FGE.to - Fortress Paper (formerly FTP.to)

[alertmeipp]

only many of those are all in to DP tho, i wont sell here but have enough of this pos for the upside.

 

how can this not juice up dp pricing, we are talking about 50 percent of the supply getting taxed heavily

[Liberty]

And yet

 

a) the FTP debs are actually up ... if fractionally

b) the other public companies (WY, RYN, HK:1768, ca:TMB) affected are up ... if fractionally

 

I noticed that on the debs. Pretty big volumes, yet prices are holding..

 

I can see a few scenarios that could explain that, but have no way to verify which one is correct. I guess time will tell..

[Liberty]

BTW ... no shares or debs have been repurchased so far via the NCIB (now in lock-down until Q3 financials released next week)  ... at $5/share, and at 70 cents on the debenture dollar ...  they could almost now buy back the max in each without having to revise the issuer bid.

 

This makes me think that they had a pretty good idea they would get at least some kind of tarriff, and so it was smart to wait until that was announced to do buybacks (if any).. It both reduces uncertainty about the future and probably tanks the stock, so no reason to buy before.

[triedtestedand]

Liberty:

 

They must have known ... to what extent, when, etc. maybe not ... but the press release was fairly detailed ... no doubt was drafted in advance.

 

Not totally surprising, but:

 

- Neucel emerges unscathed ... Chinese owned

- Bahia emerges with lowest tariff ... Indonesian owned (majority), HK listed as part of Sateri ... and owns VSF plant in China

- US firms get whacked the most ...

 

Coincidence or what?

[Liberty]

Trivia: The stock is now 39% below its IPO price in 2007.

 

I get things look bad, but does this make sense for a company with 136 million in cash and two plants that, in more normalized/mid-cycle conditions, could earn quite well?

 

Lanquart certainly wouldn't look like such the problem child if the Swiss Franc was at more historical levels...

 

I know that's not under management's control, and that you can't bank on "ifs", but it's probably not crazy to expect a reversion to the mean at some point.

[xtreeq]

Trivia: The stock is now 39% below its IPO price in 2007.

 

I get things look bad, but does this make sense for a company with 136 million in cash and two plants that, in more normalized/mid-cycle conditions, could earn quite well?

 

Lanquart certainly wouldn't look like such the problem child if the Swiss Franc was at more historical levels...

 

I know that's not under management's control, and that you can't bank on "ifs", but it's probably not crazy to expect a reversion to the mean at some point.

 

Sadly, there is no sense in the market and while I understand that people expect the market to make sense in the long run (weighing machine and all of that), I often think of Keynes' admonition that the irrationality in the market can last longer than the resources (or patience here) of the investor and this is why I have a personal predeliction towards BS safety with a catalyst, which I do not see here at the moment. I do hope things get better asap for those invested.

 

Cheers!

[Liberty]

Trivia: The stock is now 39% below its IPO price in 2007.

 

I get things look bad, but does this make sense for a company with 136 million in cash and two plants that, in more normalized/mid-cycle conditions, could earn quite well?

 

Lanquart certainly wouldn't look like such the problem child if the Swiss Franc was at more historical levels...

 

I know that's not under management's control, and that you can't bank on "ifs", but it's probably not crazy to expect a reversion to the mean at some point.

 

Sadly, there is no sense in the market and while I understand that people expect the market to make sense in the long run (weighing machine and all of that), I often think of Keynes' admonition that the irrationality in the market can last longer than the resources (or patience here) of the investor and this is why I have a personal predeliction towards BS safety with a catalyst, which I do not see here at the moment. I do hope things get better asap for those invested.

 

Cheers!

 

That's absolutely correct, though what I'm trying to be patient for is the business, not the market.

 

I feel like it would be a mistake to sell before this asset is fully operational. Maybe it was a mistake to buy something that wasn't already fully running in the first place, but now I can't do anything about that and I just feel like I have to at least be patient and see what it's like once it's fully ramped up. It probably can't be worse than just before it reaches cruising speed...

 

If it turns out the business becomes better but the market is still depressed, it'll be easy to be patient. What's hard is when you don't know how the business will do and the market is depressive...

[xtreeq]

Liberty,

 

Allow me to share a story - my first finance professor at BSchool was a self-made billionaire Harvard MBA. When we talked about terminal value multiples he told us the simple folk adage of "Buy at a 3 multiple, sell at a 7 multiple and in the interim play golf", and warned us that playing golf was much harder than it seems.

 

For me the current share price and its persistent decline from 37 CAD per share in early 2012 simply reflects he market's opinion that management needs to go as it is clearly (in the market's opinion) value destroying for shareholders. I think the business is a decent business and at some point it will mean revert. If you have a small loss, I would consider taking it at year-end because in my limited experience the mental preoccupation with a large losing position precludes one from finding and acting on other securities. If the loss is large, determine the "get out" point, stick it into your trading system and then stop following the stock ... and go play golf (or hockey for that matter :) ...)!

