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Global forest, paper and packing industry update

Mixed prices and demand for commodities, as well as currency volatility continues to affect the performance of the global forest, paper and packaging industry. Source: Lesprom

However, the building product sector fundamentals remain optimistic, with steadily improving US housing starts up 6% in the fourth quarter of 2015 compared with the annualized starts in December 2014.

“What we saw in 2015 is the markets starting to stabilize. If we look ahead, the US housing market continues to improve, which has resulted in stronger lumber prices in the first quarter of 2016,” said Kevin Bromley, Partner and PwC Canadian Forest, Paper and Packaging Leader.

“Pulp and paper have remained stable in the first quarter of 2016, although significant new global production is coming online later in the year.

“We are keeping a close eye on the softwood lumber negotiations between US and Canada. This could have a significant impact on the Canadian forest industry.”

With significant deals being made in 2015, M&A activity finished on a strong note, with the fourth quarter bringing in 39 deals with a value of US$14.8 billion.

Overall, M&A deal activity was up in 2015 compared to 2014, with 143 announced deals compared to 125 in 2014; the overall value of M&A activity was also significantly higher, with a value of US$31.9 billion in 2015 up from US$9.4 billion in 2014.

Despite economic uncertainty, this indicates that the market is stabilizing and key players are forging deals to gain a competitive advantage.

“The increase in deal making shows that companies are now in a position to maximize profitability given that economic conditions in the industry have become more stable,” said Jason Boyer, a Partner in PwC’s Deals practice.

“We saw two significantly large deals go forward in 2015, which is an indication that the major industry players are choosing to consolidate their value chain in the sector.”

The PwC Q1 2016 FPP Deals Insights saw a decrease in deal volume and total deal value relative to the fourth quarter (Q4) of 2015.

A total of 22 M&A deals were announced during Q1 2016 with a total value of US$2.5 billion.

Boyer added: “Despite the first quarter being down, over the last year deal making in Asian markets seems to have picked up, particularly in the first quarter of 2016. We see this trend of players in Asia being more active not just in North America, but globally.”

Senior forest and paper company executives, customers, suppliers, industry analysts and government policy makers are currently meeting at the 29th Annual PwC Global Forest, Paper & Packaging Industry Conference being held in Vancouver, British Columbia.