Outlook For Paper, Forest Products Market 'Remains Positive', Says Moody's
The consolidated operating earnings of the world's largest paper and forest products companies are expected to increase by 8% to 10% over the next 12 months, according to a new report by Moody's Investors Service.
The outlook for the 41 companies that Moody's rates in this this sector remains 'positive', it said, adding that earnings in Latin America are expected to rise by more than those in traditional markets such as North American and Europe.
According to Moody's, Latin American paper and forest products firms are expected to see earnings surge by 25% to 30% during the period, driven mainly by a spike in bleached eucalyptus (BEK) pulp prices, as well as a turnaround in the performance of the Brazilian economy, which is expected to grow 3.3% this year, after a 4.7% contraction in 2020.
"Increasing demand, aided by a rebound in economic activity and higher prices, will drive earnings growth in all subsectors, led by market pulp," according to Ed Sustar, a Moody's senior vice president.
At the same time, however, the outlook for the timber and wood products subsection has changed from 'positive' to 'stable', with average prices for most wood products, including lumber, plywood and oriented strandboard (OSB) increasing in 2021 to peak levels.
This has been driven by limited new supply, an acceleration in US housing activity, and strong renovation and remodelling activity.
Similarly, the outlook for the paper packaging and tissue subsection has also turned from 'positive' to 'stable', with EBITDA growth driven by higher corrugated and consumer paper packaging prices.
The continuation of online shopping trends is likely to keep demand strong in the sector, as online packages tend to require more protective packaging, while demand will also likely be fuelled by paper packaging alternatives to single use plastic packaging, Moody's said.
At the same time, Moody's said that it expects demand for tissue products will 'normalise' in 2021, following last year's spike in activity at the start of the pandemic, as consumers stocked up on toilet paper and other essential items at the start of the pandemic.
Tissue earnings are also likely to decline slightly, as new tissue capacity limits price increases and consumer purchasing behaviour that lifted demand in early 2020 at the start of the coronavirus outbreak subsides, Moody's said.
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