Declining demand and volatile input costs have led Moody's Investors Service to an overall negative view of the creditworthiness of global paper and forest products companies, one of the ratings agency's analysts said Monday.
Ed Sustar, a vice president and senior analyst for Moody's, said paper demand is declining amid an economic slowdown in Japan, North America and Europe along with the migration to electronic media from paper.
Further, pricing power appears increasingly limited.
"After several years of escalating prices, the global pulp market appears to have softened as demand has slowed in many markets," he said in a note. "The availability and cost of fiber continues to shift production capacity to regions that can supply and process it at the lowest cost."
Since March about 75 percent of Moody's global rating actions in the sector have been negative, constituting either outright downgrades or negative outlook changes, Sustar said.
"Most of the negative rating actions occurred in the printing and writing segment and were primarily driven by anticipated weakened credit metrics due to continued cost inflation and reduced demand," the analyst said.
Companies are preserving liquidity by scaling back capital expenditure plans and some, like Louisiana-Pacific Corp., recently eliminated their dividends, Sustar said.
"We don't anticipate a return to stronger operating performance until the housing market improves, which may well take several years."
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