Canada: Economic plans of Abiti & Industry will cut, then run to Brazil

The Canadian forest industry just can’t seem to shake its commodity
mentality. It’s filled with lumber executives who think the next
housing boom will solve everything. Those on the paper side of the
business figure that if they close one more mill they’ll get that
supply-demand balance just right. They never do.

Industry bosses routinely brag to analysts that they don’t do cap ex,
per se. And what forestry companies like to call “research” is in fact
more accurately called “experimental development.” It involves
tweaking products – such as making newsprint pages smaller or lighter
– rather than inventing new ones altogether. For that, you’ve got to
head to the Nordic countries where industry leaders Stora Enso and
UPM-Kymmene are light years ahead of us in developing “intelligent
packaging” and biofuels.

Forestry executives here say they’re victims of a kind of “merger
chill” that prevents a necessary industry consolidation. Funny. The
competition cops didn’t stop AbitibiBowater from gaining control of
almost half of the North American newsprint market. A few of those
paying 30 per cent more for newsprint now than they were a year ago
probably think they should have. Mergers, inasmuch as they allow
rationalization, can improve competitiveness. But Abitibi’s past
marriages have also left it with a $6-billion (U.S.) debt load. Rather
than using mergers as a springboard for growth, Abitibi has used them
to slash capacity. Stora Enso and UPM – each the product of a
mega-merger – have used their heft to go global. For starters, they
have invested billions in new pulp mills in South America that are
three times bigger than any in Canada. The ability to spread fixed
costs over so much capacity is an unbeatable advantage.

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