Moody’s: European paper firms’ investments paying off Factory Suppliers Manufacturers Quotes

Moody’s: European paper firms’ investments paying off

Moody’s: European paper firms’ investments paying off

Moody’s: European paper firms’ investments paying off

Overall profitability for many rated European paper companies has improved this year, despite falling demand, suggesting that transformational investments are beginning to pay dividends.

This is according to global credit research by Moody’s Investors Service, based on first half trading this year

Moody’s notes that European paper demand is declining by 5% a year, and consolidation would aid the longer-term viability of the sector if it involves the closure of less efficient capacity.

To this end, the report claimed Italian graphic paper producer Burgo (unrated) has reportedly initiated talks with a number of other European industry players to explore forms of strategic alliances.

“We expect companies that have managed to reposition or broaden their business profiles through sizeable investments, such as Metsä Board Corporation, Mondi Plc, Sappi Limited, Stora Enso Oyj and UPM-Kymmene, to maintain or even improve their profitability throughout the remainder of 2014 and 2015,” says Matthias Volkmer, a Moody’s vice president – senior analyst.

“On the other hand, less diversified players, like Lecta S.A., Norske Skogindustrier ASA and Portucel, S.A., could potentially experience permanent profitability erosion on the back of shrinking paper demand and price declines.”

Moody’s projects that substantial new hardwood pulp capacity in Latin America will place downward pressure on prices for bleached eucalyptus pulp over the medium term.

While non- or partially integrated players, such as Norske Skog and Lecta, will benefit from declining costs, producers that sell excess pulp supplies in the market, such as Ence Energia y Celulosa, Metsä Board, Portucel, Stora Enso and — albeit to a lesser extent – UPM, will be adversely affected.

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