Market Pulp Still Strong

The market for pulp still appears to be strong. Many USA producers raised prises $20/ton in September and world shipments are up over 5%. Some equipment that was closed down is back in production and Latin America has introduced new capacity.

Printing and Writing Shipments Decreased in August

Total shipments of printing and writing papers fell 0.4% to 2.396 million tonnes in August, according to Canada’s Pulp and Paper Products Council. Of the four major sectors, coated mechanical was the only one to show a slight increase of 0.7%. Coated freesheet shipments fell 8.2%, uncoated freesheet dropped 2.8% and uncoated mechanical plunged 7.2% year-over-year.

Glatfelter Introduces Xcelerator Carbonless

Glatfelter announced the introduction of Xcelerator Digital Carbonless Paper. This sheet is specially coated for today's demanding digital presses. Glatfelter offers a 100% satisfaction guarantee to our customers. Paper.com will be shipping
this product as soon as it becomes available.

Printers Hint of Future Sales Growth

Heidelberg Press released a survey that indicated printers feel, on average, sales will increase 4.75% over the next 12 months.
Many continue to be concerned over cost pressures from raw materials such as Ink, Paper, energy, and Transporation.

Overall Paper Prices up

A recent report outlined the following for commonities, including paper
Since 2000 Since 2003
CPI 18% 10%
All Commodities 29% 18%
Petroleum 187% 132%
Paper 14% 14%
Truck Transportion 14% 14%

New York Times Reduces Paper to Save Money

The New York Times newspaper will reduce from 54" to 48" in width. This was done in an effort to save on paper costs and thus saving millions. This will will be complete in early 2008.

Former American Tissue Executives handed Sentences

The former chief executive of American Tissue, Mehdi Gabayzadeh, was sentenced to 15 years in prison and a fine of $65million. He was convicted of 8 criminal charges which cost banks and investors over $300million. He inflated accounts receivable and net income.

Price Increases Finally Slowing Down

We think the uncoated paper grade price increases have finally slowed down. Uncoated Woodfree commodity grades for white paper pricing appear to be static. The industry announced a price increase for September, but International Paper did not support it and therefore, the increase never went through. If the economy slows down, future price increases will also be in jeopardy.

International Paper Divests of Coated Division

International Paper completed the divesture of their coated operations to a private investment fund. The new name
is Verso with an annual capacity of 1.7million tons of magazine, Catalogue, and retail insert papers.

Recent Newsprint Price Increase in Jeopardy

Abitibi recently rolled back the announced newsprint increase of $40/ton to $20/ton. This is not a good sign for the newsprint market. Having said this, current pricing levels are nearly 50% more today than the lowest price point in 2002. North American demand for newspapers, and thus newsprint have declined. Demand was over 13million tons - is now approximately 10million tons.

Equipment Curtailment has effected Supply and Demand in Paper Industry

We have reported on the numerous pulp and paper mill and machine closures over the past several years. Although demand has not increased dramatically, fewer manufactures have allowed for higher operating rates for equipment still producing and
increased market pricing. In 2005, North American producers of pulp, paper, and board announced permanent closure of
almost 7million tons. During the first half of 2006, almost 1.2million tons were announced of which, 780,000 tons are in USA.
I outline some select mill / machine shutdowns
Badger Peshtigo, Wis 70,000TPA
Cascades Thunder Bay, Ont 165,000TPA
Domtar New Westminister,BC 120,000TPA
Domtar Cornwall, Ont 265,000TPA
Domtar Ottawa, Ont 65,000TPA
Glatfelter Neenah, Wis 125,000TPA
International Paper Pensacola, Fla 150,000TPA
International Paper Jay, Me 100,000TPA
International Paper Bastrop, LA 480,000TPA
Pasadena Pasadena, TX 190,000TPA
Riverside Appleton, Wisc 72,000TPA
SAPPI Muskegon, Mich 116,000TPA
SMART Park Falls, Wisc 120,000
Tembec St Francisville, LA 80,000TPA
Weyerhaeuser Price Albert, Sask. 280,000TPA
Weyerhaeuser Dryden, Ont 155,000TPA
Contact Paper.com for the complete list of nearly 8million tons of equipment curtailed since 2005 .

Many Mills now acquired by Private Investors

Most paper manufactures have not even earned its cost of capital and have been out of favor with 'Wall Street' for many years. In recent years, the industry has witnessed consolidation, globalization, mergers, restructuring, reduced capital spending, and curtailment of production. New buyers are surprisingly private investors. Why we ask at Paper.com ????? RISI, an independent consultant, summarized a rationale as
-These buyers have negotiated discounted purchase prices for the assets
-Cheaper, more creative, financing and private investors can carry more debt than public companies - debt is less expensive than equity.
-Fewer short term pressures vs. public companies - they can be more flexible than meeting short term expectations
-No formal costly outside auditing - No expensive requirement of reporting to the public - this eliminates expensive shareholder reports and board expenses.
-Better operators - Private investors tend to be very good, focused operators.
-Many of these new operators believe they can improve operations and market the mill at a later date for a multiple of purchase price.

We at, Paper.com, prefer to sit on the side lines and distribute paper versus produce the product.

Recent examples of New Owners include-
-Madison Dearborn -- Packaging Corp of America; Boise Cascade
-CMP Holding -- International Paper Coated Division
-Cerberus -- MeadWestvaco coated Div.
-Kohlberg -- International Paper Specialty Div
-Koch -- Georgia-Pacific
-Texas Pacific -- Smurfit-Stone

Market Pulp hits 5 Year High

Market Pulp grades have witnessed numerous price increases. Worldwide shipments in 2005 totaled nearly 40million tons - growing for the 4th consecutive year. 2006, so far, has illustrated continued growth in shipments. Despite significant capacity reductions in the printing and writing sectors of the fine paper market - the primary consumers of pulp - and reduction of pulp capacity of nearly 2.5million tons of market pulp production - worldwide shipments of pulp have increased. Global shipments to China and South Korea have grown dynamically to more than make up for these decreases .
Benchmark NBSK (Northern Bleached Softwood Kraft) has reached a 10-year high in price given the solid demand from Asia. The USA price for NBSK was $750 in July - up 19% from the same time last year. Prices are expected to continue to increase.

Prices up, Profits Still Down

Prices on literally all pulp and paper items continue to experience price increases and, sadly, profits continue to lag. Many mills and paper machines have closed down - allowing for tight supply and reduced inventories, this has yielded better productivity and allowed for price increases. However, the cost increases of chemicals, fiber, energy, labor, and transportation have exceeded paper prices for finished product.