Uncoated free sheet supply is also being reduced

From Deutsche Bank - Equity Research
Domtar recently announced that it would cease paper production at its Dryden, Ontario mill, removing 151K tpy of capacity. Earlier this summer, Domtar closed a 165K tpy mill in Port Edwards, WI. Last week, Domtar's largest competitor, International Paper, announced
plans to permanently shutter a 150K tpy machine at its Franklin, VA mill just before Thanksgiving. IP is also taking a reported 60K tons of Q4 downtime across its other uncoated mills. On Monday, the #3 producer, Boise, announced that it would shut 2 paper machines at
its St Helens, OR mill, removing 200K tpy of uncoated white paper.

With sharply slowing domestic demand, weak offshore markets, and rapid appreciation in the US$, we expect prices for virtually all paper grades to come under pressure as business slows seasonally in December. The "best case scenario" is that a disciplined approach
to supply & inventories will mitigate pricing pressure. The good news is that many key input costs are also falling. The key question in 2009 will be the interplay between probable lower prices & volumes on the one hand and lower input costs on the other hand.