Price Increase Summary

Paper.com is beginning to hear from all our major paper mills regarding several price increases.
As the specifics of each mill are confirmed, we will update our data.
Price increase summary as follows
Text/Cover/Writing increase of 4-7%
Coated increase of 5-7%
Uncoated offset and Opaque increase of 3-5%
Carbonless increase of 5%
Envelopes increase of 9-11%
Most are effective late September or early October. Paper.com still is marketing most items at currrent prices, management
will hold these prices firm as long as possible.

Ad Spending Declines 0.3% in First Half of 2007

Total U.S. advertising expenditures fell 0.3% to $72.5 billion in the first half of 2007, according to TNS Media Intelligence. It is the first time since 2001 that ad spending declined for two consecutive quarters. Nearly all media categories were weak, with the exception of Internet and magazines, which rose 17.7% and 4.6%, respectively. Newspapers were among the hardest hit, with the category falling 5.8%.

FOEX NBSK Pulp Index Climbs

FOEX, a provider of audited, trade-registered pulp and paper indexes, said the PIX northern bleached softwood kraft (NBSK) pulp index climbed $7.79/mton to $807.79 in the week ending Sept. 11. It was the first time in four weeks that the index saw movement. The price of lightweight coated (LWC) paper fell euro 0.19/mton to euro 670.73/mton and coated woodfree fell euro 4.85/mton to euro 704.98/mton.

Monthly U.S. Printing Shipments Increased in July

U.S. printing shipments increased $138 million in July compared to the same month last year, the WhatTheyThink Economics and Research Center reported. According to the latest report, the average monthly increase in printing shipments has been $196 million since last August. Adjusted for inflation, however, shipments in July of this year were actually down by –0.6% from last year. Year-to-date shipments are down –0.9% on an adjusted basis.

EKSuccess grows through recent acquisition

GTCR Golder Rauner, LLC, one of the nation’s leading private equity firms, announced today that EK Success, a leading provider of scrapbooking and paper-based crafts products, has acquired Wilton Industries, Inc. and Dimensions Holdings, LLC. EK Success is a creative consumer products company with a major market position in the scrapbooking segment of the $30 billion U.S. craft industry. EK Success was acquired by GTCR in February 2006. The combined companies will be named Wilton Products, Inc. and be headquartered in Woodridge, Illinois.

EK Success is a creative consumer products company with the leading market position in the fast- growing $3.0 billion scrapbooking segment of the U.S. craft industry. EK Success designs and markets some of the craft industry’s most respected brands of stickers, multi-dimensional embellishments, punches and writing utensils for use in scrapbooking and related paper crafts, such as card making and invitation creation. These include ZIG® Memory System®, Sticko®, Paper Shapers®, Jolee’s Boutique®, HERMA® and Cutter Bee®.
Paper.com markets all of the EKSuccess products and is one of the largest online marketers of scrapbook and craft papers.

New Announced Mill in Vietnam in trouble

After several years of construction, the Thanh Hoa Pulp and Paper mill in Vietnam is suddenly short of funds to complete the project.
The mill was originally anticipated to go on stream in 2005; the mill was expected to produce 50,000 tons of pulp and 60,000 tons of paper per year, with products to include cartons, duplex paper and packaging paper. At the end of the second stage, total production capacity would increase to an estimated 150,000 tons of pulp and 150,000 tons of paper per year.

Boise Cascade Paper Mills may be Sold

Boise Cascade in considering selling its paper, packaging and newsprint divisions for $1.63billion to Aldabra 2 Acquisition. Aldabra was formed by Nathan Leight and Jason Weiss of Terrapin Partners. They agreed to pay $1.34billion cash and the balance in shares. The company would be run by Alexander Toeldte – Boise’s current Executive Vice President.
In 2004, Madison Dearborn acquired Boise and split the corporation into manufacturing and retail (OfficeMax). Madison Dearborn has no immediate plans of spinning off the retain division nor the wood and building product divisions.

