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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Dayuhan who wrote (8410)	3/23/1999 1:09:00 AM
From: peter michaelson	Read Replies (1) \| Respond to of 9980

Steven: The main thing to keep in mind regarding paper companies, I believe, is the extremely high operating leverage. These companies are extremely capital intensive and have high fixed operating costs to boot. I have seen paper companies go bankrupt at 72% capacity utilization, and boom at 80%. Every percentage point above break-even is very significant. The leverage causes the boom and bust in the industry. Everyone has to keep their machines going, creating an excess supply. As demand catches up with supply, prices can double for a while, as it takes several years to bring new capacity on line. If the paper company has financial leverage on top of the operating leverage, watch out! You'd have to write real small to get that on your thumbnail. Peter