Moody's cuts Norske Skog, Sappi outlooks to negative

Moody's Investors Service said it changed the outlooks on Norske Skogindustrier ASA (Ba1), Sappi Ltd. (Ba1), Stora Enso Oyj (Baa3) and UPM-Kymmene (Baa2) and their rated subsidiaries to negative from stable.

"European manufacturers remain exposed to a precarious industry environment hampered by overcapacities and subsequent pressure on prices," Martin Kohlhase, Moody's lead analyst for the paper and forest products industry in the Europe, Middle East and Africa region, said in an agency rating.

"Against earlier expectations of a more broad-based and sizable price recovery, which is key to strengthened credit profiles that have weakened since 2001, recent price data on most paper grades suggests that marginal demand growth and capacity reductions have so far failed to have the required sufficiently positive impact on prices and therefore on the companies' performance.

"Although we have seen some improvements in 2006 and expect this positive trend to continue by and large in 2007 as a result of the currently strong economic environment and the companies' restructuring measures, the overall low margin levels and high debt loads leave little headroom to cushion against any downside pressure, be it from stagnating or weakening demand, increased international competition or further increases in raw material costs."

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