MARKET PULP Update

The strength in market pulp prices shows no signs of abating. The prices of most hardwood grades rose $20-25/ton in August, and there is yet another $20/mton price hike initiative on NBSK for September. Production curtailments caused by the woodland workers strike in BC is helping to keep the market tight. Despite the high prices, the strong Canadian Dollar and high wood chip costs are keeping margins barely positive at a number of mills.

NEWSPRINT Market Update

Despite the announcement of a $25/mton price hike initiative for September, newsprint prices have remained under pressure. Prices slipped $10/ton in August. The combination of low prices, a strong Canadian Dollar and surging chip costs in British Columbia suggest a near-term bottom may be close. Howe Sound Pulp & Paper and Catalyst have recently announced capacity
withdrawals. In other signs of financial pressure, Kruger recently announced the idling of an SC machine in Quebec

UNCOATED FREE SHEET UPDATE

It might be another cut-size (business papers) price increase in the works. Producers are attempting to raise offset rolls prices by $60/ton and offset folio sheets prices $30/ton. While demand has been sluggish, supply reductions are
keeping the market in reasonable balance. Domtar recently announced the indefinite shut of a 285,000 tpy Paper Machine at Dryden, ON. With pulp prices still rising and the market in a seasonal strong period, we wouldn't be surprised by another cut-size attempt.

Canada Paper Producers feel increased currency pinch

The currency increase versus USDollar is tightening around Canada's forest sector. This week, White Birch Paper, Catalyst Paper
announced more staff cuts, and both Domtar & Kruger announced more machine shuts.

Coated Grades See Price Increase

Verso Paper announced price. Verso Paper (previously owed by International Paper) is increasing the price of all coated mechanical products by $3.25/cwt ($65.00/ ton).
This increase applies to all coated mechanical (groundwood) grades including, but not
limited to, the following brands:
Liberty - All grades, basis weights and finishes
Liberty G - All grades, basis weights and finishes
Advocate Offset - All grades, basis weights and finishes
Advocate Roto - All grades, basis weights and finishes
This increase is in addition to the previously announced increase that took
effect for shipments as of July 1, 2007.

Stora Enso also announce price increase for their coated grades appling to:
NovaPress ,PolarisPress ,SolarisPress, StellaPress, TerraPress, CapriPress , ConsoPress, MagniPress , SuperiorPress, PubliPress, and ExoPress
The 7% increase applies to all gloss finish products.

xpedx Acquires Central Lewmar Companies

Paper and graphics supplies distributor xpedx will acquire the Central Lewmar companies based in Newark, NJ, from Philadelphia-based private equity firm Chrysalis Capital Partners for roughly $185 million.
Central Lewmar, which distributes printing and publishing papers, recorded more than $900 million in revenues for 2006.

International Paper announces $60/ton price hike for uncoated Freesheet

International Paper (IP) has announced to customers a price increase for its 50-lb offset rolls and opaques of US$60/ton
effective with shipments Sept. 10. A $30/ton increase for offset sheets was also announced.
This is the first increase for uncoated Freesheet 50-lb offset grades since mid-2006.
Paper.com will has all the International Paper grades and will ship as little as one ream.

Update on Paper Industry

In the past several years, we have witnessed a closer match of supply to demand – given the shuttering of paper machines and plants. Also, the global markets are alive and well – with China quickly catching up to USA capacity. In 2006 North America capacity witnessed its biggest one year drop – shedding nearly 3.9million tons – with the biggest effects on Containerboard and Uncoated Writing papers. The only new capacity announced is in Brazil, China, and Russia – not the USA. The curtailment of capacity, coupled with increased raw material costs yielded many price increases in most grade sectors. Some of the bigger stories of production changes include Boise converting 440,000 tons from uncoated to pressure sensitive label; International Paper conversion of 350,000 tons from uncoated to linerboard; UPM lightweight coated machine no longer producing 495,000 tons, Verso shutting down 505,000 of coated paper, and Domtar and Georgia Pacific shuttering over 200,000 of uncoated writing papers. Most likely, prices will remain firm for balance of year.

