Fitch Ratings, the US forest products debt rating agency, has raised question marks over the prospects for a dramatic recovery in the fortunes of Weyerehaeuser in particular and the North American timber and forest sector in general.
The company is giving Weyerhaeuser a poor BB+ unsecured debt rating, an expression of doubt over its ability to reduce the US$13bn debt it accumulated with its acquisition of Willamette Industries last year. Fitch said that poor market conditions generally would make it difficult for Weyerhaeuser to cut its borrowings, with current low prices for softwood lumber, pulp and office paper unlikely to improve strongly soon.
Fitch also pointed out that Weyerhaeuser’s strong presence in Canada (where about a third of its business is based) also made life difficult. Because of the still unresolved lumber dispute with the US, Canada’s softwood exports to the country are still subject to heavy duty and this is costing Weyerhaeuser an estimated US$25m a quarter.
The strength of the US dollar, said Fitch, is also hitting the company’s profits.
