VANCOUVER - Canadian forest and paper producers had the lowest returns in 2007 compared to their worldwide peers, reflecting the sector's current "financial crisis," a new report shows.

The PricewaterhouseCoopers annual survey of the world's 100 largest forest, paper and fibre-based packaging products companies said Canada's producers earned the lowest average return on capital employed, a key measure of performance.

Canada's producers ranked a negative 0.1 per cent "reflecting the financial crisis experienced in the Canadian forest products sector," the report released Wednesday said.

The overall average return of companies surveyed was 4.8 per cent.

Latin America ranked highest at 7.8 per cent, followed by Asia at 7.3 per cent and the United States at 5.5 per cent.

"The global forest, paper and packaging products sector continues to be shaped by shifting business and environmental factors, creating opportunities for some regions and challenges for others," PricewaterhouseCoopers's Craig Campbell said.

"Mills with the lowest production cost structures are the ones that are best able to manage currency fluctuations and rising costs, allowing them to take advantage of new opportunities and markets."

In Canada, Campbell said the industry was hit hard by lower lumber prices from the collapse in U.S. housing starts, the high Canadian dollar, the devastation caused to trees by the mountain pine beetle in British Columbia and declining North America newspaper consumption.

The study said the combined net losses for the 13 Canadian companies surveyed climbed to $1.1 billion from $166 million in 2006, including AbitibiBowater (TSX:ABH) and Canfor (TSX:CFP), whose losses totalled $827 million last year.

"AbitibiBowater's losses were heavily impacted by facility closures whereas Canfor's loss was the result of asset write downs related to lumber and panel operations," the report said.

Total 2007 sales were US$28.5 billion, up 12 per cent from 2006, reflecting acquisitions such as Domtar Corp.'s (TSX:UFS) merger of its paper assets of Weyerhaeuser.

The survey said a "bright spot" was northern bleached softwood kraft pulp (NBSK), "where producers enjoyed good profits due to the tightening of supply through mill closures and increasing Asian demand."

Campbell said the global outlook for 2008 is expected to come at the same levels, while Canadian producers may see slight improvements.

He said many Canadian forest and paper firms have taken their big hits already in 2007 and while the markets aren't expected to improve dramatically, they shouldn't get worse.

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