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Paper industry profits to almost triple by 2006

Ottawa, ON -- Profits in Canada's paper industry are on an upswing after hitting the bottom of a cyclical downturn...


Ottawa, ON — Profits in Canada’s paper industry are on an upswing after hitting the bottom of a cyclical downturn in 2003, according to the Conference Board of Canada’s Industrial Outlook: Canada’s Paper Products Industry.

“The good news for the industry is that profits have passed their lowest point, however, the recovery will be gradual,” said Louis Thriault, associate director, Industrial Outlook. “The stabilization of the Canadian dollar will translate into price increases for exporters, and growing demand for paper products will boost production.”

In 2003, weak prices and the surge in the Canadian dollar restrained exports to the United States. As a result, profits were all but eliminated, as the industry ended up only $40 million in the black.

Revenues are expected to rise 8.7% in 2004 and a further 10.2% in 2005. This revenue growth will offset increases in material costs, producing profits of $1.2 billion in 2004 and $2.6 billion in 2005. Profits will climb again in 2006 to $3.4 billion and hold close to that level through the remainder of the forecast period, which looks ahead to 2008.

Most of the industry’s struggles in recent years occurred in the pulp, paper and paperboard segments of the industry, and therefore, they will enjoy the largest rebound. The Asian market represents the best opportunity for pulp producers. Exports to China now account for 12% of all exports, four times what they were a decade ago.

The converted paper products sector of the industry, which manufactures paper products from purchased paper and paperboard, has been more stable in recent years and will not experience a wide swing in output or profitability.

The most significant risk for the industry remains a further increase in the Canadian dollar. Soaring energy prices also pose a risk, as the industry is a major consumer of fuel oil, natural gas and electricity.

The Canadian Industrial Outlook Service is a unique Conference Board economic forecast, providing medium-term outlooks of revenues, costs and profitability for 10 major Canadian industries. In addition to paper products, outlooks for auto and auto parts manufacturing, information technology and communications, retail and wood products are available. Forecasts for aircraft and aircraft parts manufacturing, construction, food manufacturing, oil and gas and tourism were produced last spring. An updated forecast for these industries will be available in the winter of 2005.

For more information, visit www.conferenceboard.ca.