Summary of Uncoated Wood Free Market

Summary from Analist at Deutsche Bank-
* Another round of uncoated free sheet price hikes-
Over the last week, virtually all producers of cut-size uncoated free sheet paper have announced the third round of price increases in 2006. If successful, these increases will take the list price of 20lb cut-size paper (“copier paper”) to $940/ton. This is an increase of $145/ton from the $795/ton average price back in December, and we think prices could move even higher.

* The biggest issue has been supply reductions in the US and Canada.-
Over the past 18 months, producers have closed mills with a combined capacity of 1,355,000 tons, just under 9% of the North American supply base. Even with prices rallying, the closure process does not appear complete. IP & Boise are converting another 540,000 tons away from UFS within the next year. Moreover, the pending sale or merger of Weyerhaeuser's white paper business may result in further capacity rationalization.

* Other issues include rising costs and foreign exchange. -
All white paper mills are vulnerable to higher chemical, energy and transportation costs. However, for nonintegrated white paper mills, the cost pressure is especially acute. Nonintegrated mills rely on purchased pulp and are much more reliant on purchased energy, both of which are up sharply in the last few years. Finally, a weak US$ is now working against an increase in white paper imports from abroad.