March 24, 2009 / 11:48 AM / in 9 years

UPDATE 2-Tembec to curtail newsprint, lumber operations

* 510 employees affected

* Will lower newsprint production by 20,000 tonnes

* Will lower lumber production by 8 million board feet (Adds background, analyst, executive comments)

TORONTO, March 24 (Reuters) - Tembec TMB.TO is temporarily shutting down sawmill, newsprint and forestry operations in the Kapuskasing region in Ontario, which will affect about 510 employees, the company said.

The move stemmed from challenging market conditions for lumber and newsprint, Tembec said in a statement late on Monday. The company employs about 6,600 people.

A slowdown in the U.S. housing sector has hit lumber demand in North America, while the spread of Internet access and the decline in advertising revenue has forced newspapers to cut back on newsprint.

Tembec expects the shutdowns to result in lost production of 20,000 tonnes of newsprint and 8 million board feet of lumber.

Last month, Tembec said it would idle several Canadian facilities, affecting about 1,400 employees. It also announced plans to cut about 100 jobs and implement a salary freeze in a bid to conserve capital.

“The curtailments announced today are a direct reflection of the challenging market conditions facing both lumber and newsprint and the related need to manage inventory levels and working capital,” Terry Skiffington, a vice president in Tembec’s paper group, said in Monday’s statement.

U.S. newsprint consumption fell 29.1 percent in February for the 60th consecutive month in the steepest year-over-year decline on record, according to the latest data published by the Pulp & Paper Products Council.

This has led to an inventory buildup at mills and at the publisher level, while accelerating the pace of price declines in the sector, TD Newcrest analyst Sean Steuart said in a note to clients.

The published March North American newsprint price of $705 per tonne has declined 9 percent from its peak last November.

Steuart said the industry would require aggressive capacity curtailments to stem the rate of newsprint price declines.

Shares of Temiscaming, Quebec-based Tembec and its peers have collapsed on speculation that a growing number of companies in the sector will have to seek bankruptcy protection because of their heavy debt loads, as well as slumping demand and tight credit markets.

Tembec shares closed at 86 Canadian cents on Monday on the Toronto Stock Exchange. (Reporting by Euan Rocha; Editing by Lisa Von Ahn)

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