Global Forest, Paper, Packaging Sector Trending Upward
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China is expected to lead the global forest, paper, and packaging sector in growth for 2012 due to increasing demand in the Asia Pacific region, according to the 2012 Global Forest, Paper, and Packaging Sector Outlook released this week by Deloitte Touche Tohmatsu Ltd's (DTTL) Global Manufacturing Industry group, U.K. However, Chinese companies are facing profitability challenges because of raw material cost and producer fragmentation, the report notes.
Europe is facing a potential economic recession due to declining demand and overcapacity for paper products, the report continues. Meanwhile, growth in South America is slowing, with only an incremental increase in pulp and paper demand expected for 2012. Modest growth is anticipated in North America overall, but several subsectors will still face difficulties ahead.
"A handful of well-managed paper and packaging producers will continue to focus on operational efficiencies and cost containment strategies while building strong cash reserves on their balance sheets," said John Dixon, Global Forest, Paper, and Packaging sector leader, DTTL. "These companies are in a good position to make bold moves into adjacent products, enter new emerging markets, or further their market share through acquisitions. They are also able to better address the growing challenge of securing limited natural resources and manage the uncertainties of government regulation. The widening gap between the haves and have-nots could have a material impact on the global dynamics of the industry."
For the pulp and paper subsector, forecasts are positive, according to the DTTL report. Pulp plants are under construction in Brazil, Chile, Argentina, and Uruguay. Lower production costs, availability of raw material, and shorter growing time for trees are key drivers for the increase in pulp production in South America.
"Pulp producers are nearing the bottom of the roller coaster ride that they have been on for the past year and a half. Pulp prices have tumbled from their recent highs thanks to an 18% increase in inventories compared with last year when there was a scarcity of pulp throughout the world," said Dixon. "At the end of the first quarter in 2012, prices are beginning to recover, led by South American producers. The global forest, paper, and packaging companies that have made the necessary adjustments to strengthen their position through liquidity, operational efficiencies, and opportunistic growth will likely have a strong performance year in 2012 and will continue to influence the on-going evolution of the industry."
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