We expect pulp prices to remain within a narrow range over the balance of 2007 and 2008. The escalating value of the Canadian dollar and the Euro, versus the US dollar, will motivate pulp producers in these countries to try to push prices higher. However, paper demand growth has weakened, and papermakers are struggling to remain profitable. Further, there is new hardwood pulp capacity entering the market from the southern hemisphere. This could cause some price slippage in hardwood pulp markets which could also put pressure on substitution of hardwood pulp for softwood pulp.At the new exchange rate, SFK's yearly free cash flow would be closer to 20 million now. Meanwhile, a few high cost producers are still hanging on, despite operating at huge cash flow losses. I can see now why- these producers (Pope and Talbot, Tembec) have huge debt-burdens, and to just stop operations would mean a complete write off of these loans. So instead, the banks have been lending them money and asking them to continue their efforts to sell their assets. How long this will take, I do not know, but considering these assets were unprofitable at a .93 exchange rate, they must be bleeding money today. If I could share a lesson learned, supply and demand does really matter- but wait until the situation is clearly turning around and in your favor.
Tuesday, October 23, 2007
Canfor Pulp Third Quarter Earnings Report
Canfor reported overall solid results for the quarter. The average Canadian/US exchange rate for the quarter was .957, but the rate is currently at 1.03. As for the outlook: