Canada's P&P Industry to Turn Profit this Year after Nine Years in Red
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For the first time in nine years, Canada's pulp and paper industry is poised to post a small pre-tax profit in 2011, the Conference Board of Canada said this week. "A rebound in pulp prices and higher demand for paper products provided the industry with a much-needed boost in 2010 and continuing into this year," the Ottawa-based think-tank said.
As reported by the Ottawa Citizen, the board cautioned, however, that the industry "is far from healthy," burdened with excess capacity and the continuing shift toward digital communications. "Moreover, in response to declining market demand and increasing international competition, the trend of mergers and acquisitions is expected to continue throughout the industry," the report said.
But after eight years of losing money — and an average of more than a billion dollars a year from 2007 through 2009 — the industry's dark days appear behind it, The Ottawa Citizen article noted. The board forecasts the industry will eke out a profit of $251 million in 2011 and continue to be profitable over the report's outlook to 2015, thanks to increased production efficiency, expanding sales beyond North America, and the introduction of higher-margin products.
"On the other hand, the continued strength in the Canadian dollar and growing competition from Asian and South American producers will limit the industry's profit margins," the report said. Industry profits are forecast to rise to $465 million in 2012 and to $563 million by 2015, while employment will remain stable at about 75,000 workers. Profit margins will rise slightly from 0.9% in 2011 to 1.8% in 2015.
Building on the strength shown in 2010, shipments of paper were up 4.5% in the first two months of 2011 and new orders were up 3.9% from the same period a year ago. Inventories meanwhile fell 2.4%. Pulp prices, however, are likely to be capped by the reopening of mills reacting to increased demand for paper products, the strong Canadian dollar, and higher operating costs in the face of higher crude oil prices.
The industry must also seek out new opportunities in emerging markets like China to offset competition from digital media and a North American market that has matured, the report said.
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