Observations on the paper Industry

The paper manufacturing printing and writing sector has done a good job balancing supply with demand and we believe this will continue with additional mergers and equipment curtailment as the industry rationalizes assets. The industry was hurt in 2006 with increased prices for raw materials including, fiber, chemical, energy, and transportation cost increases. The year 2007 will continue to be a challenge with the USPS increasing postage and increased competition from Asia imports. Although Europe appears busy and has reduced tonnage shipped in USA – Asia countries such as China, Indonesia, and South Korea have increased coated free sheet shipments and they are now including web grades to compliment the sheet fed grade offerings.
Some of the more meaningful 2006 events include- International Paper sold its coated division to Versa; Weyerhaeuser and Domtar merged; NewPage shut down large two paper machines.

Newsprint continues to struggle with newspaper circulation down, excess capacity, reduced web sizes, lighter basis weights, and increased imports from China. US Dailies consumed 500,000 fewer tons in 2006 versus 2005. Although Newsprint is transacting above its historic low of $445 (Aug2002) to a present level of $675 – it is down from its
High in July 2006.