New FBK

[finetrader]

Steady pulp price is very welcome.

It is nice to think that at this rate of FCF and actual share price the payback period is about 3 years on an equity investment.

 

also I can't believe the january future price..

http://www.cmegroup.com/trading/agricultural/lumber-and-pulp/wood-pulp.html

 

I tried to go long the january futures with IB but they don't trade this product.. that's unfortunate

[triedtestedand]

Steady as she goes message is reiterated in latest summary from Dave Hillman:

 

http://www.glgroup.com/News/Market-Pulp-Prices-To-Remain-Stable-51747.html

[SharperDingaan]

 

Its actually very bullish.

 

All the returning production (primarily) from Chile (8% of global supply) is being absorbed without lowering the price. IE: There must ALSO has been an 6-8% increase in global demand, net of USD devaluation.

 

When there is no more production, we can expect another run up.

 

SD

[lessthaniv]

Canfor is scheduled to convert to a corporation on Jan 1/2011. They still haven't announced their distribution policy yet. The stock has taken a bit of a tumble as of late as the markets seem to expect a significant cut. I wonder if a cut in distribution (although it will still be decent) will entice some investors to sell CFX in favor of FBK's valuation?

[Uccmal]

I dont understand why people react the way they do.  It has been known for months that cfx was going to become a corp again.  Take the existing payout at 20% * 30% = 14% - for Canadians gross it back up and get about 16%.  Reduce  it to accomodate lower pulp prices at a later date and you will still get a yield above nearly anything else. 

 

Jitters due to COS.un announcement yesterday.  I added some cfx shares yesterday- I had been selling indribs and drabs all year.

[lessthaniv]

I dont understand why people react the way they do.  It has been known for months that cfx was going to become a corp again.  Take the existing payout at 20% * 30% = 14% - for Canadians gross it back up and get about 16%.  Reduce  it to accomodate lower pulp prices at a later date and you will still get a yield above nearly anything else. 

 

Jitters due to COS.un announcement yesterday.   I added some cfx shares yesterday- I had been selling indribs and drabs all year.

 

tnp20 posted something in the investment ideas section that may help explain it ...

 

http://www.investorvillage.com/smbd.asp?mb=6468&mn=14949&pt=msg&mid=9843195

 

 

[Uccmal]

Thanks LessthanIV - interesting - Probably accounted for most of the selling yesterday. 

 

 

[FFHWatcher]

Question.

 

Page 18 of Fibrek's most recent quarterly report.

http://fibrek.com/static/en/pdf/etats_financiers/2010_3Q_FS.pdf

 

Segmented Information.

 

3 months ended September 30, 2010, showing NBSK and RBK Mills.  80% if the financial charges were allocated to the RBK Mills.  Why is that?  It is a Quebec organization that is the lender and it is their NBSK Mill that is in Quebec, yet the financial charges are somehow associated with the RBK Mills. 

 

I am hoping that they are trying to pkg the two together (US Mills and LT Debt...maybe Convert. debt too?) and want to give them away to an unsuspecting buyer :-)  Of course, I just woke up so I am probably dreaming.

[finetrader]

They acquired RBK business by using debt

 

http://findarticles.com/p/articles/mi_qa3636/is_200612/ai_n17193385/

 

I think that explain why 80% of financial charges were allocated to the RBK mills.

 

They paid 160M USD for it in 2006, not sure they would receive as much would they sell the mills today.

[FFHWatcher]

They acquired RBK business by using debt

 

http://findarticles.com/p/articles/mi_qa3636/is_200612/ai_n17193385/

 

I think that explain why 80% of financial charges were allocated to the RBK mills.

 

They paid 160M USD for it in 2006, not sure they would receive as much would they sell the mills today.

 

So the company allocates based on the purchase vs. based on what is held as collateral?  I am sure all assets are held as collateral but it makes sense that they allocate to debt based on the purchase.  An accounting nuance that I was not familiar with.  Thanx.

