RYAM Q3 2024: Jesup Fire Cuts $10M EBITDA; Acetate Demand Stable
- Stable Core Exposure: Despite 20% of total sales exposure to China, management emphasized that acetate—which constitutes roughly 40% of that exposure—is highly stable due to its inelastic demand (tied to tow production for cigarettes).
- Growing Demand & Market Beneficiaries: There is evidence of an uptick in demand in key markets, with restocking activity in Europe and benefits from competitor shutdowns bolstering CS product sales going into 2025.
- Strategic Pricing Focus: Management is leveraging a "value over volume" pricing strategy, with recent CS price increases already underway, reinforcing the potential for higher margins despite economic headwinds.
- China exposure risk: Approximately 20% of enterprise sales is tied to China, including vulnerable segments like High-Yield Pulp affected by stranded pulp capacity, which can lead to increased pricing pressures and volatility if the Chinese market slows.
- Uncertainty from the Jesup fire: The Jesup facility fire has already impacted EBITDA by $10 million and requires further capitalized repairs, but management provided no definitive cost estimates, leaving uncertainty over potential margin and cash flow pressures.
- Price and volume execution challenges: Early-stage cellulose specialty (CS) price increases are being implemented amid a product-grade sensitive environment with soft Q4 fundamentals, posing risks that anticipated margin improvements and demand recovery may not fully materialize.
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China & Europe
Q: Impact of China and Europe on revenue?
A: Management noted about 20% of sales exposure is from China—primarily stable acetate demand—and observed modest upticks in European construction activity, which is favorably influencing ethers demand. -
Acetate Outlook
Q: What is the outlook for acetate and CS demand?
A: Acetate remains a stable, cash‐cow product even as other CS products face mild softness that’s partially offset by a competitor shutdown, ensuring overall stable demand into 2025. -
CS Price Increases
Q: How are CS price increases performing?
A: Management is progressing with a value-over-volume pricing strategy that varies by grade, showing early positive signs though it is still early in the process. -
HPC Commodity Volumes
Q: What are the expectations for HPC commodity volumes in Q4?
A: Commodity volumes in the HPC segment are expected to rise slightly in Q4 due to seasonality and improved CS demand, despite some ongoing impacts from the Jesup fire. -
Temiscaming Bridge Sales
Q: Will Temiscaming’s bridge sales continue into Q4?
A: The benefit from the Temiscaming shutdown’s bridge sales is diminishing with time, though a slight uplift is expected in Q4 from residual working capital effects. -
Jesup Repair Spending
Q: What’s the forecast for Jesup repair spending?
A: Although investigations are ongoing, management indicated that the required capital expenditures at Jesup will be capitalized over the next couple of years without compromising safe operations in 2025. -
Biomaterials Contribution
Q: How do biomaterials tie into sustainability goals?
A: Biomaterials are key to meeting ESG targets by leveraging surplus wood for renewable production, helping transition from nonrenewable inputs to sustainable products in core operations.
Research analysts covering RAYONIER ADVANCED MATERIALS.