Paper Winners and Losers: International Paper

Updated from 3:27 p.m. ET

Shares of paper products companies fell Friday after a report showed that demand for their products plunged last month in what could mark the beginning of another tough year for the industry.

Preliminary data from the American Forest & Paper Association showed a decline of 25.3% in January 2009 from a year ago. That follows declines of 20.7% in December and 20.2% in November from the year-earlier months.

"This is by far the worst 3-month stretch that we can remember. No other period even comes close," Deutsche Bank-North America analyst Mark Wilde said in a client note.

Wilde said he expects "the massive amount of market downtime" that the industry gook in the fourth quarter will have to continue.

"Ultimately, we will need to see more permanent -- or at least indefinite -- capacity closures," he wrote.

Barclay's Capital analyst Peter Ruschmeier said the collapsing demand threatens printing paper companies' credit. He specifically cited International Paper(IP Quote), AbitibiBowater(ABH Quote) and Sappi(SPP Quote).

Last month Smurfit-Stone Container, a major producer of cardboard materials, filed for bankruptcy.

In afternoon trading, International Paper closed down 40 cents, or 5.4%, to $6.89, Sappi declined 38 cents, or 12.2%, to $2.74, and Domtar lost 7 cents, or 6.1%, to $1.07.