After several challenging years, the world’s forest products sector is beginning to show signs of recovery, according to the forestry feature in PwC’s recent 16th Annual CEO Survey.
“We are seeing optimism that demand and prices will continue to strengthen in the solid wood sector, but recovery in the pulp and paper sector will likely lag,” said Mike Vermette , partner inPwC’s Deals practice. “Assuming that the rise in US housing continues over the medium term and China’s economy continues to grow as predicted, the stage is being set for a potentially strong market for softwood lumber.”
Vermette adds, “However, CEOs are still watchful of economic volatility, energy costs, access to raw materials, and a shortage of skilled labour, which if not carefully managed, may limit growth once the sector kicks into high gear.”
Forest products CEOs are targeting pockets of opportunity and non-traditional business models as a way to control costs, manage risks, and develop new markets. PwC found 50% of CEOs surveyed entered into a new strategic alliance or joint venture last year, some of which were entries into new business areas or with organizations along the supply chain.
One example of a strategic alliance includes four leading British Columbia based forest products companies teaming to charter a cargo ship to move their products to the developing Chinese market. This collaboration allowed these companies to decrease logistic uncertainty and risk which has plagued exporting goods to Asia in recent years.
Deal making was on the minds of forest products CEOs last year and they continue to put a greater emphasis on deals in 2013 – more than CEOs of other industries. Strategic alliances and joint ventures top the list, and some exits and M&As are being considered, according to the PwC CEO Survey.
“Companies with strong balance sheets today are likely to be in a position to maximize profitability once the market uptick is in full swing,” said Vermette. “There’s a potential for financially stronger companies to take advantage of opportunities to pick up assets of less profitable producers or find partners to make further inroads into markets where the demand potential is high.”