Market Update Illustrates Optimism

Exempts from Deutsche Bank - Equity Research

The printing and writing paper shipments for November look dramatically improved versus at this time last year. The American Forest & Paper Association released market data. Deutsche Bank cautions that a good portion of the improvement owes to a "lapping" of weak numbers
from 4Q2008. Nonetheless, the numbers are striking and could signal the beginning of an inflection point in white paper markets. The best year over year comparables were in light-weight coated paper (LWC), where preliminary data suggests shipments were up 14.7% (-22.4% YTD). Spot discount pricing for LWC are slowly increasing.
Heavier-weight coated free sheet shipments were up 10.4% (-20.7% YTD). Uncoated free sheet shipments were down -0.5% (-12.6% YTD). The smallest category, uncoated groundwood, had the weakest performance with shipments down 15.0% (-23.4% YTD). Sequentially,
shipments in all markets were down from October levels. Much of that month to month easing would appear to be seasonal as the holiday printing season begins to ebb.

As noted industry shipments are now lapping 2008 shipments. Thus, enthusiasm should be tempered. Moreover, we think coated and uncoated free sheet markets remain vulnerable to
ripple effects from pending capacity start-ups of some 4.5MM tons in China as well as capacity overhangs in other markets. Quick note on pulp, looks like price increases have slowed, and demand has stabilized – China buying less and global inventories in balance.