Demand recovering in global FP&P sector

April 7, 2010   by PLANT STAFF

A stronger year coming up for the global forest, paper, and packaging sector.

Photo: iStockphoto

TORONTO: Things appear to be looking up for the global forest, paper, and packaging (FP&P) sector. Demand is expected to strengthen this year according to a new report by the Deloitte Touche Tohmatsu Global Manufacturing Industry group.

The Compass 2010: Global forest, paper, and packaging sector outlook says a moderate rise in sales from key markets including construction and pulp will help the sector.

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

The report says consolidation activity is expected to continue this year in certain product lines such as containerboard as will restructuring through bankruptcy in North America and Europe, but companies with the financial health to do deals will still face distressed credit markets and the need to look for alternative financing options.

Deloitte says 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 with biofuels representing 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,” says John Dixon, Paper & Packaging leader, Deloitte Consulting LLP in the US. “Several European and North American companies are placing bets on biofuels for future revenue growth.”

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