This action might not be possible to undo. Are you sure you want to continue?
22 July 2010
Prices to Decline in August
North American pulp producers Canfor Pulp and West Fraser announced yesterday the first NBSK US list price decline since April 2009: prices to decline $30/tonne to $990/tonne, valid after August 1st. This is in line with our expectations and follows recently announced price cuts in China. Despite our structurally bullish view on the pulp sector, we are cautious on the sector on a 12-month view as we expect this announcement to mark the beginning of a several month correction in prices. Among Brazilian names, we prefer Suzano (SUZB5/OW) over Fibria (FIBR3/UW) as a more defensive name. • First official NBSK list price decrease in US since April ’09: Key North American pulp producers Canfor Pulp and West Fraser announced yesterday the first NBSK US list price decline since April 2009. Prices were cut by $30/tonne to $990/tonne, effective August 1st. RISI reports spot prices have fallen $55/tonne since June peak levels and are now at $850-900/tonne. Price erosion continues in China, where other producers recently announced cuts and discounts. Russian Ilim Group recently offered big discounts of $150/tonne for BSK, $160 for BHK and $5070/tonne for USK. Chilean Arauco offered $30-50 discounts. • Chinese resale prices contracting, now ~20% below March peaks: Mid-July BSK resale prices in China of $795/tonne is $200/tonne (-20%) below March peak, 11% below contract levels. BHK is trading at $720/tonne, $188/tonne below March peak (-21%), 15% below contract prices. Domestic P&W prices have also been softening. Local nonintegrated paper producers reselling pulp inventories (currently at ~2 months) to the market. We expect pulp prices to continue to roll over in the coming months as supply-demand fundamentals return to normal levels with pulp production restart and start-up of new capacity while paper markets cyclical recovery winds down. • Suzano (SUZB5/tOW) is preferred play within Brazilian P&P sector. Despite our structurally bullish view on the pulp sector, we are cautious on the sector on a 12-month view as we expect pulp prices to ease over that time period. We prefer exposure through the more defensive Suzano (SUZB5/OW), which has just ~50% pulp revenues and a stronger balance sheet than the highly levered Fibria (FBR/FIBR3/UW), which has more than 90% of revenues from pulp. Suzano is trading at just 5.8x and 7.0x ’10E and ’11E EV/EBITDA vs. 7.6x and 8.7x of Fibria. Other key pulp producers in LatAm are Copec (NR) and CMPC (NR).
Pulp and Paper Debbie Bobovnikova, CFA
(1-212) 622-3489 firstname.lastname@example.org J.P. Morgan Securities Inc.
See page 3 for analyst certification and important disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
P.000 900 800 700 600 500 400 Day s Inv entory (RHS) Source: PPPC. $/tonne UFS Price (offset). Morgan US Forestry and Packaging team estimates Figure 2: China BSK resale prices $/t 718 Figure 3: China BHK resale prices $/t 1. Morgan BEK.020 -3% 754 31% 669 48% EU 980 2% 56% 580 69% 910 8% 721 36% 644 52% 955 857 830 818 862 626 740 Source: J. Morgan US Forestry and Packaging team estimates 2 .P.100 1. $/tonne to Europe UFS-NBSK Spread Av g Spread Oct-10 UFS Price Source: PPPC. Morgan BSK-Contract Source: RISI and J.P. CFA (1-212) 622-3489 debbie. $/tonne 950 850 750 650 550 450 50 50 48 46 47 44 43 41 36 3534 343434 3232 31 30 2928 2726262527 28262527 50 45 40 35 30 25 20 400 300 200 100 (100) Oct-98 Oct-00 Oct-02 Oct-04 Oct-06 Oct-08 JPMe Sep-08 Sep-09 Mar-08 Mar-09 Nov-08 May-08 May-09 Nov-09 Mar-10 Jan-08 Jan-09 Jan-10 Jul-08 Jul-09 May-10 1.Resale Source: RISI and J.055 949 932 996 BEK China 890 3% 62% 490 82% 765 16% US 950 3% 68% 545 74% 860 10% 698 36% EU 920 3% 79% 475 94% 840 10% 657 40% 591 56% China 850 0% 91% 395 115% 810 5% 614 38% NBSK 2008 BEK 2009 UFS 2010E CFS 2011E US 990 -3% 36% 635 56% 1.100 1.P. $/t days invent.Historical and Forecast Spread Spread.Resale BHK . 