• China has a great deficit of pulp (because they don’t have forests) and a great surplus of paper so the cycle of paper is highly influenced by China buying paper pulp from Latin America and selling paper to Europe.
  
  
• Because of the “COVID19 zero cases policy”, China isn’t buying pulp. Chinese ports are closed so pulp can’t get into China.
  
  
• Every region in the world is increasing the pulp consumption but China.
  
  
• Latin America wants to sell to China, but they can’t.
  
  
• The Chinese paper isn’t getting to Europe so the local manufacturers are benefitting.
  
  
• Europe is like an island – at the beginning of the year, 80% of the supply is already contracted. It’s very hard to get in in the middle of the year.
  
  
• Inventories in European ports are at historical lows.
  
  
• When restrictions in China are lifted, we should be seeing restocking.
  
  
• To deliver pulp to Europe, the transportation fees have increased a lot.
  
  
• The European market has benefited from the difficulty to get pulp and paper (from China) to Europe. Navigator is gaining market share.
  
  
• Many of Altri’s customers have gained market share because there are no Chinese paper sellers.
  
  I asked Altri why Latin America producers aren’t flooding the European market:
  
  
• Bracell, owned by the Chinese, has a new viscose plant in Brasil that has been operating since the fourth quarter of 2021. Viscose is used to make dissolving pulp which is then used to manufacture clothes.
  
  
• They started production right when China stopped buying and shipping costs increased dramatically.
  
  
• Bracell had originally planned to sell its production in the open market to China, but due to the pandemic they haven’t been able to do so. Oddly enough, they shut down their new plant for maintenance work recently.
  
  

• Because they’re not selling what they planned to Chinese customers, they’re going to integrate it into the RGE group earlier than expected, meaning that they won’t be selling their production in the open market anymore. 

• Altri isn’t really sure why Bracell hasn’t come to Europe because Bracell hasn’t disclosed it.

• Altri suspects that, it’s hard for Bracell to suddenly start selling to Europe because Latin American manufacturers had the ships contracted at a set price and now to come to Europe they must pay spot prices which are much higher. 
  
  
• And it looks like the shipping prices are going even higher.
  
  
• Right now it isn’t easy to move big loads around the world.
  
  
• Graphic paper demand (used in magazines) had been declining for the past 7 years, but the trend inverted in the last 2 years.
  
  
• During the pandemic several of the graphic paper manufacturers closed doors or converted into packaging manufacturers (China is also out of the picture). Suddenly demand goes up and the price of graphic paper goes up dramatically. Digitalization is going to accelerate.

Now, it’s very likely that Altri might be having a spectacular year due to the higher price of pulp and also the higher selling price of energy, of which Altri is a net seller (it produces more than it consumes). Yes, costs will also increase, but they’ll likely be offset by the increased selling prices.

And if Mr. Market was blind to see GreenVolt’s spinoff as an opportunity when it was announced several months ago, maybe he will be blind to the cyclicality of Altri’s revenue (and earnings) and will throw the share price through the roof in the meantime.

But since I’m not in the business of guessing what the market will be doing in the next quarter, there’s no fundamental reason to be holding my shares. Yes, Altri is very well run and we might be seeing it being even more successful in the long run, but it’s not a screaming buy for me right now.

For now, I’m happy that it returned 19% gross to the Portfolio in just one month. Besides, I loved learning about the pulp industry. Who knows, some day I’ll get back to it.