in aggregate second quarter losses of C$660 million for the 15 companies surveyed, compared to losses of C$462 million during the same period in 2008. These losses are on top of net losses of C$480 million in Q1 of 2009.

One bright spot toward the end of Q2 was an improvement in pulp prices as exports to China increased. Costs of fibre, energy and other inputs were lower during the quarter compared to last year. The Canadian - US dollar exchange rate was 13% weaker compared to the same period in 2008.

During Q2 of 2009 Western Canadian FPP companies reported aggregate losses of C$83 million, an improvement over the C$128 million loss posted in the same period of 2008. Four of the nine Western Canada companies in PwC's survey showed earnings improvements compared to Q2 of 2008; three of these posted positive earnings.

Eastern Canadian producers posted an aggregate loss of C$577 million compared to a loss of C$334 million during Q2 of 2008. Four of the six Eastern companies surveyed reported improved results, however these modest improvements were overshadowed by C$384 million of closure, impairment and reorganization charges by AbitibiBowater. Two of the Canadian companies benefitted from US$191 million of US alternative fuel tax credits.

"Some of Canada's larger forest products companies will continue to have financial struggles until there is a sustained economic turnaround and demand picks up," says Craig Campbell, leader, Performance Improvement, Global Forest, Paper & Packaging Industry practice for PwC. "The story in the US was different during the quarter, with the ten largest forest products companies posting combined profits of US$839 million, primarily due to approximately US$1 billion in alternative fuel tax credits."

The ten largest European-based forest products companies incurred aggregate losses of (euro)412 million in the second quarter of 2009, a drop of (euro)871 million from the positive earnings of (euro)459 million in the same period of 2008.

A PDF of the PwC Q2 2009 Global Forest & Paper Industry Net Earnings Summary is available to download at: www.pwc.com/ca/en/forest-paper-packaging/global-net-earnings-summary.jhtml

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Issue date: September 1, 2009

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