Nordic forestry firms are expected to post softer earnings this week as the industry struggles with sluggish demandand faces an uncertain 2003 due to geopolitical threats and a strong euro, analysts said. The Nordic paper industry, led by top global players Stora Enso and UPM-Kymmene, has like the sector in North America suffered through two lean years as the global economy sputters and an advertising slump hits publishers. Forestry shares, usually favourites for investors in turbulent times, have been hammered as a result. Stora Enso is 48 percent down from 2000 peaks against a loss of 34 percent by the pan-European DJ Basic Resources index. Analysts expect few surprises in the fourth-quarter reports after firms said in October they saw no big jump in demand, but most expect a slight improvement in earnings in 2003 as demand improves in North America. "After a long period of weakness in the market there should be some recovery, and if these paper companies can raise their operating rates that should have a positive effect on the earnings in 2003," said Evli Bank analyst Pekka Spolander. "(But) much depends on macroeconomic developments and, at the moment, very much depends on political issues, what happens in Iraq and will there be a recession (in the United States)." Analysts said Stora Enso, with its substantial presence in North America, was set to gain more from the tentative pick-up in paper demand overseas than its Nordic peers. Recent U.S. data has indicated an improvement in paper production, while U.S. International Paper (IP), the world's top forest products company in terms of sales, said this month it will beat its fourth-quarter operating profit forecast. However, last week U.S. forest product firms Weyerhauser and Boise Cascade Corp said they expected prices for wood and paper to remain under pressure for first part of the year at least, indicating the recovery remains slow. Finnish-Swedish Stora Enso, Finland's UPM-Kymmene and Sweden's SCA kick off the Nordic reporting season on Thursday, January 30, the same day as IP reports. A Reuters analysts' poll calls for Stora Enso, the world's largest paper and board maker, to report an October-December pre-tax profit of 197 million euros ($214.4 million), down 26 percent year-on-year. Top magazine paper maker UPM is seen posting an eight percent fall in October-December profit before extraordinary items and capital gains or losses to 235 million euros. Pulp and paper group SCA is also seen reporting slightly lower profits of 2.1 billion Swedish crowns ($247 million). Norway's biggest forestry group Norske Skog will report on February 5, together with Sweden's Holmen, while Europe's leading fine paper maker M-real rounds out earnings with its fourth-quarter result on February 6. Analysts also said the strong appreciation of the euro against the dollar was another important question mark for export-driven Nordic firms. "There is a risk that we will see American paper being imported into the Europe because of the (weaker) dollar," said Nordea analyst Catarina Ihre. "Secondly, several European paper producers have exported volumes into Asia last year and the profitability of that export is coming down." Some analysts were more pessimistic, saying 2003 is likely to become a third straight year of decline for Nordic firms from their record profits in 2000 as paper prices and industry fundamentals remain weak in Europe. "Talking about European earnings only, considering how much lower the prices are...entering this year (versus) last year, it's going to be tough," said a Nordic investment bank analyst. Merrill Lynch said earlier this month it expects a seven percent drop in European print paper prices in 2003 versus 2002, with the risk on the downside. "The European paper cycle appears to be lagging the U.S. paper cycle by about 6-9 months and...product pricing in Europe still remains quite weak, so the European paper markets are not yet showing the same stabilising trend," said Morgan Stanley analyst Charles Spencer.