Some Printers Growing

According to the PI/GATF survey, some printers experienced good sales revenue growth this year. For the first six moths, printers that had a staff of 1-19 grew 0.08%; 20-49 decreased 0.79%; 50-99 increased 1.55%; over 100 declined 0.99%.

Wausau on Target for Paper Machine Shut Down

Wausau Paper is on target for shuttering one of two paper machines in the (Otis) Jay, Maine plant. The company will stop production of 40,000 tons of release liner and other specialty grades on this machine on or before December 31, 2008. Management sited the size and speed of the machine no longer allowed for efficient production.

Containerboard Market

Containerboard producers were unsuccessful in customers paying the $60/ton price increase for October. Main factor responsible for this was poor demand and high end user inventories. The declining economy will NOT assist containerboard demand. We look for a difficult several months ahead.

Newsprint Pricing

Much to my surprise, Newsprint producers are enjoying at least a portion of the announced price increase. Surprised because the demand for newsprint continues to decline. Interesting observation includes the re introduction of East / West coast pricing. The East coast end users are paying nearly $15/ton more than the West Coast. AbitibiBowater will take an additional 150,000tons of down time beginning of 2009 - in addition to the previously announced curtailments for end of 2008.

UNCOATED FREE SHEET UPDATE

So far this month, producers have only enjoyed approximately $5/ton of the announced price increase for rolls (no increase for cut sheets). We think pricing pressures will grow due to the increased shipments from imports of Brazil and Europe as well as coated freesheet producers supplying base sheet as alternative. I would bet large spot orders are already enjoying discounted
prices. Shipments through September were own 5%.

Bleached Paperboard SBS Market

The 2008 capacity for bleached packaging papers is forecasted to be 6.1million tons, and bleached bristols account for an additional 1.2million tons. The folding carton market consumes the vast majority of these products at 54%. Market related shuttered equipment now allow for the top five producers to produce 85% of this capacity, these manufactures include
Company/Capacity/mkt share
International Paper/1,520,000/25%
MeadWestvaco/1,350,000/22%
Georgia Pacific/815,000/13.5%
Rank Group/765,000/12.5%
Potlatch/550,000/12%

Versa on Track with Mill Transition

As an update to our previous post, the Versa paper mill in Bucksport, Maine is on target with the
project transitioning the #1 paper machine (which had produced publication paper) will produce specialty coated papers. This will effect 84,000 tons of production.

Quebecor World Continues with Parade Magazine

The bankrupt Quebecor World Company recently reached an agreement with Parade Magazine to print 100% of the USA Sunday Magazine. More than 400 Sunday newspapers carry this magazine, reaching approximately 71million weekly readers.

Container Board Market Softens

from Deutsche Bank - Equity Research

* Weak shipments, higher inventories
September containerboard & box numbers showed a sharp decline in shipment volumes and higher inventory levels. While we think that they exaggerate just how bad demand is, there is little question that conditions are weak. The $60/ton price initiative for Oct. appears to be dead. The real question is whether the industry can keep prices from falling. We think it will take aggressive action by the industry to reduce supply.

* Shipments - sharply lower
Box volumes fell 1.9% y/y in Sept., but adj. for two more shipping days this yr, they fell 11.3% y/y on an "avg. week" basis. Most observers tend to focus on the avg. week number, which would make the volumes look truly egregious. We think that the "real" number is a blend of the two, or a decline of about 6.6% y/y. Although this is by far the worst y/y blended comp this year, we think they may exaggerate the weakness in the mkt. Sept. '07 was a difficult comp,
and Aug. was a suspiciously strong month, suggesting that some business may have been pulled forward into August this year.

* Inventories - higher, again
Sept. saw inventories move higher again. Combined mill and box plant inventories rose 90K tons m/m. The last 10 yrs, inventories typically rose by an avg. of just 11K tons in Sept. meaning that inventory build relative to seasonal expectations was 89K tons. This follows a
negative variance of 72K tons in August. Total inventories now stand at 2.45MM tons. We would no longer characterize them as particularly lean on a historical basis, though they do remain below avgerage.

* Prices - $60/ton initiative a question mark
We think that it's now clear that the $60/ton price hike initiative for October is a dead issue. The big question is whether the industry will be able to retain the $55/ton price hike which was implemented in July. A number of factors are working against the industry, including soft demand, rising inventories, and a rising US$. We think that it will take aggressive action by the industry to maintain prices.