Not all Digital Papers are created Equal

Customized printing for effective communications is increasing and therefore so are Digital printers. In the past, paper mills have attempted to produce one universal paper grade for all the different digital printers, only to now conclude that each printer requires different paper attributes for the highest reproduction. Printers are demanding more of the paper. Hewlett-Packard (HP) is the leading digital printer, commanding nearly 42% market share. This printer has always demanded very different specifications than Kodak, Xerox, and Xeikon. Typically, the HP printer requires a special coating.
Paper.com has nearly every Digital Paper for all the various printers. Mills include Mohawk, International Paper, StoraEnso, NewPage, Finch, Smart, Domtar and Wausau. They have an experienced team ready to answer questions about the different paper characteristics of each grade.

Sappi introduces new multicoated woodfree paper for regular print

Press Release - Sappi is introducing Quatro, a multicoated woodfree brand providing a straightforward selection of papers for regular day-to-day print applications. The new brand, which supports Sappi's existing coated fine paper range, is available in sheets and in reels for sheeting, both in gloss and silk surfaces. Basis weights are from 115 - 250g/m2 for Quatro Gloss and from 90 - 250g/m2 for Quatro Silk.
Paper.com has many of the SAPPI grades ready for immediate shipment.

Wausau Paper adds higher caliper and more bulk to Astropaque Cover

Press Release from Wausau - Responding to customer demand for a stronger Astropaque® Cover, Wausau Paper announces an additional cover line that boasts a higher caliper and more bulk. Perfect for heavy-duty applications, such as business cards, brochures and presentation folders, the new offering is a complementary addition to the existing Astropaque Cover and text weights.
"The new Astropaque extension now offers customers a choice of an extremely smooth, superior printing surface product or a higher caliper, stronger product for those end use applications that require bulk and stiffness," said Jeff Fox, director of marketing for Wausau Paper's Printing & Writing Sector. "Both provide the attention-getting brightness and signature
reliability, paired with Astropaque text weights, these two selections are ideal for creating professional, cohesive images."
The high caliper Astropaque Cover is available in three Cover basis weights with the following calipers: 9.1 for 65 lb., 11.0 for 80 lb., and 13.7 for 100 lb Cover. With 98 Brightness, Astropaque provides a great printing surface, providing a sharper image reproduction and feel. The entire Astropaque line, including the new high caliper Cover is FSC Certified. Both the smooth and high caliper Astropaque Covers can be paired with Astropaque text weights, which range from 50 lb. to 100 lb.
Paper.com is a proud distributor of Wausau has all the paper grades in stock and ready for immediate delivery.

Papers Battling to Gain Traction

From Mark Wilde
Paper companies are battling to gain pricing (and earnings) traction. While prices have moved upward in many categories, margins remain anemic in most markets. Dogged by sluggish domestic demand, producers simply haven't made
much incremental headway in getting past higher costs.The good news revolves around supply reductions as well as
long-awaited benefits from the weaker US Dollar. Capacity continues to exit many markets. On the trade front, imports are falling and exports are rising. The bad news is that domestic demand continues to lag. Domestic volumes in virtually all categories are down during the first half of 2007. The net effect? While reported operating rates look constructive in many categories, underlying domestic markets have not been as tight, and pricing gains have been hard-fought in most cases

Recovered Paper Rate Increased

The United States recovered paper rate in 2006 reached a record 53.4% of paper and paperboard (including OCC) consumed in the U.S. (53.5 million tons), the American Forest & Paper Assn. (AF&PA) reports. This is the second year in a row that the paper recovery rate has increased. The 53.5 million tons represent an increase in recovery of 83.7% since 1990, when the paper industry undertook its first serious commitment to advance recycling in the U.S. Currently Americans recover nearly 360 lb of paper and paperboard for every person in the U.S., up from 233 lb per person in 1990.

Cost to Produce Recycled Papers Increases

The demand for environmentally friendly papers has been so successful that the growth is chewing away at sources of supply. The primary fibers include Old Corragated Containers (OCC), Old Newspapers (ONP), and Sorted Office Papers (SOP). With a finite supply and robust demand, the cost continues to increase and markets like China (export 11million tons) and India (export 866,000 tons) compete for USA paper mills for fiber. Fiber prices have aggressively increased.
Paper.com recently introduced an environmentally friendly green store on the website featuring thousands of items.

