New FBK

[lessthaniv]

http://www.canadianbusiness.com/markets/commodities/article.jsp?content=20110314_10009_10009

 

A rayon of light for forestry

 

With cotton prices at record levels, rayon is not just for Hawaiian shirts anymore.

By Michael McCullough

 

Squeezed by cotton prices at their highest level since the U.S. Civil War, clothing manufacturers are turning to a long–forgotten substitute: rayon. And that is causing a stir in Canada's long–suffering pulp–and–paper industry, which produces the feedstock for the fabric.

 

On Feb. 2, Chinese rayon producer Fulida Group Holdings bought the Neucel Specialty Cellulose mill in Port Alice, B.C., cementing the six–year resuscitation of a community once on death row. Meanwhile, Fortress Paper Ltd. is converting a money–losing mill in Thurso, Que., from producing northern hardwood bleached kraft to dissolving pulp, the bleached wood pulp of which rayon is made.

 

Rayon's run has similarly benefited Montreal–based Tembec, which has long served a market oriented toward end uses such as upholstery fabric, cigarette filters, television screens and paint. New demand from the rag trade has caused dissolving–pulp prices to rise 68% over the past year.

 

Cotton remains the king of fabrics, representing 40% of the world's textile market. But its price nearly doubled in 2010, capping a decade of flat crop yields and rising demand. Not only low–cost manufacturers but also high–end fashion houses such as Isaac Mizrahi have been blending rayon into their latest designs. While rayon's price has jumped, too, it sells for around US$2.35 a yard today, compared to US$4 for cotton.

 

Developed more than a century ago as a synthetic alternative to silk, rayon has suffered the stigma of too many Hawaiian shirts and gaudy 1980s fashions. However, most of the production is now blended with cotton, and rayon's lack of insulating properties make it practical in countries with hot climates that are the source of a lot of the new consumer demand.

 

Fortress has had success exploiting market niches such as banknotes and wallpaper, which earned founder and CEO Chad Wasilenkoff, a 38–year–old investment banker, the Pacific region Entrepreneur of the Year award from Ernst & Young last year. The company has created a new division, Fortress Specialty Cellulose, to capitalize on what Wasilenkoff believes is a long–term opportunity in rayon.

 

"We're betting on this as a multi–decade phenomenon," he says, predicting that after the current spike (spot prices have risen as high as US$2,600 a tonne) dissolving pulp will settle out at around $1,800. The rebuilt Thurso mill, producing 200,000 tonnes annually, will break even at $600, he says. Fortress bought the mill from Fraser Papers last year for $1.2 million and is investing $170 million turning it into a dissolving–pulp producer by the end of this year. Wasilenkoff estimates there are a dozen other pulp mills worldwide, including four or five in Canada, suitable for conversion to specialty cellulose, and Fortress expects to acquire more. "There needs to be another one and a half Thursos every year," he says, to meet global demand at current prices.

 

The Port Alice mill, built in 1917 to produce bleached pulp, was bought out of insolvency in 2004 by entrepreneur Richard Bassett who, with the help of private equity firm Wellspring Capital Management, restarted it as a dissolving–pulp producer in 2006. Coincidentally, the day after the Fulida announcement, the Forest Products Association of Canada issued a new study about the need to diversify products away from wood and paper in the new "Bio–Age." In the case of wearable wood fibre, though, it is mostly new money from outside the industry effecting that transition.

[cwericb]

Interesting quote from a school board meeting in Virginia 

 

"The recycling issue was further explored during the meeting. The company contacted, Fibrek Recycling Plant, pays $115 to $120 a ton for office waste. "I don't know, with gas prices the way they are, if it's worthwhile," commented Ms. Kimble."

 

Among other things it tells an idea of what they are paying for waste and from the last report it seems they get the same for RBK as NBSK.

[Myth465]

Not bad timing  :D. If only I sold a few other things  :(.

 

Nice to have cash around though.

[alertmeipp]

Good timing, indeed. I am stuck with it.

This one doesn't rally much with the market but surely correcting with it.

 

It will be fine! Ppl love paper.