10 Yr Source: PPPC.000 900 800 700 600 964 995 932 895 857 890 839 890 795 950 900 850 800 750 890 700 650 600 Apr 1 Apr 15 Jun 1 Jun 15 Jul 1 889 907 826 767 850 800 850 723 850 714 720 850 780 780 830 860 750 750 Mar 1 Mar 15 Mar 1 Mar 15 Apr 1 Apr 15 Jun 1 Jun 15 Jul 1 BSK . US delivered Table 1: August List Prices $/t NBSK List Price MoM YoY Last Trough % vs Trough Last Peak % vs Peak 5 YR Avg % vs.100 1.Contract Figure 4: Pulp inventories up to 27 days in May BEK to EU. Figure 5: US .065 1.Debbie Bobovnikova. Morgan BHK . RISI and J.051 1.com Latin America Equity Research 22 July 2010 Figure 1: JPM Pulp and Paper price Forecasts $/t. J.bobovnikova@jpmorgan. 5 Yr 10 YR Avg % vs.105 1. RISI and J.P.P. Morgan 1.
SA/R$26. Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking services from Fibria.25/Underweight). 2010. J. 3 . compensation for investment banking services in the next three months from Fibria. Morgan ratings: OW = Overweight. JPMSI provided to the company investment banking services. the research analyst denoted by an “AC” on the cover or within the document individually certifies.SA/R$15. is.20 Price Target (R$) 29.bobovnikova@jpmorgan. UW = Underweight. This chart shows J.SA) Price Chart Date 66 55 44 Price(R$) 33 22 11 0 Aug 09 Sep 09 Nov 09 Jan 10 Mar 10 May 10 Jun 10 UW R$30 UW R$29. price data adjusted for stock splits and dividends. during the past 12 months. Fibria (FIBR3. Suzano is or was in the past 12 months a client of JPMSI. Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other than investment banking from Fibria.553 Rating Share Price (R$) 34. non-investment banking securities-related services and non-securities-related services. Morgan's continuing coverage of this stock.P. Important Disclosures • • • • • Lead or Co-manager: JPMSI or its affiliates acted as lead or co-manager in a public offering of equity and/or debt securities for Fibria within the past 12 months. Initiated coverage Feb 25.P.Debbie Bobovnikova. with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers.P. where multiple research analysts are primarily responsible for this report. N = Neutral. or intend to seek.00 25-Feb-10 UW 15-Mar-10 UW Source: Bloomberg and J. An affiliate of JPMSI has received compensation in the past 12 months for products or services other than investment banking from Suzano. Investment Banking (next 3 months): JPMSI or its affiliates expect to receive. the current analyst may or may not have covered it over the entire period. CFA (1-212) 622-3489 debbie. or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.55 30. and (2) no part of any of the research analyst’s compensation was.42/Overweight) Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or. Morgan. Client of the Firm: Fibria is or was in the past 12 months a client of JPMSI.com Latin America Equity Research 22 July 2010 Companies Recommended in This Report (all prices in this report as of market close on 21 July 2010) Fibria (FIBR3. Suzano (SUZB5.80 37.
