Moody’s upgrades global paper and forest products industry outlook to ‘positive’

22 June 2018 (Last Updated June 22nd, 2018 12:22)

Moody’s Corporation, bond credit rating business Moody's Investors Service has released a report which has changed the outlook for the global paper and forest products industry to ‘positive’ from ‘stable’, reflecting higher prices and lower recycled fibre costs across most subsectors of the industry in most regions.

Moody’s Corporation, bond credit rating business Moody’s Investors Service has released a report which has changed the outlook for the global paper and forest products industry to ‘positive’ from ‘stable’, reflecting higher prices and lower recycled fibre costs across most subsectors of the industry in most regions.

The outlook report has projected consolidated operating income growth in the mid-single digits in the next 12 to 18 months.

Among regions, the ratings agency has changed the outlooks for the North American, European and Latin American paper and forest products industries to positive from stable.

“Our positive outlook for the global paper and forest products industry reflects higher-than-expected market pulp, paper packaging and printing and writing paper prices.”

Other subsectors which outlooks have been upgraded to positive are the North American and European paper packaging subsectors, the North American, European and Latin American pulp subsectors, and the North American printing and writing paper subsector.

However, the agency did not alter the outlook for the North American timber and wood products, which remains stable.

Moody’s senior vice-president Ed Sustar said: “Our positive outlook for the global paper and forest products industry reflects higher-than-expected market pulp, paper packaging and printing and writing paper prices.

“As a result, the 42 paper and forest products companies we rate globally should see consolidated operating income growth of 4%-6% over the next year or so, while G-20 GDP growth of just over 3% through 2019 will support demand and resulting higher prices.”

According to Moody’s, the consolidated operating income for the 26 rated North American paper and forest product companies is estimated to increase 4%-6% over the next 12-18 months, driven by stronger earnings from paper packaging, market pulp and timberland.

These companies rated by Moody’s contribute around 60% of the operating income of the global rated industry.

Likewise, the ratings agency is also forecasting a 4-6% growth in operating income for the 11 rated European paper and forest product firms, which account for nearly a quarter of the global rated industry’s operating income, over the next 12 months.

The projected growth has been attributed to several factors such as higher prices for specialty paper, paper packaging, pulp, tissue and wood products, as well as increased volume across all subsectors except graphic paper.

European paper packaging firms Smurfit Kappa Group, Metsa Board and Mondi are projected to benefit from ongoing productivity improvements and slightly stronger demand and prices, the report noted.

In Latin America, the anticipated growth rate for the five rated producers in terms of operating earnings is 6%-8%, supported by strong BEK pulp prices and higher volumes from Fibria Celulose’s 1.95 million tonne pulp mill recent expansion.

Meanwhile, Brazilian pulp and paper company Suzano Papel e Celulose is expected to witness growth in its earnings due to rising output at its two new tissue production lines.