 

 

[alertmeipp]

pretty much everything goes wrong has gone wrong, selling now is not wise imo

[jose]

my take on this is that the chinese government might be doing us a nice favor by wiping out the competition.

 

ftp's long term success depends not so much on a 13% swing in pricing, but on outlasting the glut of DP suppliers out there.

 

these tariffs seem like a catalyst for companies to exit the depressed DP biz sooner than later.

 

I wonder what percentage of the current supply is now taxed at 50%.

 

I might be off my rocker but I am tempted to buy more for the first time in almost a year.

 

 

[xtreeq]

alertmeipp - I hear you!

 

jose - that is an interesting point. Since the company has cash, it might survive but what happens if those DP suppliers are backed by the Chinese govt?

[alertmeipp]

jose, that was what i was thinking as well, should be up nicely if true tho, pretty much all producers in the list were hitted with 40 percent,

[lessthaniv]

http://www.hkexnews.hk/listedco/listconews/sehk/2013/1106/LTN20131106923.pdf

 

Sateri's comments.

 

The only company with 0% is Neucell owned by Fulida. ::)

[triedtestedand]

Brazil -> Only one current affected DP producer really, which is Bahia, which is part of Sateri ... and their production is supposed to diver to their own VSF plant soon-to-be-completed in China, so that will take their now tariffed at ~7% production off the spot market (or they may arbitrage it) ...

 

US producers -> Mixed bag here ... seem to have an average of a 20% tariff ... no sure how many were focusing commodity level DP into China ... my guess is that they may have actually been dumping unsold higher-grade acetate stuff into DP level ... but not sure any of the companies noted have China as focus for all of their production like Bahia/Fortress/Neucel

 

Cdn producers -> The "AV" group I think sends most of their production to India, as they are part of Aditya Burla, so not sure they'd be impacted too much ... I think Tembec may be in same boat as the US producers listed ... they produce some commodity level stuff in conjunction with high-grade stuff, and probably were selling both into Chinese market.

 

I think the big thing here is that the super-high provisional tariffs for any Brazilian/US/Cdn company/plant NOT mentioned will at least delay such company/plant from entering Chinese market for now, or have them look to other markets.  The two big non-Chinese VSF dogs in the space are Lenzing (which gets most of it's non-internally sourced supply from Sappi), and Aditya Birla (which I think produces much of it's own supply).

 

Paper Excellence has been off-again/on-again converting a plant in Saskatchewan ... and there's LSQ as well ... both would be affected with the super-high interim tariff unless they target production outside of China.

 

 

[lessthaniv]

the comparative uses of capital conversations in the board room will get awful interesting.

[triedtestedand]

Fwiw ... FTP appears to have new preso dated mid Octoberish on their website. Mostly same as before, but has couple of graphs showing increasing daily thurso production / decreasing production cost per ton

 

[alertmeipp]

TNT, isn't more than half of China DP is supplied by companies in NA and Brazil?

[triedtestedand]

Alertmeipp:

 

Sounds about right, depending on which source you look at:

 

A) The document referred to in the press release states the following:

 

"In 2012, companies not subject to MOFCOM's investigation had shipments of 1,655,000 tonnes of

dissolving pulp to China, whereas companies subject to the investigation only had exports of 908,000

tonnes. In response to a price increase in the market for dissolving pulp, non-affected companies will

respond by increasing their exports to China which will put downward pressure on the domestic

price. Absent collusion by the non-affected companies, China's and other countries' prices will

quickly converge."

 

This would indicate 40% from N. America and Brazil.

 

Note that in the same article, it indicates on a chart that China had NET imports of 1.65M tonnes ... which would imply 900K was exported?  Not sure if there's a mix of grades/types in there (cotton linter, bamboo, acetate level, etc.)

 

 

B) That all said ...  from posting of a RISIINFO article back in February by Rod Young ...  it sounded like the % from N. America/Brazil was more close to 60%

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ftp-fortress-paper/msg103862/#msg103862

 

"The three countries cited for dumping were picked because they were the largest exporters to China in 2012, accounting for just under 60% of total imports into the country. Looking at the unit import price data, it is obvious they weren't picked because their prices were lower than other exporters to China. In fact, four of the next five largest exporting countries to China had average prices that were lower than those for Brazil and Canada. The only country in the top 10 exporters that had a significantly higher price was Norway because all of the production coming from the one dissolving pulp mill in the country is hi-alpha pulp."

 

 

In any event, it's a lot.

[alertmeipp]

http://www.bloomberg.com/news/2013-11-05/cotton-slumping-as-glut-expands-record-china-hoard-commodities.html

 

maybe the Chinese wants ppl to use more cotton as they got lots. Marco is not helping here.

