First Half 2005 Paper Industry Review

Paper industry has been dynamic the past 24 months. 2004 ended and 2005 begun with a very strong paper market. As 2005 progressed, pricing decreased - in spite of rising raw material (fiber, energy, chemicals, transportation) and today, the uncoated market is beginning to once again announce price increases.
First half of this year-
-Uncoated free sheet pricing increased 10%
-But demand now down - electronic and high bright groundwood grade substitution
- Offset by equipment curtailment
-Coated magazine paper prices increased nearly 20%
-Finland and Canadian strikes curtailed supply
-Newsprint prices rose 10%
-Newsprint capacity decreased 1million tons (capacity now 13.4millin tons)
-Kraft Linerboard increased 15%
-Super calendar paper -insert paper used fore advertisements - increased 12%
Plus additional $40/ton increase announced in July
-Pulp prices jumped to $680/ton (highest level of NBSK since JAN2001 - $710/ton)

Uncoated Paper Prices Increase

The paper market continues in a state of confusion. After a period of price decreases - many of the major producers have announced price INCREASES. Leading the industry include Weyerhaeuser, Domtar and Boise (International Paper - the largest supplier of uncoated paper is conspicuously absent). The increase included both cut size (office copy and printer paper) and offset. The increase was announced for $40/ton effective with shipments September 19. Reasons for this increase were
-Capacity closure
-Seasonal upturn of demand
-Raising raw material cost pressure
-Reduced finished inventory
-Quality improvement (brightness now 92 vs. 84)

Lincoln Tissue Mill Expands

For the first time in many years, a domestic paper mill is expanding AND including a new paper machine in their plans
Lincoln Tissue, a specialty, value added lightweight tissue mill has committed $36million dollars toward a new paper machine, which will be supplied by Metso. This machine will produce 100 tons per day. The current mill contains 2 paper machines with an output of 50 tons per day. The owners purchased the mill from Eastern Fine Paper (out of bankruptcy) in May of 2004 for $23.7million. The new machine is forecasted to be operating by August 2006.

Update on International Paper Quality Improvements

News fromInternational Paper (IP) regarding their brightness change. Some of the highlights:
All uncoated ( 4,000,000 tons ) will be moving up in brightness
There will no longer be any 84 bright products available from IP
Tidal - 84 bright to 92
Fore - 88 bright to 96
Williamsburg - 84 to 92
Accent - 92 to 96
Converting grades such as envelopes - 84 to 92
Carolina, Colors, and Uncoated Bristol's will not change

The mill has apparently developed a new technology that enables them to reach a higher brightness at no increased cost, and have stated that they will be competitive with the existing 84 bright market. IP feels that with this change, their competition will do either one of the following:
Increase to 92 bright to avoid losing market share ( not good for most mills as they will significantly increase their cost )
Stay at the 84 bright level and fight it out on price ( not good for most mills as this further affects their profitability, or lack of )

We should begin to see this new product sometime in September. At this point, the mill has decided to stick with the same sku's. It's a good time to begin looking at your inventory levels of Williamsburg and Accent as in two months, these old shade products will be discontinued.

This is a significant move by IP, that will change the landscape of uncoated paper in North America.

Stats in for Strike in Finland

We recently learned that the 56 days of down time in Finland, as a direct result of the labor strike, was over
1.7million tons. The tonnage was almost exclusively printing and writing grades. The strike, which formally was settled on
July 1 effected UPM Kymenne, StoraEnso, and M-Real. Also effected was 430,000 of market pulp. Finland has become a major
supplier to the USA of printing and writing grades - 11% market share of USA coated groundwood; 13% of USA supercalendar (S/C); and 10% of directory papers.

FiberMark confirms Reorganization

On June 24, the Fibermark Paper Company confirmed its reorganization plan which contained a revised capital structure with lower debt levels and lower interest rates. The company also outlined closing two paper machines (Hughesville, NJ and Warren Glen NJ).

Quebecor World Looks to Sell Division

Quebecor World has recently placed its commerical printing division up for sale. This division has 12 plants. The printing company is under a lot of cost pressures.

