::The Center for Paper Business and Industry Studies::

071217 Deutsche Bank Report - Dr. Paper's Pulse on Pricing (12/17/07)

Deutsche Bank - Equity Research

* NEWSPRINT

Newsprint prices have turned. According to the trade papers, $20 of $25 autumn price hike was implemented in December, with publishers finally conceding to the cash-strapped producers. ABH CEO David Paterson recently argued that NA Newsprint prices should continue to rise, with the goal of reaching European pricing levels, which are some $200/mton higher. While we're a bit more cautious than Dave, we think the rebound's strength could surprise most observers. ABH plans to close 600K/mtons of newsprint capacity in 1Q08, with more mills likely to close later in the year. When coupled w/earlier moves by Kruger & Tembec, the closures should help drive the proposed $60/mton price hike set for 1Q08 (implemented in 3 monthly increments). European newsprint producers are also rationalizing. UPM announced this week that it will cut 250K/mt of capacity through "temporary" shutdowns. Norske Skog is considering of 300- 400K/mtons and Holmen plans to reduce production by150K/mtons in 2008.

* PANELS

The structural panel composite price declined by $8 to $295/msf this week. There are reports of deep price discounts this week as producers sought to move volume. Additionally, the benchmark grade of OSB (7/16" in the North Central region) fell $4 to $148/msf.

However, as in the lumber markets, there is increasing evidence of producers pulling back on production as we enter a seasonally slow period. Norbord announced a 4-week curtailment at its Barton Mill. Ainsworth, Canfor, GP, and Weyerhaeuser have recently announced idling and/or permanent closures in OSB & plywood.

* BLEACHED BOARD / SBS

Producers are out with a $40-50/ton price hike initiative on cupstock grades for mid-December or early January. There is no news on folding carton grades. Demand is strong both domestically and for export. The weak US$ appears to be helping. Tightness in the CRB market may also be helping SBS. We continue to expect more industry consolidation in this sector over the next 6-9 months.