[Alekbaylee]

A bit more up this week :

 

Pulp NBSK USD USD 963.61 +1.80

Pulp BHKP USD USD 848.27 +0.65

 

With this interesting comment :

 

Paper industry – A fairly large part (20% or so) of Japan’s pulp and paper capacity has been shut down due to the combined impact of the earthquake and tsunami. The full impact will only be known when the duration of the closures has been seen. It is obvious that the rest of the machines will run full, assuming that they will be able to get the energy needed. Imports of paper from outside may also increase.

 

http://www.foex.fi/

 

[Uccmal]

US prices up a little more than that:

 

PIX US NBSK USD 986.13 +6.77

 

Alek, The Us prices you had hadn't been adjusted at the time.  a.

[Alekbaylee]

Alek, The Us prices you had hadn't been adjusted at the time.  a. 

 

Tx Al. Loosing a bit of concentration with all this nuclear mess.

Speaking of mess... they're gonna need a lot of (sponge) paper to clean this mess...  ::)

[gordoffh]

check canadian insider - 2 more management types have purchased shares on the open market - believe that is now 4. can,t believe that something isn,t in the works

[Hoodlum]

Some more interesting comments on Fibrek and China.

 

http://www.montrealgazette.com/news/todays-paper/Chinese+demand+helps+Canadian+pulp+producers/4447230/story.html

 

China is installing 30 tissue products machines over the next 36 months to meet demand from a burgeoning middle class and that means tight pulp markets ahead, says Pierre Gabriel Côté, CEO of Longueuil-based Fibrek Inc.

 

"We're selling into a tight market right now and a March industry-wide price hike of $30 U.S. a tonne for long-fibre softwood pulp that goes into paper and tissue products is holding firm," he said.

 

Pulp inventories indicate the market is in supply-demand balance at this point.

 

Côté said the Chinese are critically short of fibre and their international buying is pushing up world pulp prices. Though Fibrek ships almost all its softwood and hardwood recycled pulps to North American and European markets, it benefits from the higher world prices.

 

The Asians have been buying Canadian and European pulp mills to boost supply. Asked if they have knocked on Fibrek's door, Côté replied: "We're running this company in the shareholders' interest ... the U.S. mills are not for sale."

 

[tyska]

"We're running this company in the shareholders' interest ... the U.S. mills are not for sale."

 

I worry that those two things may not agree with each other.

[Myth465]

"We're running this company in the shareholders' interest ... the U.S. mills are not for sale."

 

I worry that those two things may not agree with each other.

 

The right answer.

 

"We're running this company in the shareholders' interest ...  Everything is for sale at the right price  ;D".

 

Perhaps its why I aint a CEO.

[lessthaniv]

"We're running this company in the shareholders' interest ... the U.S. mills are not for sale."

 

Now, in that context review SD's post a while back ....

 

Not to put ideas in managements head, but ….

 

- Selling St F is not the same as firing the people. It is the same plant, & the same people, they just work for somebody else. Everyone gets to stay in Quebec.

- We all get paid for the power deal, all the green projects, & the future production – today. And that future CF is discounted at the lowest possible rate (maximizing todays asset value).

- We’re left with 2 US plants, almost 50% of the RBK market, all the debt repaid (assumption), & a wad of leftover cash (assumption). We have strong incentive to change to a US coy, & elminate our Balance Sheet FX translation exposure.

- We very likely have a share consolidation, a rebranding, a graceful change in the institutional ownership, & probably a RBK related acquisition financed with LT Debt. The ‘new’ FBK becomes a utility company doing recycling, & pays dividends at a rate that one might expect of a utility.

 

Elegant, best use of capital & everyone gets what they want.

 

SD

 

;D

[Uccmal]

Maybe Mr. Cote has been drinking some FFH coolaid along the way as well.  I am sure he has a price in mind, and I am equally sure its well above the 1.40 he just bought shares at. 

[tyska]

"We're running this company in the shareholders' interest ... the U.S. mills are not for sale."

 

I worry that those two things may not agree with each other.

 

The right answer.

 

"We're running this company in the shareholders' interest ...  Everything is for sale at the right price  ;D".

 

Perhaps its why I aint a CEO.

 

It's a shame you aren't the CEO at this point, it disturbs me that he would say that something is not for sale. If not, then tell the shareholders what your plans are, that make it not for sale. If you truly  are managing it in their best interest.