Magazine Ad Pages Down 12.9% in Q3

Advertising pages for consumer magazines plunged 12.9% in the third quarter, according to the Publishers Information Bureau’s latest report. Rate-card-reported ad revenue dropped 8.8% compared to 2007’s third quarter. Year-to-date ad pages fell 9.5% and ad revenue declined 5% compared to the same period in 2007.

Cost of Producing Paper Finally Declines

The paper industry finally catches a break with decreased raw material costs. The slowing economy has led to a decline of costs such as energy, resin, pulp, and some chemicals. This should assist the paper industry's bottom line given the recent price reductions for the commodity grades as a result of the poor market conditions.

Mark Andy Press Manufacture Sold

Mark Andy Inc. was acquired on October 8 by newly formed MAI Holdings, held by American Industrial Partners Capital Fund IV (AIP). The seller was Morganthaler Partners, which acquired the company two years ago. Mark Andy Inc. consists of the Mark Andy narrow web press manufacturer in Chesterfield, MO, USA; and Comco International, manufacturer of midweb presses based in Milford, OH, USA.

Newprint Prices Continue Downward

Both the Publishers and Newspaper producers are finding increased inventory levels of newsprint on their floors. Accordingly, although the two biggest newsprint producers are maintaining the latest price increases - all others seem to be 'giving in'. We think the 4Q08 announced increase of $40-60/ton is in big trouble. USA consumption continues to decrease (YTD down 14% to 525,000 tons).

Coated Paper Market Challenged

Publication Papers (LWC-Light weight coated groundwood used in magazines) continues to struggle as demand weakens. Many major printers report discounted prices are available. This is a surprise in that typically this time of year is generally robust. One may wonder what the producers will do in December and January, when demand historically is weak.

Pricing on heavier weights (free sheet) are doing somewhat better I would imagine there is pressure to 'give-back' at least a portion of the recent price increase. I note, many coated free sheet manufacturers can turn off the coater and produce uncoated free sheet, yielding less coated supply.

Pulp Markets Weak

Many pulp producers are beginning to announce closures, including International Paper Company in Albany, NY, and most recently, Evergreen's 200,000 ton Eureka facility. This is due to weak demand and increased worldwide inventories.
Expect more temporary market related curtailment in upcoming months.

RISI Reveals top Pulp and Papre Companies

The annual PPI Top 100 is the only ranking of the world's largest pulp and paper companies by net sales. This valuable report from the September issue of PPI magazine is available online at www.risiinfo.com/ppitop100.
Of note is the growth of European companies now on this list.
The website, Paper.com, markets many of the products from these producers.

Glatfelter Introduces Video on Paper Making

The Glatfelter Paper Company just introduced a new interactive mill tour that does an excellent
job of explaining the pulp and paper manufacturing process. The presentation takes the viewer through two fully integrated pulp and paper mills. The tour also outlines Glatfelter’s management of the environment.
Paper.com also has this link to Glatfelter, at www.paper.com and the site markets all the Glatfelter carbonless papers. The direct link is http://www.glatfelter.com/learning/interactive_tour.aspx

Heidelberg Posts Quarterly Loss of $28 Million

From Printing Impressions
HEIDELBERG, GERMANY—According to its preliminary results, Heidelberger Druckmaschinen AG (a manufacturer of printing presses) will post a second quarter loss of as much as $28 million on sales of about $1.1 billion, a 10 percent decrease compared to the same period last year. Its restructuring costs in the quarter could be as much as an additional $28 million.

RRD, Houghton Mifflin Harcourt Reach Accord

From Printing Impressions

CHICAGO—RR Donnelley and Houghton Mifflin Harcourt Publishing have agreed on an $875 million multiyear print management contract extension. The deal expands on the previous relationship between the printer and publisher. Houghton Mifflin Harcourt is a leading publisher of instructional materials for pre-K through grade 12 schools.

European Fine Paper Deliveries Unchanged in August

Total European coated woodfree paper deliveries were flat at 791,000 tonnes in August compared to the year-earlier period, according to CEPIFINE, the Association of European Fine Paper Manufacturers. European uncoated paper deliveries fell slightly by 0.9% to 693,000 tonnes compared to August 2007. CEPIFINE figures include Norway and Sweden in addition to the 27 countries in the European Union.