Pulp Market Update

Notes from session with Mark Wilde of Deutsche Bank and Brian McClay of TerraChioce

-Pulp buying and thus demand lowered considerably in last several weeks, especially in China, and as market pulp output and producers’ stockpiles continued to rise, particularly for hardwood grades.

-Pulp demand was also considerably lower in most other world markets rejecting increased paper mill market-related downtime

-Global pulp demand will continue to be weaker than normal through year-end, well below pulp supply, as papermakers in virtually all regions curtail production on a temporary basis to better match supply with slowing demand, and as more permanent paper mill closures in the US and Europe take effect.

- Pulp prices will continue to fall until enough capacity is removed to re-establish market balance early in 2009 for softwood and later next year for hardwood grades.

- Another 1.6 million tons of capacity to come on stream around the world in 2009 followed by more than 2 million tons each in 2010 and 2011, virtually all of it hardwood

-These declining price levels should trigger significant closures in North America, particularly in Canada, perhaps approaching 2 million tons over the next 6-9 months,
with most of that softwood pulp. Possibly 2 million tons taken out of European pulp production as well. High cost facilities will be first to go.

- A slowing economy combined with permanent market share losses to online and other lower-cost alternative media pushed US print activity to a 21-year low in North America

--Non-national metro dailies, will start going out of the print business altogether.