[txlaw]

Very interesting that he said that the U.S mills are not for sale.

 

I really like Sharper's idea.  Sell off the Canadian plants to a willing consolidator.  We're left with a recycling utility that creates product that will increasingly be used in a country where sustainability is finally being recognized by both producers and consumers.  RBK is a differentiated product and we will own a large chunk of the US market for it.

[lessthaniv]

Very interesting that he said that the U.S mills are not for sale.

 

I really like Sharper's idea.  Sell off the Canadian plants to a willing consolidator.  We're left with a recycling utility that creates product that will increasingly be used in a country where sustainability is finally being recognized by both producers and consumers.  RBK is a differentiated product and we will own a large chunk of the US market for it.

 

My feelings exactly.

[Rabbitisrich]

It would be more exciting to get some confirmation on the reporter's implied context. The answer and the question seem disjointed.

[txlaw]

Haha, yeah.  Note the ellipses in the middle of that quote. 

 

I wonder exactly what Cote said and what he was asked. 

[gordoffh]

according to cdn insider continued insider buying to mar 17

 

[alertmeipp]

nice to see some actions. I may consider adding to my positions if they continue - right now, the size is still small.

[Alekbaylee]

Yup and was up nicely this week.

 

Wonder if and how the oil spike will impact their bottom line though (as well as their competitors's for that matter).

 

Any comments/insight?

[alertmeipp]

Energy is not a big part of the equation.

What's happening in Japan may cause some supply issues tho... although I can't find anything that indicate the extent.

[lessthaniv]

There are some interesting dynamics happening in the clothing industry at the moment. Cotton prices have spiked in 2010 and its causing clothing makers to look for substitutes. Many opinions suggests that this is a long term trend including Chad Wasilenkoff of Fortress Paper.

 

http://specialtycellulose.com/pulp-and-paper-canada-%E2%80%9Cthurso%E2%80%99s-future-secure-with-fortress%E2%80%9D.htm

 

Monthly Cotton Prices (US cents per Pound)

 

http://www.indexmundi.com/commodities/?commodity=cotton&months=120

 

"Mar-2009","51.5"

"Apr-2009","56.78"

"May-2009","61.95"

"Jun-2009","61.39"

"Jul-2009","64.8"

"Aug-2009","64.26"

"Sep-2009","64.07"

"Oct-2009","66.82"

"Nov-2009","71.78"

"Dec-2009","76.78"

"Jan-2010","77.4"

"Feb-2010","80.04"

"Mar-2010","85.79"

"Apr-2010","88.09"

"May-2010","90.07"

"Jun-2010","91.68"

"Jul-2010","84.15"

"Aug-2010","90.35"

"Sep-2010","104.73"

"Oct-2010","126.55"

"Nov-2010","155.47"

"Dec-2010","168.22"

"Jan-2011","178.93"

"Feb-2011","213.18"

 

Rayon is a good substitute for cotton. It's main ingredient is dissolving pulp and because of the high price for cotton - dissolving pulp has also benefited. Fortress Paper is currently converting a mill to produce dissolving pulp, Tembec & Rayonier have both benefited too.

 

http://photos.prnewswire.com/pb-large/EN/2011/03/01/18/20110301182448ENPRNPRN-RISI-CHART-90-1299003888MR.jpg

 

Now Mercer has just completed a feasibility study on the cost to convert to "swing mills".  Ones that can produce either NBSK or DP. The idea is to be able to capitalize on the pricing of whatever output makes the most sense. Mercer suggests it's costs to convert the mills is likely $30M - $40M.

 

http://www.paperage.com/2011news/02_22_2011mercer_pulp_mills.html

 

One analyst discussed this on the last Fibrek conference call and I believe they said it was doable however they hadn't yet pursued it.

 

Comments?

 

 

 

 

[Alekbaylee]

Now Mercer has just completed a feasibility study on the cost to convert to "swing mills".  Ones that can produce either NBSK or DP. The idea is to be able to capitalize on the pricing of whatever output makes the most sense. Mercer suggests it's costs to convert the mills is likely $30M - $40M.

 

Looks very smart to me!

 

[gordoffh]

continued insider buying at 1.54 mar 22