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

080324 Deutsche Bank Report - Dr. Paper's Pulse on Pricing (3/28/08)

Deutsche Bank - Equity Research

* UNCOATED FREE SHEET

A substantial portion of the $60/ton price hike initiatives on uncoated free sheet grades was implemented in March. Cut-size prices rose $50/ton, while offset roll prices rose $30/ton. Moreover, recently released trade data show that industry shipments rose 2.1% y/y in February, and are up 0.5% for the first two months. Interestingly, US purchases of uncoated free sheet are doing even better, up 2.5% YTD. This is the opposite of the overall 2007 numbers, when shipments fell 3.2% y/y, and purchases were down 6.5%.

Given the level of concern over whether uncoated free sheet is "the next newsprint," these are welcome data points.

* CONTAINERBOARD

The $50/ton price hike initiative failed to stick in March. The main issue is sluggish demand, as box shipment vol's fell 3.7% y/y in February on an average week basis. Moreover, trade sources suggest further easing in recent weeks. Producers are likely to persist with the initiative and to try to push it through in April. The key elements of support include healthy operating rates and a weak US$, as well as rising input costs. However, on balance, we think that producers are unlikely to have much success even in April. IP announced it will buy Weyerhaeuser's containerboard operations for $6B. With a combined capacity of 11.5M tons, IP becomes the world's largest c'board company>

* NEWSPRINT

Prices rose $20/mton in March, completing the full implementation of Q1's $60/mton price hike initiative over 3 months. All major producers are behind another $60/mton price hike initiative for the second quarter. Publishers appear to be more resistant to the 2Q hike than the 1Q hike, but the market remains tight. Some are predicting sharp declines in consumption. Newspaper web widths are dropping from 48" to 44". 9 additional Gannett newspapers will go to 44" in 2008, joining papers in Indianapolis & Louisville in shifting to narrower papers.