By Niklas Pollard
STOCKHOLM, Nov 26 (Reuters) - Swedish firms are pinning their hopes on strong demand and firmer prices to soften the impact of a weaker dollar in the coming quarters, but analysts warned the outlook could get grimmer if the decline accelerated.
Of Swedish blue chips, engineers and forestry firms are among those most exposed to the dollar and have had their earnings stung since it came off a record-high in early 2002.
But a global upturn, creating strong demand in main markets, along with cost cuts and price hikes, have softened the blow.
Volvo said this week it would seek to raise truck prices again in 2005, having hiked prices 2-3 percent already this year, to offset the dollar fall and higher materials costs.
Other manufacturers are eager to follow suit.
"We are working on prices. We have a degree of leeway to use pricing to compensate in markets," said Thomas Thuresson, chief financial officer at engineering group Alfa Laval .
Alfa still sees currency swings slicing around 310 million Swedish crowns off earnings this year, with almost a third in the fourth quarter, prompting it to boost dollar-based sourcing.
"That means we're looking for suppliers mainly to the east, where a great many countries' currencies are pegged, more or less, to the dollar," Thuresson said.
The Swedish crown , in tandem with the euro, has strengthened more than 10 percent against the dollar from mid-July, hitting an 8-year high at 6.78 this week.
The earnings of many of Sweden's top firms are damaged by a stronger crown as it hurts their global competitiveness and cuts dollar-based sales and earnings when translated back to crowns.
Swedish engineers have sought to limit currency swing impacts by setting up plants in the United States. Apart from that they have little option than to suffer from dollar falls.
"As an export company with a large portion of production in Sweden and in Europe, we have to learn to live with this. It is a part of our reality and everyday life," Sandvik Vice President of communications Heléne Gunnarsson said.
REAL FEAR IS DOLLAR AND DEMAND FALL
Tool maker Sandvik expects currency swings to subtract 285 million crowns from operating earnings this year and roughly the same, 250-300 million, in 2005 if current exchange rates hold.
Compressor and machinery maker Atlas Copco expects earnings to be hit to the tune of 50-100 million crowns.
"If current dollar rates remain, it will be closer to the higher number," said Mattias Olsson, Atlas Copco head of investor relations.
Worries over the dollar decline have so far not been reflected in share prices, with the industrial sector having risen nearly 20 percent this year in Stockholm, narrowly outpacing the blue chip OMX-index .
But analysts warned that with U.S. and Chinese growth slowing and the dollar still weakening, the outlook was grimmer.
"With the dollar near these levels, the impact will be steep. This has not been reflected in share prices as most had not expected this fall," said Nordea equity strategist Lars Drougge.
"When the market is strong there is room for everybody, despite the currency swings," said Mats Nyman, chief strategist at Handelsbanken.
"What is really serious is if the economies in Asia and the U.S. were to weaken substantially while the dollar remained weak. That is when the really nasty price effects turn up and, for example, U.S. firms are able to win market share," he added.