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Gold/Mining/Energy : Enron - Natural Gas Industry -- Ignore unavailable to you. Want to Upgrade?

To: Softechie who wrote (312)	10/30/2001 4:18:09 PM
From: Softechie	Respond to of 1433

DJ INTERVIEW: New Enron CFO On Ambitions In Forest Products 30 Oct 12:53 By Zahida Hafeez Of DOW JONES NEWSWIRES CHICAGO (Dow Jones)--While Enron Industrial Markets' trading of forest products has grown at a steady pace, Jeff McMahon, the new chief financial officer of Enron Corp. (ENE), said one of the "biggest obstacles" to the unit's even better performance remains strong publisher-producer relationships. In an interview with Dow Jones Newswires on Oct. 23, when he was chief executive of Enron Industrial Markets and before his appointment as Enron CFO, McMahon said "we may end up changing that relationship" between producers and consumers. That may seem like a tall order in an industry which functions on decades-long ties, though sometimes ties based on a love-hate relationship. However, judging from the steady growth so far in Enron's newsprint trading as well as expectations for growth by the end of 2001, Enron is making headway in the physical trading of forest products. The volume of newsprint Enron bought and sold jumped from less than 5,000 metric tons in January to 60,000 tons in July. And by the end of the year, Enron officials expect their monthly newsprint transactions volume will have doubled July's levels to reach 120,000 tons. However, even with such expectations for growth in the monthly transactions volume, becoming a major player in the forest products industry may take a while for Enron to achieve. Enron's projected volumes for newsprint sales and purchases form a small portion of the total annual sales estimated at roughly 15 million tons for the North American region. "In three years, will we look like an Abitibi? No, that's not our goal," said McMahon, referring to Abitibi-Consolidated Inc. (ABY), the world's largest newsprint-maker. "Our goal is to be (one of) the largest marketers of newsprint in North America...to fundamentally change the way newsprint is bought and sold in North America, in giving consumers and producers additional ways to manage their risks," he said. The way the forest products industry currently manages price fluctuations - undesirable from both the producer and publisher standpoint - hasn't worked, whether it's through producers asking customers to trust them or through supply management, McMahon argued. Referring to a graph of price fluctuations superimposed on inventory levels, McMahon said, "I wonder if inventory levels are a leader or follower of price change? It's the which-came-first-the-chicken-or-the-egg question." "(The price volatility) has been around for 100 years, why will it be fixed in 2002?" he asked. The best way to diminish price gyrations, McMahon said, is to lock in long-term prices through Enron's financial hedging tools. Even the company's physical trading end ultimately serves to promote a market for its hedging products. Other Hurdles In Growing Newsprint Trading Volumes For now, McMahon concedes that Enron Industrial Market's forest products operations have to overcome some hurdles. One other major hindrance has been the fact that Enron's message has been a hard sell to production managers at printing presses. Some purchasing managers and production managers at U.S. publishers argue that their printing presses are very sensitive to the quality of newsprint and fear that Enron's newsprint may not be up to the mark. Such thinking is misguided, Enron officials counter, because a majority of publishers across the country use printing presses made by the same maker, and yet, those who have tried Enron's newsprint are happy with its quality. In any case, when more production managers start to get convinced of Enron's ability to provide product that will satisfy their printing presses' specifications, "That's where the evolution starts to happen," said McMahon. Another way McMahon believes his company can accomplish its goals is to create a pricing benchmark. Though the various qualities and grades of newsprint will still exist, "physical newsprint can price off that benchmark once that (standard) is achieved," he explained. Former CFO Imbroglio Doesn't Affect Forest Pdts Arm McMahon replaced Andrew Fastow as CFO last week amid an informal investigation by the Securities and Exchange Commission into the company's finances as well as talk of losses stemming from partnerships managed by Fastow and the subsequent plunge in Enron's stock price. The energy giant said Monday it was lobbying banks for a new credit line as Enron struggles to bounce back from a disappointing third-quarter and the Fastow-related transactions. Although McMahon was unavailable for an updated comment, Karen Denne, vice president of communications, said Enron Industrial Markets venture in forest products will stay on the same course without any pullback in capital despite the company's current struggles. Enron began its physical trading of newsprint and other forest products more than a year ago, while it has been offering financial hedging tools in the sector for the past five years. -By Zahida Hafeez, Dow Jones Newswires; 312-750-4132; zahida.hafeez@dowjones.com (END) DOW JONES NEWS 10-30-01 12:53 PM