Market Pulp

Late last week, pulp prices slipped $5/ton. Weyerhaeuser earlier this month announced decreasing its price for NBSK by $10/ton. Meanwhile, producers are in discussions with the buyers in Asia to increase pulp prices by $20/ton. Pulp prices last rose in February to list price of $680/mt - since than - prices have declined steadily. Lots of confusion!!

Kohlberg & Co. Still Buying Paper Companies

It was reported that Kohlberg & Co. - the investment fund that recently purchased International Paper Companys' industrial paper division, is now reviewing Cellu Tissue. Cellu Tissue has a capacity of 250,000tpa of tissue papers used in bathrooms and also Machine Glazed papers. The company has 6 mills.

Merrimac Paper Mill Closes

After 139 years, the Merrimac Paper mill and its converting operations in lawrence, Mass shut its doors. The mill sited high costs, environmental issues, lack of negotiating a labor agreement, and the inability to secure a new buyer as reasons it failed.
Hazen Paper will purchase many pieces of converting equipment.

Neenah Introduces New Grade

Neenah Paper recently introduced a new environmentally friendly grade of paper called Wise Choice. The sheet will be available in 70, 80 and 100 pound text weights. This sheet will feature a 100% recycled option and a 100% post consumer fiber option. Paper.com has the complete line of Neenah Papers and will soon market the Wise Choice Brand.

Fifteen Top Book Manufacturers

Paper.com has many Book Papers available on our site. The top 15 Book Manufacturers, by book sales revenue, was recently announced as follows-
1-Visant Corp $731MM
2-RRDonnelly $698.4MM
3-Quebecor World $695.4MM
4-Banta $289.4MM
5-Arvato Print USA / Bertelsmann $266.6MM
6-Courier Corp $177.2MM
7-Transcontinental Inc $144.2MM
8-Phoenix Color $128.0MM
9-Walworth Publishing $104.5MM
10-Hess Management $84.0MM
11-Maple-Vail Book $78.0MM
12-Webcrafters Inc $77.0MM
13-Edwards Brothers $70.2MM
14-Friesens Corp $57.0MM
15-Webcom $55.0MM

Paper Pricing Still Soft

Although Paper.com primarily markets value added papers to both businesses and consumers, we also have a wholesale business which silicates large volume end users of commodity papers. While the higher quality papers have witnessed insulated, and level pricing; the commodity sector has been under constant pressure. Even with strikes curtailing massive amounts of supply (Strike: coated paper mills in Finland and UPM/Kymmene's coated paper mill in Miramichi, Canada) AND all producers desperate to increase pricing AND consolidation as well as machine shutdowns AND a slight up tick in print buying - there still exists a softness in pricing. For uncoated free sheet - all the price increase announcements released earlier in the year have been rescinded. Coated Free Sheet and Groundwood remain sloppy and price forecasters outline limited support for price increases throughout balance of year.

UPM Announces new Production Strategy

UPM announced it will restructure its publication division to become more competitive. Many changes will be introduced in the uncoated magazine paper (SC Papers) group. Management sited a strategy outlining both closing and converting existing equipment as well as reviewing investment in new equipment. Most of these initiatives will take place in their european locations.

E-Commerce for Paper Products

E-Tailing is quickly becoming a household word. Last year, e-commerce sales hit $69.2billion - which represented less than 2% of all retail sales. This sales level equated to a 23.5% sales increase. Internet experts firmly believe this online channel will account for 7% of retail sales by 2010. Web based marketing has become an integral part of multichannel sales / marketing strategy and is an effective, efficient channel. Paper.com markets both to business and consumer end users and is one of very few e-commerce websites for the paper industry. The site has nearly 20,000 items from all the major paper producers representing all the primary end user's target categories. The site enjoys an average of 4000 visitors every day.
Some interesting milestones include - 1995-Amazon sold its first book online; 1996-Google was started; 1997-EBay sold its millionth item; 1999 the URL-busuness.com was sold for $7.5million - just the name!!!;

