Off the Paper Roller Coaster
Market prices are determined by one of several third-party indices, including Pulp & Paper Week, Pulpex and Resource Information Systems (RISI). For example, Enron Industrial Markets uses RISI, along with other indices, to determine market prices when it is negotiating a price-management agreement. This market price represents the floating price that is swapped out of. The fixed, hedge prices are set based on global market information, supply and demand forces and cross-com-modity values. Once a party is involved in the hedge, financial contracts are settled monthly or quarterly, by whomever owes money to the other participant.
Financial price management strategies remove the speculative aspect of transacting in the pulp and paper industry. Producers and consumers retain the freedom and ability to make choices that will prove beneficial to their business. Each company determines how much paper expense risk it wants to eliminate and at what level a hedge makes economic sense.
The pulp and paper market will always fluctuate, but stability is no longer inconceivable. Take charge of your paper budgets and explore how hedging may make sense for you.
For more information on current market prices and price risk management strategies, visit www.clickpaper.com, or e-mail Wendy.King@ Enron.com.