August 3, 2010

Forestry recovery faces challenges: Dominion Bond Rating Service

OTTAWA

A bond ratings agency has cast doubt over the sustainability of the better-than-expected recovery in Canada’s forest products industry.

The Dominion Bond Rating Service said in a report that while forest products companies have performed above expectations recently, the uptick in price and demand for the products is likely temporary.

As a result, there is a higher chance that forest products companies could face negative rating actions in the coming months, it added.

In the report, DBRS said prices have soared as of late, due in part to floor-low inventories and other factors, but all of that could change as prices begin to come off their recent high levels.

On the upside, it said the worst is over for forestry companies, which were perhaps the most battered industry during the 2008-2009 economic downturn.

However, DBRS said the recent upswing is not sustainable at its current levels, with the U.S. economic recovery sputtering and home construction still stalled.

In the meantime, the near term still looks favourable for the sector despite even with the expected softening of prices, the agency said.

But it added that the brief run of positive operating performances will likely not be strong enough to restore the weakened financial profile of most companies that came under stress during the recession.

Canadian Press

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