BEIRUT: Positive indicators suggest that demand in the global forest, paper and packaging (FP&P) sector will strengthen during 2010, according to a new report from the Deloitte Global Manufacturing Industry group.
The study, called “Compass 2010: Global forest, paper, and packaging sector outlook,” claims that 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 fare better in 2010.
"Companies are taking a more disciplined approach in executing their corporate strategies," says Luc Martin, FP&P sector leader, Deloitte 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 in good financial health 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, according to the report.
It added that private equity would 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, the study says.
Out of the tough economic conditions, industry players will likely refocus efforts towards innovation as a source of growth. Biofuels is one such opportunity.
"Growing investments in biofuels from wood residues could improve operating margins and create a lower dependence on fossil fuels for producing energy internally," said 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."
"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.
