Pessimism the new norm for forest industry: PricewaterhouseCoopers

Low prices, low profits, and pessimistic forecasts are the "new version of normal" in the forest products industry, aPricewaterhouseCoopers expert said Thursday.

And Canadian producers are among the worst performers, Craig Campbell,an executive in the firm'sglobal forest, paper and packing practice, said in a news releaseabout international comparisonsof 100 public companies.

The100 companies reported a 2008 return on capital employedof two per cent, down fromfive per cent in 2007.

"B.C. and the rest of Canada are at the bottom of the pack (both atminus five per cent), and the only regions showing negative returns on investment as mills are shutting down and production moves to the southern hemisphere," the release said.

Canadian production is less diversified than elsewhere, and the key U.S. housing market, which buysmuch of Canada's lumber, has been severely depressed.

Lumber, pulp prices crashed

Lumber prices in 2008 were at 25-year lows, and have fallen in the first quarter this year. Canadian softwood lumber production fell 21 per cent in 2008, PricewaterhouseCoopers said.

In the B.C. Interior, which accounts for more than 45 per cent ofCanadian lumber, production fell31 per cent.

"But the reduced production has not kept pace with the decline in housing starts," Campbell said.

U.S. builders will start 750,000 houses this year, a step up from the current 500,000, "but a big stretch from the two million of a few years ago or even the pre-crisis one-and-a-half million," he said.

As for the pulp market, ithit a peak in early 2008at $880 US a ton for a standard grade, which now fetches just $690 a ton.

"The economic tsunami that hit last fall washed away hopes of an upswing in the sector," said Campbell.

With the weakness in both lumber and pulp, the Canadian industry reported a combined 2008 loss of $4 billion, compared witha $900 million loss in 2007.

For the global industry, the $8 billion loss in 2008 represented a 157 per cent swing from a $14 billionprofit in 2007.

Weaker loonie a positive

The drop in the Canadian dollar late last year helped Canadian producers, and "was the one bright light," Campbell said. The dollar averaged 98 cents US for the first nine months of 2008, but fell to83 cents in the final quarter.

In the first quarter this year, the loonie slipped another 2.5 per cent, encouraging for theCanadian industry becauseevery cent it dropsgenerates $450 million Cdn more revenue for the industry.