Prudential downgraded newsprint makers Bowater (BOW ) to sell from hold and downgraded Abitibi-Consolidated to hold from buy.
Analyst John Tumazos says he downgraded the newsprint makers due to recent strength in the Canadian dollar, and signs that the implementation of a recent price hike has been difficult. He notes, at 73 cents per U.S. dollar, the Canadian dollar is up 15% from the start of 2003, and with 45% of newsprint, 38% of coated paper, 20% of pulp, and 84% of lumber production located in Canada producing U.S.-dollar-denominated goods, he thinks this will squeeze costs considerably.
Tumazos notes he's cut his newsprint forecast for the fourth quarter and beyond by $20. He says the current price hike may be even less than successful than he previously thought, and the market appears weak.