PREVIEW-Nordic forestries' second quarter seen weak
HELSINKI, July 21 (Reuters) - The price outlook for paper, as well as signs of softening demand and wood sourcing difficulties will be the key features of Nordic forestry companies' second-quarter results, analysts said on Monday.
Nordic paper makers have struggled in the second quarter, as stagnating paper prices and higher costs eat into their already low margins, but analysts say the reported figures are not the main focus this time.
"With numerous profit warnings, figures are less interesting," said Pohjola Bank analyst Henri Parkkinen.
"Paper volumes are interesting as there are signs of softening economy -- estimates of how this might affect volumes later, and whether they plan curbing production due to demand, will be interesting to see."
Nordea analyst Harri Taittonen said he will also be looking closely at engineering companies' order books to gauge the economic outlook and to get hints of future paper demand.
Analysts said they would be closely looking at how well the paper firms have been able to push through planned price hikes.
Pohjola's Parkkinen said magazine paper prices could rise, while for newsprint and fine paper, used for art books and glossy advertising, prices could stay steady or decline.
"Magazine paper markets in Europe are in good condition, and I have some hope that prices of magazine paper might go up twice this year. Other paper grades are more difficult, especially newsprint is struggling," he said.
WOOD DUTIES
Russian wood duties and slow timber trade in Finland spell more trouble for the forestries.
"Main interest will be in how the forestries notify the problems, what they have done and what they are planning," Taittonen said. "Wood duties are of course in other people's hands, but I expect some indication that they are not waiting until January."
About 15 percent of wood used by Finnish paper and pulp mills is imported from Russia and Sweden also imports considerable amounts of Russian timber. Russia has announced plans to hike wood duties from 15 to 50 euros per cubic metre from January 2009, which would more than double the cost of lumber.
The top paper and board maker Stora Enso (STERV.HE) is the most likely company to cut capacity due to Russian duties as its pulp mills are the most dependent on Russian wood.
"I think especially Stora Enso might announce something concrete on a larger scale ... the company has said it wants to act pre-emptively," Parkkinen said.
Papermakers have not been able to substitute Russian wood from domestic sources, as wood sourcing has been slow this year.
"I'd like to know more about how much wood the companies are getting from Finland and how they plan to move forward," eQ Bank analyst Katja Keitaanniemi said.
Comments on cost increases due to rising energy prices are also eagerly sought.
"Transportation and energy costs have risen, and firms have had to up their cost inflation estimates," Taittonen said.
WAITING FOR CONSOLIDATION
Struggling forestry group M-real (MRLBV.HE) might also say more about its plans to sell its paper unit, analysts said.
"M-real's situation is so bad that they should tell how negotiations for selling the paper unit are going or at least give some additional information on that," Keitaanniemi said.
M-real has said it sees cartons as the core of the business, indicating it could sell its fine paper unit.
Norske Skog's (NSG.OL) struggles will continue as new newsprint capacity comes online and papermaking business is not expected to improve much next year either, Keitaanniemi said.
Swedish tissue paper maker SCA (SCAb.ST) is seen as being able to perform better than its Nordic peers, mainly due to a different product mix and its greater self-reliance on wood.
"SCA has a different product mix, with an important hygiene product unit, and surely it will continue to make better profits than the big Finnish papermakers," Keitaanniemi said.
But there are worries over SCA's tissue unit performance after rival Kimberly-Clark cut full-year forecast on higher-than-expected costs.
Stora Enso warned last month its second-quarter profit would halve from a year ago and UPM-Kymmene (UPM1V.HE) said its full-year result, excluding non-recurring items, would fall from last year.
M-real said earlier this month its comparable 2008 operating profit would fall year-on-year.
M-real will report its first-quarter results on Wednesday, July 23, Stora Enso, UPM-Kymmene and SCA on Thursday. Norske Skog will present its second-quarter earnings on Aug. 5 and Holmen (HOLMb.ST) on Aug. 13.
For UPM earnings poll, click on [ID:nL21870680]
For Stora Enso earnings poll, click on [ID:nL18684751]
For SCA earnings poll, click on [ID:nL18568002]
For M-real earnings poll, click on [ID:nL21875735] (Additional reporting by Anna Ringstrom in Stockholm; editing by Tony Austin)