Many Pulp Grades hit 11 year high

As previously reported, Chemical Market Pulp Grades are at their highest price in 11 years and no relief is seen for buyers. Note: Pulp grades are based several attributes
-Origin – Northern, Southern
-Wood Type – Softwood, Hardwood
-Process – kraft sulfate, sulfite
-Bleach – bleached, semi bleached, unbleached
Northern Bleached Softwood Kraft (NBSK) is considered the benchmark and is has a current list price of $830/Metric Ton.
Worldwide shipments in 2006 were 38.9million tons. Strong current demand is witnessed from China. Given mill closures, increased demand from Asia, and good USA demand – we forecast pricing to remain firm throughout the balance of year.
Recent mill closures, which supplied market pulp, include Bowater, Neenah, Tembec, and Weyerhaeuser.

Marcal Paper Mill Finds Buyer

The bankrupt Marcal Paper Mills, located in New Jersey, secured $60billion in funding from Apollo Group. Note Apollo Group recently purchased the International Paper coated mills. Marcal produces 160,000 tons / yr of tissue. Original challenge included high Energy rates.

Dirigo Paper Still Down

Dirigo Paper’s facility in Gilman, VT continues to not operate due to soft commodity markets. The mill management recently announced it would be back manufacturing paper by mid September.

Brookfield acquires another Paper Mill

Brookfield recently purchased all the assets of Longview Fibre for $2.15billion. Although Brookfield’s primary interest was the 600,000 acres of timber in the Pacific Northwest, they also purchased 10 paper machines producing 763,000 tons/yr of linerboard and 387,000 tons/yr of Kraft. These papermaking facilities are considered high cost.

Top 30 Book Manufactures

Company Book Sales / Revenue
Visant Corp $632million
Quebecor World $628million
Bertelsmann $263million
Courier $221million
Transcontinental $142million
Phoenix Color $109million
Walsworth $102million
Maple-Vale $81million
Webcrafters $70million
Edwards Brothers $68million

Xerox Introduces new Digital Sheet

Xerox recently induced a high yield sheet for Digital Printers.
The pulp used for Xerox’s new uncoated 45 lb. text (17.7 lb. bond/67 gsm) sheet is produced by mechanically grinding wood into papermaking pulp instead of using the chemical pulping process traditional for producing digital business papers. The mechanical process converts more than 90 percent of wood weight to papermaking fiber, double the 45 percent yield from chemical pulping.

Xerox High Yield Business Paper has 10 percent more sheets per pound yet performs like 50 lb. text (20 lb. bond/75 gsm) made by a chemical pulping process, which is the most widely used type of paper for digital printing and copying. This reduces the cost per roll or 500-sheet ream, helping print providers increase profit margins.

With opacity - show-through resistance - equal to that of traditional 60 lb. text (24 lb. bond/90 gsm), the result is high quality, two-side printing where images and text on one side are barely visible from the other side of the paper.


High Yield Business Paper has a level of 84 brightness, common brightness is 92 brightness.
Paper.com has many of the Xerox items available and ready for immediate shipment.

Indications for Strong Uncoated Paper Market

Xerox recently issued a study for the USA paper market
US Shipments were strong in April and May
-No expectation of traditional seasonal lull in June and July
-Shipments down YTD 2.2%
-Apparent consumption was down 3.3% through May that is better than numbers earlier in the year of 5-6%
Operating rates continue to be strong
-Average 91% through May
-Xerographic market remains tight
Mills continue to announce capacity reduction
-Domtar 125K tons in Maine
More announcements expected
-Dirigo 70K tons Vermont
-Neenah 39K tons Ohio
The RISI index indicates that transactional prices overachieved the expected increase level by 2.5%
-This hasn’t happened in the last 10 years
-RISI index looks 30 days in the rear
These average prices were achieved in June
-The major mills have been successful in eliminating significant discounts to the market to achieve price increases more quickly

RISI is not predicting pricing to decline during the balance of 2007
-10% price increase over the 2006 full year average YTD
-Predicting sustained increases over time
Uncoated free Imports down 5% from March to April
-European market experiencing similar conditions to the US

US swing tons utilized for coated freesheet due to the current dynamics in the coated industry

What’s the Best Way to Print Digital Photos?

