Business

Winnipeg Free Press - PRINT EDITION

Prices pit paper mills against customers

Both dealing with dwindling profits

By: Staff Writer

Posted: 01/29/2010 1:00 AM | Comments: 0 (including replies)

Paul Chiasson / the canadian press Tembec�s James Lopez: �a fierce battle�

MONTREAL -- Forestry company Tembec Inc. (TSX:TMB) says a war over prices is shaping up between newsprint producers and its customers as each looks to improve their bottom lines.

"It's going to be a fierce battle that's going to rage between consumers and producers of newsprint," CEO James Lopez told shareholders Thursday at the company's annual meeting.

Dwindling demand has forced newsprint prices to plummet to between US$500 and $525 per tonne, well below the line of profitability. But newspaper publishers are attempting to keep a lid on hikes because they also want to increase their own profits in the face of falling readership and advertising revenues.

In addition to pressures caused by the economic downturn, the newsprint industry is facing a structural problem resulting from the growing use of digital media.

Demand fell by 25 per cent earlier this year, but was down 15 per cent as of December.

"We've lost demand in newsprint that's never going to come back, regardless what happens with the economy," Lopez said during a news conference after posting its results from the last quarter of 2009.

Tembec lost $9 million or nine cents per share for the three months ended Dec. 26. That's an improvement from the loss of $60 million or 60 cents per share in the comparable period of 2008.

However, Tembec's overall sales were down 19 per cent, falling to $412 million from $511 million in the fourth quarter of 2008.

The Quebec-based producer said more capacity cuts are required by the industry to balance supply with soft demand.

Newsprint accounted for about 19 per cent of Tembec's sales during the last quarter.

It plans to sell or permanently shutter its Pine Falls mill in Manitoba after workers rejected what even the company described as "draconian" concessions designed to reposition the mill to compete.

While Tembec has no immediate plans to get out of the newspaper business, it would consider any attractive offer for its remaining facility in Kapuskasing.

"Exiting it altogether is a matter of the right conditions," Lopez told reporters, adding the company is happy with the Ontario mill and its integration with the area's sawmills.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition January 29, 2010 B14

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