Top 10 Paper Mills

Top 10 Global Paper Producers by total sales
1-International Paper (USA) $25MM
2-Georgia-Pacific (USA) $23.2MM
3-Weyerhaeuser (USA) $16.7MM
4-Kimberly-Clark (USA) $13.5MM
5-Stora Enso (Finland) $12MM
6-UPM (Finland) $11.2MM
7-SCA (Sweden) $10.5MM
8-Oji Paper (Japan) $10.4MM
9-Nippon Unipac (Japan) $10MM
10-Procter & Gamble (USA) $9.9MM

Top 10 USA Paper Producers by total sales
1-International Paper
2-Georgia-Pacafic
3-Weyerhaeser
4-Kimberly-Clark
5-Procter &Gamble
6-Boise Cascade
7-Smurfit-Stone
8-MeadWestvaco
9-Temple-Inland
10-Sonoco

Paper.com has grades from all these major paper producers, as well as hundreds of smaller manufacturers.

Uncoated Offset Prices - Decrease .... again

Prices for the commodity grades of uncoated freesheet offset have continued their slid - through August. The paper used for xerographic and desktop printers (cutsize) recently declined $20/ton and 50lbs Offset (printing paper) fell $10/ton. Many domestic mills are reducing supply (production) in an attempt to curtail pricing reductions. We understand that prices for uncoated papers is also sloppy in both Europe and Asia.
Paper.com has a complete line of uncoated products.

Uncoated Groundwood Market is Still Strong

As the Finnish strike continues, Uncoated Groundwood (paper used for inserts into Newspapers) continues to pick up demand. Demand growth for 2004 was 6% - mainly for the Super Calendar Papers. Publications are substituting Uncoated Groundwood, with brighter, enhanced surface, for difficult to find Coated Papers (because of Finnish and Canadian strikes). Growth is expected to continue throughout 2005 - estimated to increase by 8%.

New Page Paper to review selling Carbonless Business

New Page Corporation, the acquirer of the MeadWestvaco paper group, is now evaluating steps to divest of the
Carbonless Business. The Chillicothe, Ohio plant is concerned that the future of Carbonless demand is shrinking. The company is also reviewing the sale of other Ohio based operations such as Chilpac and Fremont facilities.
Many items of NewPage - MeadWestvaco's carbonless are available at Paper.com, as is the complete Appleton Line, including Superior, Tag, Premium, Xeroform, and Self Contained. The site also carries an value alternative called Imation.

Consolidation in the Paper Market

Many continue to predict that the top 40 paper producers will consolidate, divest, or shut down sites. International Paper Company, the world's largest producer, recently announced it will spin off divisions producing grades such as - Coated Papers, Super Calendared Papers, Beverage Packaging, Kraft Papers, Chemicals, and over 6.8 million acres of timber, as well as its Wood Products and Carter Holt Harvey businesses. This, in total, accounts for 30% of IP's 2004 sales and 40% of their operating profits. Simply put, International Paper will only be producing uncoated papers in the future. This trend follows Boise spinning off their paper group to Office Max, MeadWestvaco paper manufacturing to New Page, and Georgia Pacific to Domtar.
More announcements will be made.
Paper.com markets grades from all current International Paper mills, as well as many grades from Domtar and MeadWestvaco.

More News on Pulp Pricing & Demand

Analysts and trade publication are reporting that northern bleached softwood kraft (NBSK) pulp prices have been unchanged for months at $630/metric ton. Buyers have a different view—saying that spot prices have been sliding since March and sales were as low as $510 in July.
Pulp purchasing has been weak since papermaking has been slow all summer season—and some market participants continue to note smallish transactions for the raw material. Analyst Stephen Atkinson at BMO Nesbitt Burns says "the paper and forest products industry has had to contend with exceptionally weak demand for softwood pulp, coated and uncoated free sheet papers, newsprint and packaging products." CIBC World Market analysts expect the next pricing direction will be up—a 2.5% rise in 2006 average annual prices. But, that’s not the view of analysts at Smith Barney who are looking for a 6% decrease in 2006 list prices. But, for now, tags may bounce upward a bit—since demand from non-integrated papermakers often picks up ahead of the catalog season and integrated mills may try to build inventories before regularly scheduled autumn maintenance downtime.

