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With the prospect of plummeting pulp prices on the horizon, Citigroup analyst Chip Dillon has downgraded his recommendation for Domtar Corp. (NYSE:UFS).

Anticipating a slide in global pulp prices by mid-year, Mr. Dillon changed his rating on Domtar, the world’s largest uncoated freesheet paper manufacturer in North America, from “hold” to “sell,” saying that declining prices will have an effect on the company’s prices and margins. His target price for the stock dropped from US$10 to US$9.

“We believe investors are missing the link between uncoated freesheet and market pulp pricing,” he said in a research note.

Domtar Corp. was created from a merger between Domtar Inc. and Weyerhaeuser Co.’s (NYSE:WY) fine-paper business earlier this month.

Mr. Dillon maintains that the new company is a positive force in the market, however, he feels the share price more than reflects this already.

Source: Citibank Downgrades Domtar Corp. On Pulp Price Concerns