morganmarkets. UW = Underweight.68 16. Fibria ADR (FBR).] Neutral [Over the next six to twelve months. not to those analysts’ coverage universe.00 23.5 R$11 Price(R$) 22 N R$15.] Underweight [Over the next six to twelve months. 2010 Overweight (buy) 46% 49% 44% 68% Neutral (hold) 42% 46% 48% 61% Underweight (sell) 12% 31% 9% 53% JPM Global Equity Research Coverage IB clients* JPMSI Equity Research Coverage IB clients* *Percentage of investment banking clients in each rating category. however. Research is available at http://www. among other business units.2 OW R$24 15-Mar-07 N 22-Oct-07 N 27-Nov-07 N 28-Mar-08 N 10-Nov-09 OW 25-Feb-10 OW 15-Mar-10 OW N 33 OW R$9. SLC Agricola (SLCE3. as of June 30. Fibria (FIBR3.P. Cosan S.P. This chart shows J. Morgan uses the following rating system: Overweight [Over the next six to twelve months.60 21. CFA (1-212) 622-3489 debbie.50 11. A list of these analysts is available on request.45 Price Target (R$) 9.8 N R$28 OW R$22 R$23 OW 11 0 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Source: Bloomberg and J.SA). Morgan ratings: OW = Overweight. Institutional Equities and Investment Banking. we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe. and overall firm revenues.SA).P. Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J. client feedback. For purposes only of NASD/NYSE ratings distribution rules.55 25.SA).83 19.00 44 30-Oct-06 OW N R$18.SA) Price Chart 55 Date Rating Share Price (R$) 16.P. which include revenues from. Cosan Ltd. competitive factors. Morgan representative. J.SA).] J.P. Morgan Cazenove’s UK Small/Mid-Cap dedicated research analysts use the same rating categories. (CZZ). or you can contact the analyst named on the front of this note or your J.bobovnikova@jpmorgan. the current analyst may or may not have covered it over the entire period. (CSAN3. Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors.00 15. 4 .53 27.SA).com Latin America Equity Research 22 July 2010 Suzano (SUZB5. each stock’s expected total return is compared to the expected total return of the FTSE All Share Index.00 24.SA) J.P. and our Underweight rating falls into a sell rating category. The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe. Morgan Equity Research Ratings Distribution. CFA: ALL (ALLL11. price data adjusted for stock splits and dividends.com .00 22. Morgan.50 19. we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe. Sao Martinho (SMTO3. Guarani (ACGU3. including the quality and accuracy of research.P. Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Morgan's continuing coverage of this stock. our Neutral rating falls into a hold rating category.Debbie Bobovnikova.A.SA).20 28.86 29. Suzano (SUZB5. See below for the specific stocks in the certifying analyst(s) coverage universe. Coverage Universe: Debbie Bobovnikova. N = Neutral. our Overweight rating falls into a buy rating category.80 18.
P. J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.K.V. U. de C..5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.P.: J. JPMSAL does not issue or distribute this material to “retail clients. JPMorgan Securities Japan Co. Korea: This report may have been edited or contributed to from time to time by 5 . N. 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). and the EEA by JPMSL.K.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Kingdom of Saudi Arabia.P. Many European regulators require that a firm to establish. India: J.P. Morgan Representative or visit the OCC’s website at http://www.P. is a member of the NFA..P.A.P.hk/prod/dw/Lp. Ltd.com Latin America Equity Research 22 July 2010 Other Disclosures J. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission.P. An updated list can be found on HKEx website: http://www.P. This document must not be acted on or relied on by persons who are not relevant persons. Germany: This material is distributed in Germany by J. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a Market Participant with the ASX and regulated by ASIC.: JPMSI is a member of NYSE. Morgan Bank International LLC. London EC2Y 5AJ.A. please contact your J. Morgan Pakistan Broking (Pvt. Morgan is the global brand name for J.P.P. P.A.P. Box 51907. Morgan Securities Philippines Inc.P. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16. advising and custody.” The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. Singapore branch (JPMCB Singapore) which is regulated by the MAS.V. Philippines: J. 82 Participating Association / Japan Securities Dealers Association. Reg.hkex. Morgan Saudi Arabia Ltd. FINRA and SIPC.P. JPMorgan Chase Bank. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J. Morgan S.htm. implement and maintain such a policy.pdf.. Morgan Equities Limited.P.P.. Dubai. Indonesia: PT J. In the case of share trading.P.) J. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. Registered Office 125 London Wall. Australia: J. The Financial Futures Association of Japan.A. N. is authorised by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent. UAE.O. N.com. Australia: This material is issued and distributed by JPMSAL in Australia to “wholesale clients” only.. Legal Entities Disclosures U. In other EEA countries. Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre . Level 7.P. P. Riyadh 11553.P. is regulated by the Korea Financial Supervisory Service. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. N.. Seoul Branch.Debbie Bobovnikova. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons.A. Options related research: If the information contained herein regards options related research. (JPMSL) is a member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority.P. Morgan Structured Products B. will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co. Country and Region Specific Disclosures U. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Brazil: Banco J. PO Box 506551.P. Morgan Securities Ltd. is a member of the Philippine Stock Exchange and is regulated by the Securities and Exchange Commission. Morgan Casa de Bolsa. Registered in England & Wales No.P. Saudi Arabia: J.optionsclearing. For a copy of the Option Clearing Corporation’s Characteristics and Risks of Standardized Options. Singapore: This material is issued and distributed in Singapore by J. S. CFA (1-212) 622-3489 debbie.K. Ltd. (For research published within the first ten days of the month. N. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB.. Morgan Cazenove is a brand name for equity research produced by J. arranging. No. This report has been issued in the U. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Frankfurt Branch and J.. and European Economic Area (EEA): Unless specified to the contrary. JPMorgan Chase Bank. Korea: J. only to persons of a kind described in Article 19 (5). the disclosure may be based on the month end data from two months’ prior. (JPMSI) and its non-US affiliates worldwide. Morgan Futures Inc..P.Building 3. Dubai: JPMorgan Chase Bank. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. For the purposes of this paragraph the terms “wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Al-Faisaliyah Tower.Morgan Chase Bank.bobovnikova@jpmorgan. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor. the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Ltd..K.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank.P.A.A. such information is available only to persons who have received the proper option risk disclosure documents.com/publications/risks/riskstoc. Dubai Branch. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. 2711006. J. and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co. Pakistan: J. J.. South Africa: J.P. Mexico: J. and J.. 38. issued and approved for distribution in the U. Morgan India Private Limited is a member of the National Stock Exchange of India Limited and Bombay Stock Exchange Limited and is regulated by the Securities and Exchange Board of India. Morgan Securities Ltd. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 020/01/2010 and Co.P. Morgan Securities Ltd. Hong Kong: J. J. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading. Kanto Local Finance Bureau (kinsho) No. Taiwan: J.S.. King Fahad Road. Morgan Securities (Far East) Ltd. Morgan Securities Inc. and listed on the Stock Exchange of Hong Kong Limited. and that a loss may occur due to the exchange rate in the case of foreign share trading.
The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Seoul Branch.S. for securities where the holding is 1% or greater. “Other Disclosures” last revised March 1. alternatively. the information contained herein or the merits of the securities described herein. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or. habitually invest money. any trades in such securities must be conducted through a dealer registered in Canada. financial instruments or strategies to particular clients. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. To the extent that the information contained herein references securities of an issuer incorporated. affiliates and accepts responsibility for its contents. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. and under no circumstances is to be construed as. JPMSI distributes in the U. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who. or its affiliates and/or subsidiaries (collectively J. All rights reserved. Morgan. All pricing is as of the close of market for the securities discussed. and any representation to the contrary is an offence. formed or created under the laws of Canada or a province or territory of Canada. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials.S. the specific holding is disclosed in the Important Disclosures section above. research published by non-U. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. The opinions and recommendations herein do not take into account individual client circumstances.P. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules.com Latin America Equity Research 22 July 2010 affiliates of J. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. not for sale. Pakistan: For private circulation only. 2010. Clients should contact analysts and execute transactions through a J.P. an advertisement. market conditions or any other publicly available information. in the course of and for the purposes of their business. This report or any portion hereof may not be reprinted.P. Canada: The information contained herein is not. Periodic updates may be provided on companies/industries based on company specific developments or announcements. in Canada or any province or territory thereof. pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. a public offering. India: For private circulation only. General: Additional information is available upon request.P. CFA (1-212) 622-3489 debbie. a prospectus. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. 6 . or solicitation of an offer to buy securities described herein. Copyright 2010 JPMorgan Chase & Co.Debbie Bobovnikova. an offer to sell securities described herein.bobovnikova@jpmorgan. not for sale. unless otherwise stated. objectives. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. Past performance is not indicative of future results. or needs and are not intended as recommendations of particular securities. sold or redistributed without the written consent of J. Morgan Securities (Far East) Ltd. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.