AARP recently researched several methods of printing Digital Photos. They compared Photo Labs, Online Services, Home Printers, and Kiosks. The results illustrated that Photo Labs produced the best quality and uploading photos to a web service (online) that mails prints is a breeze. When speed counts, the home printer is best. When it comes to price Kodakgallery.com makes 4x6 prints for 15 cents and Shutterfly.com are as low as 12 cents apiece. Most lab prints cost 12 to 20 cents apiece. Home prints, if many are printed, are also reasonably priced.
Paper.com has all the major photo papers for home printing of digital prints.

Freedonia Group Releases new study on USA Commercial Printers

Study Highlights:
-Revenues for the US commercial printing industry, which includes pre-press and printing services on a job order basis, are expected to increase 1.3 percent per year to $82 billion in 2011.

-Growth in commercial printing revenues will be driven by ongoing technological changes that make it easier to create higher quality and more customized prints at a faster rate. Gains will also be aided by ongoing adjustments in print production in response to changing consumer preferences, particularly in terms of cost, timing and sizes of print runs.

-Digital printing is projected to achieve the strongest gains through 2011 because of the process' lower cost, quick turnaround and ease of customization for short printing runs.

FiberMark acquired another Paper Producer

The specialty paper market recently witnessed a consolidation when FiberMark purchased Permalin Products and PermaFiber. Permalin produces more than 30 product lines for book publishing and tag / label markets. PermaFiber provides wet strength products to the laundry and drycleaner markets• The specialty paper market recently witnessed a consolidation when FiberMark purchased Permalin Products and PermaFiber. Permalin produces more than 30 product lines for book publishing and tag / label markets. PermaFiber provides wet strength products to the laundry and drycleaner markets.

New York Times Newspaper reduces size … again

Effective with August 6 printing, the New York Times Newspaper will reduce the width of its pages by an inch and a half. The newspaper will be 12” – which is becoming the new standard for the industry. The move will reduce expenses.

International Paper Company Orders new Paper Machine

International Paper ordered a new Voith Paper machine for it’s plant in Brazil. The machine will be operational in 2009 and will produce 200,000 tons of uncoated Woodfree paper.

Bowater to Curtail Paper Machine

Bowater will indefinitely shut down a paper machine that produces 88,000 tons of book paper. The machine was in Dolbeau, QC.

Neenah Paper introduces new Products

The Renew grade line called Classic Linen introduced new finishes that have a textured finish. The company also released a Solar White, double thick cover weight for the Eames Grade line.
Paper.com has the entire line of Eames and Classic Linen.

Domtar Announced permanent Equipment curtailment

Domtar will permanently close its mill in Gatineau, Quebec as well as the converting center in Ottawa, Ontario. Domtar also announced it will shutter two paper making machines at its Woodland mill in Baileyville, Maine and another machine in Port Edwards, Wisconsin. Total closures amount to 284,000 tons of annual capacity.
Paper.com, one on the largest online paper marketers, has all the Domtar items available for shipment.

Office paper prices near $1000/ton

From Purchasing Magazine
Cut-size office paper prices have increased by 9% since April to an average $998/ton this month, the highest monthly price in 11 years. Its last peak was $1000, in January 1996.

Paper market data resource RISI.com says the $60/ton increase in copier paper began with shipments in early May and was implemented over time by the largest four North American producers: Domtar, International Paper, Boise Cascade and Georgia-Pacific. There still are some sales at discount, causing the marketplace average to miss the mills’ goal.

The price hike supports a recent Purchasing survey of office products buyers, more than 90% of whom said they were either "very concerned" or "somewhat concerned" about paper prices this year. And more than three-quarters of those polled reported paper price increases in the past year.
Statistics from the Pulp and Paper Products Council shows that North American uncoated Freesheet paper demand is down 5.1% through May (latest available data) at 4.99 million metric tons. So, whether any additional cut-size office paper price hikes will be attempted to offset pulp cost pressures in paper production is unclear, suggests Merrill Lynch analyst Ross Gilardi. He points out that “the U.S. paper industry continues to feel pressure from lower cost Southern hemisphere competition.”


