The wood products industries on either side of the Atlantic told two very different stories in the past year according to Clive Suckling, UK leader of PricewaterhouseCoopers (PWC) Global Forest, Paper & Packaging industry practice.

While some companies in North America and Canada produced “startlingly good results”, their counterparts in Europe were simply “treading water” and Mr Suckling said their problems will not be resolved without consolidation.

According to the PWC’s eighth global forest and paper industry survey, there were signs of a slight improvement in 2004 – but the industry still fell short of financial performance targets.The survey, which summarises the performance of the world’s top 100 forest and paper companies, found that while total global industry sales were up by 11.8% in 2004 to US$340bn from US$304bn in 2003, return on capital employed (ROCE) saw only modest growth.

The top performing companies in 2004, as measured by ROCE, were Canadian producers of wood products, buoyed by strongly rising sales prices in the face of strong US housing demand while, as a region, Latin America led the way with a return of 10.2%.

Mr Suckling said that global forest and paper industry earnings are returning to levels seen five years ago, but overcapacity and fragmentation of production still limit performance. He warned: “New, efficient production facilities are coming on stream in the southern hemisphere and higher-cost producers will be challenged to stay competitive.”

While North American and Canadian wood products companies performed extremely well last year, Mr Suckling described the situation in Europe as “sad”.
Calling for consolidation he said: “You are still talking about hundreds of producers all over the place. A lot of smaller mills have closed down, so the average size is bigger than it used to be, but if you compare them to Canadian mills there is a massive gap. Until you get consolidation you won’t get price discipline

.”In Canada and North America we are probably seeing the benefits of a shake up on the wood products side. Companies like Georgia Pacific had a great year for lumber and plywood. Three to four years ago it had a broad spread of business and owned lots of timberland. It has divested this, along with its paper and pulp business, and bought heavily into hygiene and timber products. This is just the sort of thing International Paper and Weyerhaeuser want to do – focus on fewer products.”

&#8220However much noise industry associations make, we cannot express in strong enough terms how evil illegal logging is”

FSC sets the standard

Talking about chain of custody sustainability, Mr Suckling believes the Forest Stewardship Council sets the highest standard.

He said: “I am told there are 39 different standards of forest certification alone and then there are the different chain of custody standards. If you put them all side by side, the core is basically the same, but they differ around areas such as social issues and respect for native rights. Differences, whether real or perceived, are creating real problems.
“In Europe, the recent developments in chain of custody have come from the supplier side but that has not been mirrored in North America where recent moves have come from buyers.”Office Depot asked PWC to help develop something to meet requirements and that involved us doing a comparison between some of the main chain of custody standards. The result has worked at one of Norske Canada’s mills in Canada and is now being used by two other major Canadian producers and being trialled by one of the top three US producers. It is gaining a certain traction and in each Case it has come about as a result of pressure from major customers. Now we are seeing the first signs of that pressure in Europe.”

Mr Suckling said the industry has got to get to grips with certification, illegal logging and Russia. “However much noise industry associations make, we cannot express in strong enough terms how evil illegal logging is. There are plenty of pressure groups around who have got it in for the industry and will exploit every example, and until the industry gets to grips with this they have a reputational and product problem. However much they say wood is good, there will still be plenty of counter arguments and it is a shame because wood is good.”

PWC also sees carbon credits as a big issue. Mr Suckling said: “Forests are the ultimate carbon sink and companies in developed countries can get additional credits if they undertake projects such as planting forests.”Forests are the best, natural way of dealing with greenhouse gases,” he added. “China will feature very strongly here because it is very short of native forest resources – now it is vigorously trying to plant and that could have a tremendous impact.”

But he said the biggest problem the industry faces is fragmentation. “It has got to pull together and police itself and demonstrate it is doing more. It has got to communicate the good things it is doing and the benefits of its products and somehow it has to do that more effectively than it is at the moment – and that includes all the stakeholders.
“We are living on a planet where most of the resources we are using are physically constrained, but wood is not and there should be a fantastic sustainability story here.”