Adapack Buys Specialty Paper Mill in Belgium

Adapack has completed the acquisition of the one-side coated paper business of Gruppo Cordenons, located in Malmedy, Belgium.

The deal includes a paper machine dedicated to one-side coated products used in the beverage industry. The mill has been named Adapack Intermills.

The acquisition increases Adpack group's total production capacity by 45,000 tpy.

In Sept. 2004, Adpack acquired Papeteries du Souche, another one-side coated paper producer, from International Paper.

Adapack said that it plans to become one of the world leaders in the field of one side coated label papers for the beverage industry.

Paper.com markets the papers from Gruppo Cordenons.

SAPPI Mill Announces Paper Machine Shut Down

SAPPI Fine Paper of North America announced it will shut down #4 paper machine at the Muskegon, Michigan Mill. Management sited the reason was high manufacturing cost. The company also announced the closing of its pulp production at the site. The Paper Machine manufactured heavy weight coated papers. Paper.com markets many of SAPPI's products.

Economy Strengthens and so should Paper Demand

Commerce Department recently released a report outlining the USA economy. The general trend was positive and a forecast for continued economic growth. Expansion in the second quarter grew at 3.4%, imports reversed, consumer spending rose, corporate investment and housing starts increased, inventories declined, and industrial production advanced. Although oil prices and health costs continued to rise - so did wages and salaries. Inflation was reported at 3%. The report stated that the USA was growing faster than the rest of the world. Generally, if the economy expands - paper demand increases ... let's hope this is true.

Recycled Paper Facts

Most domestic paper producers use deinked (recycled) fiber because it is environmentally a sound practice AND because it is a more economical raw material than a virgin fiber. There is a new concern for both availability and quality of recycled pulp. Many offices are shredding paper waste and therefore making it difficult to sort office paper. Undesirables such as newsprint, labels / stickers, unbleached and packaging paper are difficult to separate. Also, many new technologies for Ink Jet and Laser toner as well as the new Digital Printers and ink have made it difficult to remove the ink from the paper. Paper.com offers many recycled papers.

International Paper will Improve Quality of Paper

International Paper will improve quality of all of its uncoated papers with new propriety technology to enhance whiteness and brightness. The brightness will increase from and average of 84GE to 92GE. As reported International Paper has chosen to divest of all other divisions and focus of uncoated Printing and Writing Papers. Paper.com has the complete line of International Papers.

Freight Rates Continue to Increase

Freight rates for all modes of transportation continue to increase. Most site the increase in fuel to be the leading factor.
-Average truck rates have increased nearly 5% this year
-Forecast is 4% increase for 2006
-Year to date increases for AirFreight is 5.9%
-Ocean Freight rates continue to advance with May to May increase of 3.2%
-Rail rates are forecasted to jump a shocking 10.6% for 2005 and 9% in 2006.
Paper.com continues to work with our freight companies to maintain economic shipping rates.

International Paper to Spend Money on Mill

International Paper will spend more than $125million to modernize its Eastover, South Carolina Paper Mill. Most of the capital will be allocated to its #1PM. This paper machine produces envelope, office paper, printing and writing grades. The project will enhance the quality of the papers produced on this machine. Eastover is one of nine uncoated mills that International Paper owns.

Mohawk Renews Agreement to buy 'Wind Power"

Mohawk Paper has recently renewed its agreement to purchase power from wind generated sources. The mill is now the second largest consumer of wind power for manufacturing. Mohawk will use 45million kilowatts of pollution free power. Mohawk also has an environmentally friendly grade line. All these grades are available at Paper.com.

Newpaper Producers not Enjoying Price Increase

Newsprint (paper used to print newspapers) has only enjoyed a $5.00/ton price increase so far this year, inspite of an announced $35/ton announcement in March. Prices for large publishers remained at $565/MT. The small printers may be paying a larger portion of the increase.
Mills such as Abitibi and Bowater have announced over 1million tons of downtime and Canfor and Tembec are considering downtime. The mill introduce down time as a means to control supply and thus pricing. Total production downtime in North America would account for 12% of capacity.