[finetrader]

so far so good...

 

http://www.foex.fi/

 

I'm expecting development concerning debenture repayment soon.

 

Maybe after that they can start paying a dividend..

 

Stock is cheap.

I'm thinking of buying more ( I have quite a lot right now though)

Maybe I'll buy more and hedge for market risk with some puts on TSX index.. but i'm still sucking my thumb

[Uccmal]

I think right now that this stock is stuck due to tax loss selling.  Those who bought while it was going up rapidly in the spring are trying to capture a year end loss.  My theory at least. 

 

finetrader,  I dont think you can hedge out the risk on this with TSX puts.  The two entities are uncorrelated.  The best way to hedge the risk is to hold it in a taxable account and take your losses if it comes to that.  They certainly should have enough cash to buy in the dBs.  Hoping for a better 2011, always hoping.......

[Cardboard]

What is most discouraging is to look at the stock performance of Tembec vs Fibrek or another high cost producer. Then UFS, Mercer, Canfor Pulp. The outperformance for any vs Fibrek is simply massive.

 

Tax loss selling may help explain recent weeks movement, but not that they missed the boat since the April drop. All these stocks hit a big air pocket after April and all have rebounded higher or close to (CFX.UN) their April high except for our dog: FBK.

 

The issue IMO remains RBK. Until they fix this problem for good via lower cost/higher selling price/sale of this unit we are stuck with low earnings and low stock price targets by analysts.

 

Cardboard

[Hoodlum]

With 1.25M shares exchanging today, I wonder if the last of the big seller is done now.

[finetrader]

finetrader,  I dont think you can hedge out the risk on this with TSX puts.  The two entities are uncorrelated.

 

True that Fbk has not been correlated to the TSX  lately..

 

but my biggest worries in being heavily invested in FBK is an economic slowdown. Hedging with TSX puts would work in this case.

 

By purchasing TSX puts on my FBK position, worst case scenario is: pulp price go down while the economy keeps on improving

I am not aware of any new additional supply of NBSK pulp, so a pulp price decrease would have to come from a weaker demand.

-a slight decrease in demand in a global economic growth is possible but, I figure I am kind of prepared for this situation by purchasing FBK on the cheap.

-a severe decrease in demand is most probably going to happen with an economic slowdown (the reason why I'm thinking buying TSX puts  to protect from it.

-Also, as a speculation move, the market has been going up lately, and is not undervalued in my opinion, while FBK hasn't move, so being long FBK and short the market might be profitable.

 

Overall, I see more positive than negative doing this

[SharperDingaan]

 

Keep in mind:

- 2 seperate incidences of insider buying during the quarter

- Suddenly a day of 1.25M shares trading, shortly before year end ?

- CFX & UFX have both been dropping, yet FBK & ABH has remained the same and/or improved ?

 

Enjoy the season

 

SD

 

 

[Guest Dazel]

 

As I said here a long time ago...It will get interesting when Abitibi get through reorg...well that

has happened and they know what the value is (they spun it out for $800m). They should buy it and split it up...sell the U.S ops and integrate the Quebec ops...they immediately become a low cost producer with the internal woodchips and econimes of scale...yeah and Abitbi would steal the Quebec power cashflow....It is win..win for Fairfax and Abitibi...and it looks like shareholders are so tired of the management and the stock under performance they would give it away....

Quebec would love the deal as well..likely get concessions..

Happy New Year guys!

disclosure: holding strong...neither bought nor sold this year.

 

Dazel.

[triedtestedand]

Steady as she goes, right thru into 2011 ...

 

http://www.paperage.com/foex/pulp.html

 

 

[SharperDingaan]

 

.... bit more than steady as she goes.

 

http://www.foex.fi/

Look at the NBSK forwards, the overall change during November, & the bump around Feb-2011. Then look at the BHKP (limited substitute for NBSK) change over the same period. Somebody needs a lot of (additional) NBSK over Feb & can't substitute with a lower grade.

