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| This Week in Paper by Joe Masters (MF Master) Charleston, SC (Feb 21, 1997) -- Timber!!!! Not a pleasant week in the forest, I'm afraid. While the Dow and the S&P500 lost 0.82% and 0.83% this week, respectively, our Paper/Forest index was cut and debarked for a whopping 2.94%. More important was the fact that all 20 of our "index" stocks suffered losses in a very broad-based sector weakness. Those declining the least (I suppose that's good) included: Potlatch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:PCH, down 0.29%)") else Response.Write("(NYSE:PCH, down 0.29%)") end if %>, Bowater <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BOW, off 0.59%)") else Response.Write("(NYSE:BOW, off 0.59%)") end if %> and PH Glatfelter <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX:GLT, dropping 0.74%)") else Response.Write("(AMEX:GLT, dropping 0.74%)") end if %>. Leading the losers were Boise-Cascade <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BCC, down 6.96%)") else Response.Write("(NYSE:BCC, down 6.96%)") end if %>, Gaylord Container <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX:GCR, clipped by 5.77%)") else Response.Write("(AMEX:GCR, clipped by 5.77%)") end if %>, Westvaco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:W, off 4.22%)") else Response.Write("(NYSE:W, off 4.22%)") end if %> and James River <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:JR, declining 3.98%)") else Response.Write("(NYSE:JR, declining 3.98%)") end if %>. For the year thus far, our Paper/Forest index is up only 0.21%, compared with gains of 7.50% for the Dow and 8.24% for the S&P500. The leader thus far is Bowater <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BOW, up 11.30%)") else Response.Write("(NYSE:BOW, up 11.30%)") end if %>. The laggard is Stone Container <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:STO, down 16.81%)") else Response.Write("(NYSE:STO, down 16.81%)") end if %>. For the year in Paper/Forest we have 6 advances, 11 declines and 3 unchanged. All the News that Fits: On Monday, Suomen Optioporssi, a Finnish options exchange, put the value of northern bleached softwood pulp at $541.81 per ton, down from $549.79 last week. In January, the PIX mean was $556.86, down from $559.05 in December. On Tuesday, American Pad & Paper Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AGP)") else Response.Write("(NYSE:AGP)") end if %> reported results for the fourth quarter ended December 31, 1996. The Company had net sales of $176.0 million, a 58.4% increase over net sales of $111.2 million reported in the fourth quarter of 1995. Net income for the fourth quarter was $10.5 million compared to a net loss, before an extraordinary item, of $12.3 million in 1995. Earnings per share in the fourth quarter was $0.36 compared to a loss of $0.42 before the extraordinary item in 1995. For the year ended December 31, 1996, the Company had net sales of $583.9 million and, before an extraordinary item, income of $18.2 million, or earnings per share of $0.62 before the extraordinary item. For the year ended December 31, 1995 the Company had net sales of $257.2 million and a net loss of $5.0 million, or loss per share of $0.17 before the extraordinary item. Also Tuesday, Longview Fiber <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:LFB)") else Response.Write("(NYSE:LFB)") end if %> reported first quarter results for fiscal year ending October 31, 1997. Sales declined 12.9%, from the same quarter of the previous year, to $182 million. Net income for the quarter was nil, compared to earnings of $0.30 per share for the first quarter of 1996. On Wednesday, Prudential Securities upgraded Repap Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:RPAPF)") else Response.Write("(Nasdaq:RPAPF)") end if %> to hold from sell. Also Wednesday, Aracruz Cellulose SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:ARA)") else Response.Write("(NYSE:ARA)") end if %> announced full-year 1996 results of operations. Revenues declined 39.7%, compared to 1995, to 513 million reais. Net income fell 77.7% to 79 million reais. (Sorry, I don't know the conversion of reais to dollars.) On Thursday, Finnish paper machine maker Valmet Oy (VLMT.HE) said it has made a bid to supply paper machinery to a planned 2.4 billion markka recycled newsprint paper mill to built in New York City. If it comes to fruition, this would be the largest industrial project in New York since World War II. Recent approximate prices (per ton) for some "bellweather" grades: Woodchips 9/95=$50, 12/95=$45, 3/96=$45, 6/96=$40, 9/96=$35, 12/96=$35 Mixed Waste 9/95=$50, 12/95=$10, 3/96=$0, 6/96=$5, 7/96=$0, 8/96=$0, 9/96=$0, 10/96=$0, 12/96=$0, 1/97=$0 Old News (ONP) 9/95=$90, 12/95=$30, 3/96=$25, 6/96=$15, 7/96=$15, 8/96=$15, 9/96=$15, 10/96=$15, 12/96=$10, 1/97=$10 Old Box (OCC) 9/95=$80, 12/95=$45, 3/96=$50, 6/96=$45, 7/96=$50, 8/96=$50, 9/96=$60, 10/96=$65, 12/96=$55, 1/97=$60 NBSK Pulp 9/95=$955, 12/95=$945, 3/96=$685, 6/96=$520, 8/96=$560, 9/96=$580, 10/96=$600, 11/96=$580, 1/97=$580, 2/97=$565 30# Newsprint 9/95=$745, 12/95=$760, 3/96=$760, 6/96=$680, 7/96=$640, 8/96=$610, 9/96=$575, 10/96=$545, 11/96=$530, 12/96=$510, 1/97=$505, 2/97=$500 42# Linerboard 9/95=$530, 12/95=$495, 3/96=$420, 6/96=$350, 7/96=$345, 8/96=$345, 9/96=$345, 10/96=$365, 11/96=$365, 12/96=$365, 1/97=$350, 2/97=$315 26# Medium 9/95=$525, 12/95=$455, 3/96=$360, 6/96=$280, 7/96=$280, 8/96=$275, 9/96=$275, 10/96=$285, 11/96=$290, 12/96=$290, 1/97=$270, 2/97=$235 50# Uncoat Free 9/95=$1050, 12/95=$910, 3/96=$730, 6/96=$760, 7/96=$670, 8/96=$740, 9/96=$805, 10/96=$765, 11/96=$765, 12/96=$715, 1/97=$715, 2/97=$650 34# Coated Gwd 9/95=$1335, 12/95=$1380, 3/96=$1255, 6/96=$1055, 7/96=$1040, 8/96=$1015, 9/96=$980, 10/96=$930, 11/96=$930, 12/96=$930, 1/97=$930, 2/97=$945 20# Forms Bond 9/95=$1180, 12/95=$1035, 3/96=$790, 6/96=$750, 7/96=$750, 8/96=$640, 9/96=$640, 10/96=$680, 11/96=$660, 12/96=$660, 1/97=$660, 2/97=$620 "Model Portfolio" Update: Purchase: IP = $40.50, FORT = $27.69, CDP = $49.13, CSAR = $29.00 Last Trade: IP = $41.63, FORT = $27.50, CDP = $48.75, CSAR = $29.00 This Week: Year-to-Date: Model = - 3.23 % Model = + 11.27 % SP500 = - 0.83 % SP500 = + 8.24 % FSPFX = - 2.33 % FSPFX = - 0.05 % Commentary: I wanted to add a couple thoughts regarding the merger of Abitibi-Price <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:ABY, A.TO)") else Response.Write("(NYSE:ABY, A.TO)") end if %> and Stone-Consolidated (SO.TO) which was announced last Friday. My belief is that this will be a very beneficial merger for the two companies involved. By combining forces and minimizing certain overhead expenses, margins should improve. However, I don't believe this merger will necessarily translate into a meaningful strengthening of the newsprint market in general. Newsprint is a commodity product with a high degree of parity among the various producers. That is, newsprint is newsprint is newsprint for all intensive purposes. As long as there is no monopoly, prices will still be dictated by the supply-versus-demand circumstances which prevail at that time. I recall once working for a company involved in a similar situation regarding product parity. When I started there were five manufacturers of this product. Competition for market share was fierce and margins were tight due to pricing practices which were necessary in attempt to gain share and reduce fixed cost per unit. Eventually, two manufacturers went out of business. However, the three remaining companies fought as hard as ever and the market conditions were generally unaffected. In fact, when one company attempted to raise prices without the support of the other two (which could be construed as price-fixing), that company lost market share as consumers fled to the lower-priced commodity of essentially similar quality and functionality. Until such time as there is only one global producer of newsprint, I would expect no different a situation here. Abitibi-Consolidated might attempt to push their newly-found weight around to increase prices, but I believe it will be a futile attempt should global supplies continue to outpace global demand. In fact, a possibility exists that quite the opposite could occur. With the ability to absorb some lean times, it is quite conceivable that the new Abitibi could lower newsprint prices in attempts to eliminate higher-cost producers. Just a thought (though I doubt it will happen). For the record, the new Abitibi-Consolidated would produce about 9% of global newsprint capacity. The next largest producers, Finland's UPM-Kymmene and New Zealand's Fletcher Challenge Ltd., each have about 5%. Bowater, the largest manufacturer of newprint in the U.S. and the eighth largest in the world, produces about 3% of world capacity. The top 10 manufacturers of newsprint in the world combined would represent about 44% of total global capacity. Certainly it is still a fragmented market. Keep them presses rolling !!! |
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