Nov. 14, 2006 - The struggling pulp and paper sector lost a record $1.4 billion in 2005 and will lose money again in 2006, according to the report Canadian Industrial Outlook: Canada's Paper Products Industry-Autumn 2006 published by The Conference Board of Canada.

"The industry is dealing with a string of mill closures, a strong Canadian dollar and competition from new countries that are entering the global market," said Michael Burt, Senior Economist. "Although profits are expected to recover beginning in 2007, this industry will remain very fragile in the short term."

The paper products industry is highly sensitive to macroeconomic factors such as the value of the dollar, and is still in the midst of restructuring. The good news in 2006 is that prices are forecast to grow by 12.3 per cent. Production levels, which have been in decline since 2004, are expected to recover in the second half of 2006, although these gains will not be enough to prevent the industry from losing about $206 million for the year as a whole.

In 2007, rising production is expected to bolster a return to profitability of about $861 million.

Highlights from the report include:

• A sustained gain in prices for most paper and paperboard grades will help to reduce losses in 2006.
  
• Rising demand for pulp in China has led to higher prices for both pulp and waste paper.
  
• The share of newsprint production in Canada’s paper products sector is expected to continue its slow decline over the coming years.
  
• Feeble demand growth from office users has mitigated growth in the uncoated wood-free paper segment.
  
• The outlook for growth in printing and writing paper consumption is better than it is for newsprint.
  
• The growth in online sales has benefited boxboard producers.
  
• Low capital costs will result from the scaling back and closing of less productive plants.
  
• Industry restructuring will allow profits to improve moderately.
  

The Conference Board's final report of The Canada Project, Mission Possible, Sustainable Prosperity for Canada, will include a chapter on Canada's resource sector when it is published in early 2007. The volume, Mission Possible: A Canadian Resources Strategy for the Boom and Beyond, will discuss the challenges facing Canada's pulp and paper industry and make recommendations to revitalize it.

SOURCE: The Conference Board of Canada