By Adam Cox and Anna Ringstrom
STOCKHOLM/HELSINKI (Reuters) - Time is running out for Russia and the European Union to settle a row over timber duties and this could hit the credit ratings of several Nordic paper firms, a Standard & Poor's analyst said on Wednesday.
S&P forestry analyst Andreas Zsiga told the Reuters Paper Summit that the agency's current ratings on the Nordic paper firms assumed that a compromise would be reached.
Any failure to solve the dispute could affect ratings in the sector, particularly for UPM-Kymmene (UPM1V.HE: Quote, Profile, Research, Stock Buzz), Stora Enso (STERV.HE: Quote, Profile, Research, Stock Buzz) and M-Real (MRLBV.HE: Quote, Profile, Research, Stock Buzz), he said.
"Obviously time is running and there hasn't been any compromise negotiated or presented yet," Zsiga told the summit. "And at some point that means that we have to change that assumption and that can have ratings implications for UPM, Stora, M-Real."
The Finnish firms are most exposed to the duties as they use Russian timber at their mills in Finland.
Russia has imposed export duties on raw timber to promote the country's own wood processing industry, a move which has sparked outrage by Finland and Sweden and led to threats by Helsinki of tit-for-tat measures.
Duties rose by 50 percent to 15 euros per cubic meter in April and are due to reach 50 euros by 2009, roughly doubling the cost of wood.
For the paper industry, the Russia row is just one of several problems, including a poor economic environment and overcapacity.
Zsiga said a failure to reach a compromise on duties would not automatically lead to rating downgrades.
"We have to consider what the companies are launching in terms of restructuring initiatives and how the wood market in the Baltic sea region reacts to those changes, and also how the wood market specifically in Finland reacts to the initiatives that the Finnish government has implemented," he said.
"That means we'll give the companies some leeway but the tolerance isn't indefinite. It's something that will be resolved during this fall (Autumn). Sometime mid-fall we'll have to make a stance on that issue."
Finnish tax cuts on timber sales have boosted Finnish forestry market, Stora Enso Chief Executive Jouko Karvinen told the summit. nLK161364
DOWNWARD TRAJECTORY
Nordic paper firms' credit ratings are already on a downward trend, the S&P analyst said.
"We've been forced to gradually change our expectations downwards for various reasons. If you look at the outlook distribution it's mainly negative. That doesn't mean that the ratings will be downgraded, but it indicates that there's risk," he said. Continued...
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