Increasing housing starts and higher consumer spending will drive anticipated operating income growth for the global paper and forest products industry of 1%-3% in 2016, underpinning the current stable outlook for the sector for the next 12 months, says Moody’s Investors Service in a report published today. However, the outlook for the Printing and Writing Paper segment is negative as digital alternatives continue to curb paper demand.
“Our outlook for the global paper and forest products sector over the next year remains within our stable range as increasing home construction and economic growth drive wood product, packaging and market pulp earnings growth in the low single digits in 2016,” says Ed Sustar, a Moody’s Vice President — Senior Credit Officer and author of the report.
The outlook for the Paper Packaging and Tissue segment will be stable with operating earnings forecast to grow by 0%-4% on the back of increased (1) packaging demand, driven by modest economic uptick and stable food consumption; and (2) tissue demand, driven by population growth and improving hygiene standards.
Expected improvements to US housing starts will likely prop up end-market demand for timber, lumber, oriented strand board and engineered wood products in 2016, which will in turn support the stable outlook for the Wood Products/Timberland segment. However, lower Chinese infrastructure spending is pressuring North American log and lumber exports. Operating earnings in this sector are expected to grow by between 0%-4% in 2016.
Operating earnings growth for 2016 in the 1%-3% range will support the Market Pulp segment’s stable outlook. Prices across most grades (hardwood, softwood, dissolving pulp) will remain flat or decrease as capacity increases outpace demand. As additional pulp capacity comes on-line, inventory management across the fragmented global pulp industry will remain critical to balancing supply and demand.