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Forest Products Industry Stable; Expenditures Slow to Return

Manufacturers of Pulp, Paper & Wood products in North America have struggled through another year of declining demand. Every segment of the forest products industry has been impacted in an adverse way, particularly the wood segment, which has perhaps taken the biggest hit from the collapse of the housing and construction markets. Plants that produce lumber, oriented strand board, plywood, and veneer have recently taken extended production downtime or closed indefinitely more than in past years. The pulp market experienced a rapid surge in demand, and although prices quickly shot up, they tumbled even faster. Paper output has been stable for some time as a result of earlier efforts to reduce capacity surpluses and align production closer to demand. Merger and acquisition activity has tapered off sharply compared to previous years. Despite the recent challenges, many are optimistic that the industry is healthy and better-positioned for the long term.

The widespread optimism about the state of the industry has much to do with measures taken before the current recession. Years of consolidation and plant closings have removed surplus capacity and inefficient operations while streamlining cost structures as a result of several large mergers. Improvements to reduce energy consumption are in place, and companies are already benefitting from them. Emphasis on shoring up balance sheets and investor confidence by paying down debt has taken precedence over capital expenditures. Moving forward and barring a deepening of the recession, the elements are in place for the North American Pulp, Paper & Wood Industry to be more competitive than ever before.

The forest products industry has made strides to stabilize what once seemed like an industry plagued by overspending and subpar performance. Capital expenditures are at record lows. Research by Industrial Info has shown a downward trend in expenditures during the past 10 years and into 2010. Current spending activity at plants in the U.S., Canada and Mexico is slightly more than $3.1 billion. The expectation is that spending levels may never return to the scale of previous years, when companies invested in modernizations and large scale projects. Projections for future expenditures will be based on low-dollar, strategic investments that offer shorter returns on dollars invested.