Deloitte

Deloitte

April 06, 2010 09:01 ET

Demand Growth in 2010 to Relieve Capacity and Pricing Challenges in Global Forest, Paper, and Packaging Sector

TORONTO, ONTARIO--(Marketwire - April 6, 2010) - Positive indicators suggest that demand in the global forest, paper, and packaging (FP&P) sector will strengthen during 2010 according to a new report by the Deloitte Touche Tohmatsu (DTT) Global Manufacturing Industry group, Compass 2010: Global forest, paper, and packaging sector outlook. As the global economy shows signs of improvement, a moderate rise in sales from key end markets including construction and pulp, will help the sector to fare better in 2010.

"Companies are taking a more disciplined approach in executing their corporate strategies," says Luc Martin, FP&P sector leader, DTT Global Manufacturing Industry group. "As a result, companies are better able to combat challenges of overcapacity and manage prices to anticipate future demand."

According to the report, consolidation activity is expected to continue this year in certain product lines such as containerboard. Restructuring through bankruptcy is expected to continue in North America and Europe while companies with the financial health to do deals will still face distressed credit markets and the need to look for alternative financing options. In this depressed market, assets are undervalued and private equity will look to take advantage of the potential upside once the restructuring of the industry is completed. Private equity will increasingly be involved in the industry over the next few years with likely deals emerging in forestry markets such as Uruguay and Argentina. A strong appetite among investors for paper-type assets that can provide shorter-term attractive valuations is also an emerging trend.

Out of the tough economic conditions, industry players will likely refocus efforts towards innovation as a source of growth. Biofuels is just such an opportunity.

"Growing investments in biofuels from wood residues could improve operating margins and create a lower dependence on fossil fuels for producing energy internally," comments John Dixon, Paper & Packaging leader, Deloitte Consulting LLP in the United States. "Several European and North American companies are placing bets in biofuels for future revenue growth."

"With biofuel, sustainable products and wind generation, the traditional FP&P company has begun to peek beyond the traditional offerings and embrace the next generation of growth while continuing to maintain a diligent focus on operational effectiveness in their mills. Broad growth may be difficult to come by this year in North America and Europe but the global FP&P sector in 2010 will likely see recovery in key subsectors with stronger growth in markets like South America and China," adds Martin.

For a copy of Compass 2010: Global forest, paper, and packaging sector outlook, please visit www.deloitte.com/manufacturing.

Deloitte Touche Tohmatsu (DTT) Global Manufacturing Industry

The Global Manufacturing Industry group is comprised of more than 750 partners and 12,000 industry professionals in Deloitte member firms in over 45 countries. The team's deep industry knowledge, service line expertise, and thought leadership allows them to solve complex business issues with member firm clients in every corner of the globe. Deloitte member firms attract, develop, and retain top professionals and instill a set of shared values centered on integrity, value to clients, and commitment to each other and strength from diversity. Deloitte member firms provide professional services to 80% of the manufacturing industry companies on the Fortune Global 500®. For more information about DTT Global Manufacturing Industry, please visit www.deloitte.com/manufacturing.

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