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Investors get a chance Tuesday– as fourth-quarter results are unveiled – to assess just how well Tembec Inc. is doing in efforts to reposition itself as a player that can hold its own in the still brutally challenging forestry products sector.

With pulp prices slipping after a bit of a bounce back earlier this year, a less-than-stellar outlook for newsprint, and a pickup in demand for lumber still dependent on the recovery of the U.S. housing market, shareholders want to see evidence that Tembec is not only coping through this tough patch but poised to reap the benefits of an eventual recovery.

Temiscaming, Que.-based Tembec is something of a bellwether for forest products companies in Eastern Canada. While firms in Western Canada are struggling with a slump in demand for lumber from China, weaker pulp demand from China is affecting firms out East.

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Prices have been hurt and pulp producers everywhere are feeling the pinch, said analyst Kevin Mason of Equity Research Associates.

"There is still a little bit more weakness ahead and this Q4 season will be ugly for most pulp producers but we think the bottom will largely be in place once we move into the next fiscal quarter," he said.

Tembec president and chief executive officer James Lopez has shifted the focus in the company's pulp division to specialty dissolving pulp, which is less volatile than the regular commodity pulp; dissolving pulp is used in the manufacture of rayon and other value-added products.

For Tembec, dissolving pulp is "the jewel" right now because prices are holding up relatively well and are still well above the lows of 2009, Mr. Mason said.

Investors will also want to know more about Tembec's recently announced plans that could result in up to $100-million invested to expand its pulp facility in Temiscaming by 2015.

The project, which would add 30,000 tonnes of annual capacity of specialty dissolving pulp, is a hefty bet that the product will remain a high-growth area for years to come.

As well, Mr. Lopez has been spearheading a major overhaul at Tembec that has included the shedding of non-performing assets, the slashing of costs and a major modernization initiative.

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Net debt has been cut to about $220-million from $423-million last year.

A key element in cost-cutting moves has been a big push to cut energy costs by investing in biofuels and other new technologies.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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