[alertmeipp]

Alertmeipp:

 

Sounds about right, depending on which source you look at:

 

A) The document referred to in the press release states the following:

 

"In 2012, companies not subject to MOFCOM's investigation had shipments of 1,655,000 tonnes of

dissolving pulp to China, whereas companies subject to the investigation only had exports of 908,000

tonnes. In response to a price increase in the market for dissolving pulp, non-affected companies will

respond by increasing their exports to China which will put downward pressure on the domestic

price. Absent collusion by the non-affected companies, China's and other countries' prices will

quickly converge."

 

This would indicate 40% from N. America and Brazil.

 

Note that in the same article, it indicates on a chart that China had NET imports of 1.65M tonnes ... which would imply 900K was exported?  Not sure if there's a mix of grades/types in there (cotton linter, bamboo, acetate level, etc.)

 

 

B) That all said ...  from posting of a RISIINFO article back in February by Rod Young ...  it sounded like the % from N. America/Brazil was more close to 60%

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ftp-fortress-paper/msg103862/#msg103862

 

"The three countries cited for dumping were picked because they were the largest exporters to China in 2012, accounting for just under 60% of total imports into the country. Looking at the unit import price data, it is obvious they weren't picked because their prices were lower than other exporters to China. In fact, four of the next five largest exporting countries to China had average prices that were lower than those for Brazil and Canada. The only country in the top 10 exporters that had a significantly higher price was Norway because all of the production coming from the one dissolving pulp mill in the country is hi-alpha pulp."

 

 

In any event, it's a lot.

 

Thanks again. You would expect such a large supply group should have some pricing power?

 

with 13%, DP sale is no longer economic based on the current spot price of 900$? Do you think they will get customers for their NBHK in short period of time?

[alertmeipp]

And what does it take to convert Thurso or LSQ to specialty DP?

Is conversion from normal to commodity DP then to specialty DP a progression, for example?

 

Any insight on specialty DP market? over supply, etc...?

 

TIA

[triedtestedand]

Regarding your question about effect of the 13% tariff ... My take leverages the latest preso ... Why would Chad show graphs with declining cost curve/rising daily production rate with latest sample being Q2/2013 ... for a presentation made after Q3/2013 ends?  He'd be a total idiot to show these, if he knew the next version which included Q3 reversed the trend?  As such, then could we anticipate some further improvement in utilization rate/daily production, and lower cash cost/tonne?    Q2 looks to be low-to-mid $800's per tonne, which makes sense given their EBITDA #'s for the quarter (which were bumped by $2.7M in planned shutdown) ... so maybe Q3 gets Thurso to $800 or a shade under?  And that's without cogen ... which offsets transportation costs.  Add in 13% tariff, and all-in-before-mtnc EBITDA costs rise back to $900'ish ... so would need DP to rise to make it economic.

 

On the NBHK side ... refer to earlier post about their cash costs/production rates/realized pricing back from when they first re-opened the plant back in Q2 2010.  It came on line very quickly after purchase, and initial product was sold fairly quickly (if at a steeper-than-normal discount), so I don't think it would take them long ... the question is what leverage do they have to get reasonable price?  Maybe with similar hardwood plant at Cloquet converting to DP (for Sappi - supplying non-Chinese customers), there will be a gap in high quality maple NBHK.  I don't know ... just speculating.

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ftp-fortress-paper/msg137372/#msg137372

 

On the specialty DP side ... that's a loooonnng transition with capex improvements, certification, etc. ... it's growing more slowly, and I think likes of Tembec and Rayonier have been impacted lately because their margins are under pressure.  Check out RYN's latest quarterly, and corresponding stock drop.

 

If they are going to spend any more money at Thurso, I think Chad made noises in recent interviews and/or articles about the following:

    - adding another digester for Thurso (to get nameplate DP capacity to 215K from 200K)

    - up cogen capability to 24/25Mw (their 100hr tests included a test at 24Mw)

 

That would get them leaner/meaner for either NBHK or DP ... and incremental (kind of like they were able to do continuously with wallpaper group)

 

Their preso also lists following cost reduction initiatives:

    - logistics (i.e. fewer, but bigger, shipments)

    - energy (I think they were looking at converting to natural gas from oil ... but initial application got rejected because they wanted the utility to front-end all of the cost/risk)

    - finance (not sure what that would mean)

 

 

 

 

 

[triedtestedand]

http://www.hkexnews.hk/listedco/listconews/sehk/2013/1106/LTN20131106923.pdf

 

Sateri's comments.

 

The only company with 0% is Neucell owned by Fulida. ::)

 

 

Hey lessthanIV:

 

Sateri's stock is UP 10% this morning in Hong Kong

 

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=hk%3A1768&insttype=&freq=&show=

 

[alertmeipp]

Thanks, TNT. Are $900ish all in cost?

Hope they can provide some guidance on various production scenarios in their next call. Market just assumes the worst for now.

[triedtestedand]

Oh the irony of the timing of this article ...

 

http://business.financialpost.com/2013/11/06/china-industry-steel-bubble/