 

Who has lots of celebrations during February?

 

SD

[finetrader]

commentary about nbsk pulp start about in the middle of the interview.

 

http://watch.bnn.ca/commodities/december-2010/commodities-december-30-2010/#clip394958

 

 

[lessthaniv]

I think that discussion was about dissolving pulp not NBSK?

 

Here is an article I've come across discussing the costs of wood chips in Eastern Canada vs. Western Canada.

 

http://www.ihb.de/wood/news/wood_chip_pulp_25115.html

 

Canadian wood chip market

December 22, 2010

For most of the past 20 years, pulpmills in Western Canada have had lower wood fiber costs than pulpmills in the Eastern provinces. One year ago, pulp manufacturers in British Columbia paid almost C$60/odmt less for softwood chips than did pulp mills in Ontario and Quebec, and five years ago the difference was almost C$100/odmt, according to the North American Wood Fiber Review.

 

Because wood costs account for almost 50 percent of the production costs for Canadian pulp mills, companies in Eastern Canada have been at a competitive disadvantage to many other mills, not only in other regions of Canada, but throughout North America.

Pulp mills in Ontario and Quebec have consistently had some of the highest wood fiber costs in North America. However, prices have fallen lately; softwood chip prices have declined ten percent over the past 12 months and they were 25 percent lower in the 4Q/10 than five years ago. Prices are currently the lowest they have been in this region in over ten years. In US dollar terms, wood costs in Eastern Canada are now lower than most countries in Europe, as reported in the Wood Resource Quarterly.

 

In the 3Q, wood chip prices in Western Canada increased again due to their formulaic tie to market pulp prices. However, they did not go up as dramatically on a quarter-by- quarter basis as they did from 1Q to 2Q earlier this year. The latest uptick resulted in prices at levels not seen since 2001. Pulp mills in the region currently have some of the highest chip prices in North America. With NBSK pulp prices now beginning their descent; softwood chip prices will follow downward in the coming quarters.

 

Despite a price decline in Eastern Canada and an increase of almost 40 percent in one year in the West, pulp mills in British Columbia continue to have lower wood fiber costs than mills in the eastern provinces of the country.

(Wood Resource Quarterly)

[finetrader]

I think that discussion was about dissolving pulp not NBSK?

 

I'm not sure, but it seems that NBSK can be added to the mix for the rayon market. If real, this could explain in part why NBSK price is steady high.

 

'However, the exception is NBSK (Northern Bleached Softwood Kraft) in China as dissolving pulp customers in the rayon market are reportedly adding NBSK to their mix, DB noted. '

 

http://www.paperage.com/2010news/12_14_2010market_pulp_containerboard_db.html

[lessthaniv]

That very interesting - I didn't realize that NBSK was being added to dissolving pulp for rayon production. Dissolving pulp prices are quite lofty so it makes sense. I'll have to learn more about this.

 

Thanks.

 

Steady demand and falling Eastern wood chip prices is a great combination. Let's hope it stays for a while.

[lessthaniv]

http://www.risiinfo.com/pulp-paper/news/Canfor-Pulp-hikes-January-NBSK-pulp-prices-10tonne-across-Asia-USA-Europe-flat.html

 

Canfor Pulp hikes January NBSK pulp prices $10/tonne across Asia; USA, Europe flat

 

"SAN FRANCISCO , Jan. 4, 2011 (RISI) - Canfor Pulp informed customers across Asia that it would increase prices on northern bleached softwood kraft (NBSK) pulp by $10/tonne, effective Jan. 1 until further notice, RISI has learned."

[Guest Dazel]

 

I am going to go out on a limb and say that FBK will be gone this time next year....all Forestry related

stocks are flying except FBK...they will be taken out with shares and debt from another...who is timing the cycle right. Lumber prices have doubled in 4 months!

 

Dazel.