The global forest and paper industry showed signs of a slight improvement in 2004, according to a new report released today by PricewaterhouseCoopers.

Return on capital employed (ROCE), a key measure of performance in this capital-intensive industry, edged up to an average of 5.5% in 2004 from 4.2% in 2003, but still far from the target of 10-12%.

However, PwC notes that three Canadian lumber producers did far better than the target and held the top spots in the global industry in terms of ROCE: Ainsworth Lumber with 28.2%, followed by Norbord with 23.2%, and Canfor at 16.2%.

“British Columbia-based lumber producers finished at the top of the global pack in terms of ROCE,” says Craig Campbell, leader of PwC’s performance improvement practice for the global forest and paper industry. “The B.C. industry has invested over US$1 billion upgrading and expanding facilities and has relentlessly focused on cost reduction and improving efficiencies. The U.S. softwood lumber dispute has been driving cost reductions and industry consolidation.”

PwC’s 2005 Global Forest and Paper Industry Survey summarizes the 2004 year-over-year financial information of the 100 largest forest and paper companies in the world with publicly available data.

Canadian producers had a profitable year in 2004, mostly attributable to strong demand for construction-grade lumber driven by record U.S. housing starts. The 12 Canadian-based producers surveyed posted total revenues of US$24.5 billion in 2004, an increase of 34.4% over US$18.2 billion in 2003. Net income more than tripled to US$820 billion from the previous year’s number of US$246 billion.

U.S. forest products producers in the enjoyed an increase in sales revenues of 7.3%, up to US$135 billion in 2004 from US$125 billion the previous year. ROCE for these companies averaged 6.4%, up from 4.3% in 2003.

Total global industry sales in U.S. dollar terms were up by 11.8% in 2004 to US$340 billion from US$304 billion in 2003. The Latin America region, where the pace of new investment is almost double the rate of capital depreciation, holds the top regional ROCE spot at 10.2%. All forest and paper products producing regions of the world were faced with rising energy and material costs and felt mixed effects from the weaker U.S. dollar. Cash flow generated from operations was up across the industry by 25.2% to US$36 billion from US$29 billion in 2003.

“The earnings in the global forest and paper industry are slowly coming back to the levels seen five years ago, but overcapacity and production fragmentation are still limiting financial performance,” says Campbell. “New, more efficient production facilities are coming on stream in the Southern hemisphere and higher-cost producers will be challenged to stay competitive.”