Forum Archive Index - May 2000

[kevin.young@gfmb.co.nz]

More Extracts

Pulp and Paper Update? Spooked by uncertainty in the uncoated freesheet sector (
and also a weakening lumber market, which market observers already knew) a major
US  broker  downgraded  90%  of  paper  stocks it covered. The caused a shift in
market sentiment leading to a major selldown of paper stocks? For some time now,
analysts  have  been  taking  the view that the fundamentals of the paper sector
have  been  strengthening.  Price increases were announced in March for uncoated
freesheet.  Hence  the  price  reduction  for price of cut-size from US$920/t to
US$850/t  in  May came as a major shock. It raises the question of how strong is
the  sector  and  whether  pulp  prices  are  close to their peaks. Added to the
uncertainty is that S&P Paper Index has fallen several times by a similar extent
or  larger  since early this year. Is the Index on a downtrend and the reduction
last  night  a  manifestation of that trend?? We believe it is important at this
point  of  the  cycle  to differentiate product grades and markets. While we are
concerned  about  the  high  interest  rate  environment  in the US impacting on
demand,  not all products will behave in a same way.  As for NZ forestry stocks,
we  are  more  exposed to the Asian markets than the US although any shift in US
sentiment  tends  to have some impact on NZ equity market? The Asian markets (ex
Japan) to date appear to be recovering nicely apart from the occasional "bumps".
The log market has been a laggard and Japan is critical to the price recovery of
the  log market. Contrary to current market sentiment, the leading indicators of
Japan  are  very positive. These indicators are consistent with the very bullish
view  recently taken by Sumitomo Forestry, the largest home builder in Japan. It
expects   FY2000   earnings   estimates  to  be  some  50%  higher  than  market
expectations?  CAH  has  a  major  exposure  to  the  log market. We believe the
earnings  upside  of  the  company  is  very  positive. CAH has an insignificant
exposure  to  uncoated  freesheet  and  its  exposure to market pulp has reduced
significantly  with  the  sale of COPEC. It has a very strong balance sheet. Our
valuation of CAH is $2.89


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