OREANDA-NEWS. October 12, 2010. According to a new Global Forest, Paper & Packaging Industry Survey by PwC (PricewaterhouseCoopers), nine largest European-based forest and paper companies reported overall earnings of USD 550 million in the second quarter of 2010, up over USD 1.1 billion from losses of USD 598 million reported in the second quarter of 2009, reported the press-centre of PwC.  

All but three companies included in the PwC Top 100 experienced improvement in financial performance compared to the same period in 2009 citing improved sales volumes and favourable prices. Newsprint was the major exception to these improving trends, where prices were well down on 2009.

Sales by the 31 European-based companies amounted to USD 103 billion, down 20% from the USD 129 billion reported for 2008. This represented a third of sales of the PwC Top 100. The third consecutive year Europe accounts for the largest share of total sales. The drop in sales is less pronounced when reported in Euros, due to a 5% appreciation of the US dollar against the Euro in 2009. Sales in Euros decreased by 16% in 2009 to EUR 74 billion, down from EUR 88 billion in 2008.

Alexei Ivanov, Partner, Forest, Paper & Packaging Industry Leader, PwC in Russia, said:
“The global economic environment continued to influence the performance of the PwC Top 100. The first half of 2009 presented a challenging market situation, as the effects of the global economic downturn carried over into the first two quarters of the year. Economic and export activity continued to decline, and tight credit markets, limited access to capital, deterioration in levels of new housing starts, construction and consumer spending activity posed further challenges.”

According to the survey, severe declines in demand as well as pricing for forest, paper and packaging products were seen in the first half of the year, and permanent and indefinite capacity closures ensued. As a consequence, significant write-down and asset impairment charges continued to hit company results. Companies actively cut costs, however their efforts were complicated in some cases by mills operating at reduced capacity and at lower efficiency rates as industry players looked to restore the supply balance to a saturated market and to preserve cash.

The impact of the global recession on forest, paper and packaging industry sectors disrupted activity everywhere, with varying degrees of severity depending on the industry sector and region.

Consumption of paper differed across regions. Demand for printing and writing paper, already facing a structural decline due to reductions in advertising spending and continued migration to digital media, was further impacted by the global recession. Prices for newsprint, for example, fell to historic lows in North America and demand dropped by up to 15% and 25% in Europe and North America respectively. Paper consumption in emerging markets continues to expand, particularly in industrial grades, however, levels of consumption remain much lower as compared to developed markets.The substitution of lower grades in the coated magazine sector resulted in an 18% demand decline and demand for corrugated board dropped with reduced industrial and export activity.

Other sectors were not immune. Reductions in exports, consumer spending and industrial activity caused an overall decline in demand in the packaging sector. Even the tissue sector experienced the effects of substitutions of lower quality and priced grades of product by consumers. At the same time tissue continues to be a growth sector for the industry and some producers have undertaken projects to convert paper pulp capacity to fluff pulp.

Alexei Ivanov continues:
“By the second half of the year, inventory surpluses abated, and markets began to improve, but demand for forest, paper and packaging products remained well below pre-crisis levels. Some companies emerged with leaner and more flexible mills, able to react more quickly to changing market conditions. Others struggled and continue to fight for survival.”