Shipments and earnings for the paper and forest industry are expected to show some recovery in 2010, contributing to a modestly improved credit profile for the sector, according to Fitch Ratings, Chicago, Ill., USA. Capacity rationalizations and cost deflation were the highlights of earnings releases in 2009, discounting the money that poured into the paper industry from U.S. alternative fuel tax credits. Sales volumes and prices both shrunk, causing top-line revenues to plummet. By historical standards demand will still be weak, Fitch notes.

"Paper producers should see better volumes in some grades next year but will have to raise prices to protect margins from cost inflation," said Dennis Ruggles, director at Fitch. "With no significant forces pushing revenues, there will only be modest improvements in leverage metrics."