Canadian forest product industry shows growth

May 10, 2012, Vancouver, BC – Preliminary results from PwC's Net Earnings Summary for the quarter ended March 31, 2012 indicate that most Canadian forest and paper companies have posted improved results for the first quarter compared to the fourth quarter of 2011, but most reported losses which are well below the level of earnings posted for the same period in 2011.

The data was released today at PwC's Global Forest & Paper Industry Conference taking place in Vancouver, BC. European companies have so far reported lower results from Q1 2011, similar to Canadian companies, while US-based forest and paper companies have reported strong results compared to the previous quarter and this time last year.

The two recent B.C. mill fires have contributed to a spike in lumber prices in North America, but real demand is also starting to grow slowly. While a late spring price rally isn't expected, companies are still reporting that higher NBSK pulp pricing and improved lumber mill nets should contribute to better Q2 earnings overall.

"Globally, pricing will likely be flat over the next couple of quarters. Looking ahead though, stronger offshore lumber exports should help increase commodity prices and deliver some sustained improvement in lumber prices for 2013," says Bruce McIntyre, Leader of PwC's Forest, Paper and Packaging industry practice in Canada.

But it's a long road ahead for the US housing market. US housing starts continue to fall short of the levels that are deemed necessary for a sustained recovery in the lumber sector.

Instead, lumber prices over the past few years have been supported by strong Chinese demand for SPF lumber. While demand from China has cooled in the last six months with tighter credit conditions in China and a build-up of inventories on both sides of the Pacific, a pickup in shipment volumes is expected again in the second half of 2012

"Following a series of restructurings, companies are now in a better financial position to consolidate and offset declining demand," says Frederic Bouchard, PwC's National Forest & Paper Deals Leader. "We expect to see more deals over the next two years as the major players try to maintain some profitability in the mature or distressed sub-sectors of the industry."

McIntyre adds, "While the Chinese market is sensitive to price, the demand from China for lumber, pulp and other products from Canadian producers remains a huge part of the equation for their long term growth potential, with the greatest impact on Western producers in Canada and the U.S."

For more information, please visit www.pwc.com/ca/fpp.

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