AbitibiBowater sees stronger end to 2008

NEW YORK (Reuters) - AbitibiBowater Inc ABH.N ABH.TO expects higher newsprint prices, growth in newsprint exports and a weakening Canadian dollar to improve results over the next few months, Chief Executive David Paterson said on Wednesday.

"Clearly, we'd expect the second half of 2008 to be better than the first half and certainly much better than the end of 2007," Paterson said in a telephone interview as part of the Reuters Paper Summit.

AbitibiBowater, the largest North American newsprint maker, has already pushed through a series of newsprint price increases this year.

Newsprint prices at $720 per tonne are at a 12-year high. The company plans to raise prices by $20 per month for the rest of the year, a move that would take newsprint prices to $820 per tonne.

Paterson said the company is facing resistance to price increases in North America and it is seeing an acceleration in demand declines due to its pricing actions.

North American newsprint demand fell more than 8 percent in the first half of 2008 and newsprint consumption at U.S. daily newspapers is down about 13 percent.

"Emerging markets are critical, particularly in newsprint, as we have the highest newsprint growth rates in Asia, the Middle East and South America," said Paterson.

The company currently exports about 40 percent of its newsprint production overseas and it expects half its production to be headed outside North America by the end of this year, or early next year.

Newsprint demand in India, China and Brazil is growing at a rapid pace, said Paterson, especially since computers and the Internet have not penetrated those markets to the extent that they have in developed countries.

However, Paterson noted that freight costs and availability of cargo space on ships have crimped the pace of export growth.

"No one likes what's happened to freight costs, but we can deal with that. It's really the vessel availability that's constraining (exports)," said Paterson.

The company anticipates that vessel availability will increase in the second half of 2008, as global commodity demand declines slightly, he said.

ASSET SALES

The company, which was formed in 2007 after a merger of Abitibi Consolidated and Bowater, has been exploring the sale of non-core assets, mainly with a view to use the proceeds toward reducing its debt.

The company has about 20,000 acres of land that remain to be sold in the United States. It expects this sale to be complete by the end of the year, with valuations in-line with prior transactions at about $814 an acre.

Paterson said the company would consider a bulk sale of the 1.5 million acres of land it owns in Canada, if it receives a good value. If this does not occur the land sales in Canada could be a multiyear process with land valuations on average between $200 and $300 an acre.

The company also hopes to sell its paper mill in Mokpo, South Korea, within a year and it is in dialogue with interested parties, said Paterson.

Norwegian papermaker Norske Skog (NSG.OL) recently sold a mill in South Korea for a valuation of about $820 per tonne of annual capacity.

Paterson said he expects the mill to fetch a similar valuation, which would imply a value of about $208 million for the mill.

The company is also faced with over $600 million in debt maturing in 2009. Paterson said the company hopes to refinance these by the end of this year.

"Let's not try to cover it up, we are still not in a very strong financial position ... So we need to sell assets, we need to maintain and we need to get back to positive earnings from operations," he said.

(For more on the Reuters Paper Summit see ID:nLK340748)

(Editing by John Wallace, Gerald E. McCormick, Phil Berlowitz)