August 10, 2011 / 6:28 PM / in 6 years

WRAPUP 1-AbitibiBowater, Cascades to hike prices to offset rising costs

* AbitibiBowater Q2 adj EPS $0.71 vs est $0.24

* Cascades Q2 adj loss/shr C$0.06 vs est EPS C$0.01

* Demand for pulp in China has begun to soften - AbitibiBowater

* Cos expect higher product prices to minimise rise in raw materials costs

By Gowri Jayakumar

BANGALORE, Aug 10 (Reuters) - North American paper companies plan to raise product prices to counter the impact of rising costs of key raw materials such as recycled fibre and energy amid weakening Chinese demand.

Montreal-based AbitibiBowater , North America’s largest newsprint producer, said average selling price for coated papers rose $28 per short ton in the second quarter, while prices for specialty papers increased $26 per short ton.

More price increases would be implemented in the third quarter which will likely reflect in some of the company’s contracts, AbitibiBowater’s Chief Executive Richard Garneau said on a conference call.

Cascades Inc , a Canadian packaging and paper products company, posted a 23 percent rise in second-quarter revenue at C$991 million helped by higher selling prices.

“We should benefit from the current and future implementation of selling price increases in our tissue paper, specialty products and North American boxboard segments,” Cascades said in a statement.

Both companies expect input costs to stay high for the rest of the year.

“Even though we continue to see inflation pressures on the cost side and much uncertainty in the economy, we do expect to see improvement in our profitability in the second half of the year,” CEO Garneau said.

AbitibiBowater, which emerged from bankruptcy protection in December, posted second-quarter results that topped market estimates on Wednesday helped by higher pulp and paper products prices.

Cascades, which posted a surprise second-quarter adjusted loss, produces, converts and markets packaging and tissue products that are composed mainly of recycled fibres.

The company said its containerboard and tissue paper operations were hurt by higher raw materials costs.

CHINESE SHADOW

AbitibiBowater, however, said demand for pulp in China had begun to soften in the third quarter, and expects pulp prices to weaken before picking up again later this year.

“China’s got inflation that’s a little bit ahead of what the government would like to see. So they’re tightening credit conditions to slow it down...so buyers can’t buy in the same volumes,” said Paul Quinn, an analyst with RBC Capital Markets.

Last month, paper and pulp producer Domtar Corp said demand for fluff pulp -- used mainly for diapers and other personal hygiene products -- had started to weaken in China, which is among the major consumers of pulp.

Shares of AbitibiBowater, which had risen 9 percent to touch a high of C$16.79 in morning trade on Wednesday on the Toronto Stock Exchange, shed its gains to trade up 2 percent at C$15.75 in late afternoon trade. Cascade shares, which opened up 5 percent, were flat by afternoon to trade at C$5.26 on TSX. (Reporting by Gowri Jayakumar in Bangalore; Editing by Sriraj Kalluvila)

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