Friday, August 12, 2011

Building material, forest and packaging sectors in Asia-Pacific to face uneven conditions ' ...

KUALA LUMPUR: Business conditions for the building materials, PLANTATION []s and forest products, and paper and packaging industries in the Asia-Pacific region is expected to be uneven over the next 12 months as economic performance becomes more disparate, said Standard & Poor's Ratings Services.

In a report titled "Building Materials, Forest, And Packaging Sectors In Asia-Pacific Are Likely To Face Uneven Conditions" released Aug 12, S&P said ''companies with high exposure to the rapidly growing economies of China, India, and Southeast Asia should continue to generate healthy revenue growth, but these companies will be most exposed if demand softens.

On the other hand, sluggish economic growth or weakening property sentiment in Japan, Korea, and Australia is already limiting the performance of rated companies in these markets and we believe this trend may continue over the next 12 months, it said.

S&P's credit analyst Suzanne Smith said an emerging risk for the industry in Asia-Pacific was the rising cost of raw material, energy and personnel expenses.

"We believe the companies in the cement, glass, palm oil refining, paper and packaging sub-sectors will be most sensitive to this risk,' she said.

These companies are likely to face margin erosion over the next 12 months as price hikes become more difficult to implement due to increasing competition after rapid capacity expansion, she said.

"We also expect Australia's proposed carbon tax will adversely affect the building materials sector there but we do not believe it will materially affect the ratings on any of the companies we rate in this sector at this stage," she said.

Smith said rising costs, especially for wages and fertiliser, had not significantly affected companies in the forest and plantation sector in Asia-Pacific as higher production and market prices partly offset the cost increases.

'In China, we expect some industry players in plantations and forest products will struggle to recover from allegations of accounting irregularities and uncertainties on business sustainability despite a continuation of shortage of domestic wood fiber and timber supplies.

'Companies across the sub-sectors will continue to add capacity this year and next to take advantage of growth prospects in the local markets and strengthen their competitive position,' said Smith.



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