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Excess global capacity and sluggish demand have created earnings pressure for the paper and forest products industry in mid-1998, and the stronger dollar has allowed cheaper paper to be imported into the US. Lower paper and lumber prices are among the reasons the industry needs to consolidate, but newsprint prices are firm as of Sep 1998. These stocks are expected to lag the market in 1998 and 1999.

Prices for newsprint posted gains for most of 1997, but prices for other paper grades were depressed by the economic turmoil in Asia, and the prices for export logs and lumber have been hit hard as well. Work stoppages and consolidation are two factors which will have impacts on the paper and forest products industries, as well. Investors need to consider risks before committing funds as these stocks are susceptible to downturns.

Prices for most grades of paper remain depressed in 1998 due to increased capacity in most markets, but the price for newsprint gained for most of 1997. Increased wood supplies in 1997 also offset the strong demand for the product. Expiring labor contracts in the Canadian newsprint industry and paper industry consolidation will also have effects. These stocks are not timely for 1998 and investors should look to other industries.

Strong gains were made for newsprint prices in 1997 after hitting $500-a-ton in 1997, but capacity increases in foreign and domestic markets have made it likely for prices of other grades to remain low. Supplies of wood products have remained high, not offsetting the demand from construction, and several paper companies are consolidating. Risks inherent in the industry must be considered by investors before making commitments.

Production of paper and paperboard fell 4% and 5% respectively in May 1996, due to high customer inventories and eroding prices in the spring of 1996. Even though markets for some individual products remain chaotic, prices in other market sectors may stabilize in the second half of 1996. Lumber prices were also volatile in the 2nd qtr of 1996, ending with an 11% gain. Most investors should not seek stocks in this industry in 1996.

Prices are declining in the paper, pulp, paper and paperboard industries as manufacturers attempt to maintain market share. Capacity for both paper and paperboard is expected to increase by 2.5% per year through 1998, with paperboard rising the greatest. Earnings will increase for lumber companies with fewer Canadian imports. Investors must be cautious when selecting these stocks, although the industry is timely in 1996.

The pulp and paper industries are in recovery, and pulp manufacturers are attempting to increase prices for the ninth time since 1993. Abundance of supply over demand may have an effect, however, and paper production is not keeping pace with paperboard. Most lumber prices are above their three-year lows, and panel products are strong. Earnings will peak in the next year for this industry and investors should focus on coated papers and newsprint.

Stocks in the paper industry have outperformed the market since June 1995. The balance between demand and supply of most paper grades is favorable and prices are expected to rise 5% in Oct 1995. Kraft board, boxboard and linerboard prices rose 30%-50% over 1994 prices, and lumber and other wood product prices also increased in June 1995. Stocks with favorable pricing forecasts are recommended for investment.