Bowater Stockholders Overwhelmingly Approve Merger With Abitibi-ConsolidatedBowater Incorporated announced that its stockholders have approved the pro

Bowater Incorporated announced that its stockholders have approved the proposed merger with Abitibi-Consolidated Inc. Approximately 70% of Bowater's outstanding shares were cast in favor of the merger.
Abitibi-Consolidated Inc. also announced that its shareholders have voted in favor of the combination of Abitibi-Consolidated and Bowater Incorporated.

Scrapbook Papers continue to Grow

Paper.com, a pioneer in marketing scrapbook and craft papers on the internet, continues to add to their line of papers for this important market. A recent survey was conducted by Alcone Marketing on this segment
-32million people scrapbook in the United States
-2004 confirmed over $2.55billion was spent on scrapbook materials
-At least 1person scrapbooks in 25% of North American families
-The hobby is most popular in Western States – 25-30% of all households
-Most scrapbookers are college educated women, 30-50 years old
-Most work - over half work full time
-39% has been scrapbooking for at least 5 years
-75% spends at least $25/month
-Average scrapbooker has $1853 worth of gear
-75% of the scrapbookers have a dedicated room in the house for this hobby
Also noted in research
-32.2 million mom’s were on line in 2005 – forecasted to be 36.6million by 2010
-This is 18.7% of all Internet users
Contact Paper.com customer service department for a copy of a survey that Paper.com conducted with 2500 of our end users for most popular paper’s used.

Digital Printing Continues to Grow

Digital printing has enjoyed continued growth as end users are beginning to demand personalized promotions and fast turn around. Offset continues to be the most popular choice for longer runs, and does offer better reprographics. In a recent article published by Digital Publishing Solutions, Paper.com's co-founder P. Scott Vallely reported on the importance of picking the correct paper for the intended use. Offset and desktop copy papers generally are not acceptable for Digital Printers. Vallely confirmed several sheets, all marketing by www.paper.com. Some papers mentioned included Xerox’s Digital Color, NewPage’s Sterling, Finch, Prynn’s Digital Opaque, Mohawk’s Color Copy, Neenah’s Classic Crest, and SMART’s Kromekote laser. Paper.com has over 40,000 papers in stock and ready for immediate shipment.

Forest Industry Forecasted to continue to Consolidate

In 2006, the forest industry witnessed nearly 300 mergers and acquisitions worth almost $26billion. Most notable was Domtar’s acquisition of Weyerhaeuser for $3.3billion – creating the largest uncoated paper producer in North America. Other large consolidations included Cascades 50% ownership of Norampac ($476million) and West Fraser’s purchase of timberlands from International Paper for $325million. The average deal size grew from $90million in 2003 to $169millin in 2006. Industry experts believe this will continue as the industry faces both increased pressure from imports and digital communication, as well as advanced energy, transportation, fiber, and chemical costs. Thus far in 2007, $9billion worth of deals have been reported.

UNCOATED FREE SHEET UPDATE

Cut-size(business papers) prices rose $40/ton in May; and another $20 in June. Spot prices appear to be up by a slightly greater amount - merchants report continued customer resistance to hikes. Our conversations suggests a market which is balanced, but certainly not tight. While cut-size remains healthy (driven by supply cuts), substitution from Uncoated Groundwood Grades are keeping pressure on offset rolls. Paper.com has a large selection of cutsize papers available for immedaite shipment.

Market pulp Update

We believe more Canadian capacity closures will be announced . With the most recent uptick in the Canadian Dollar, it will force another round of capacity closures - we think there are at least 5-6 mills "on the bubble". Despite the highest US$ prices in over a decade for pulp, we believe that a number of Canadian mills are at/below cash cost. Wood supply issues in Europe appear to be starting to narrow the softwood/hardwood spread. Aracruz has recently announced a worldwide $20/ton hike on eucalyptus hardwood.

Paper Industry Employment Decreases

Paper mill employment fell from 17,200 in 1990 to 10,200 in 2003, according to a study done for the Maine Future Forest Economy Project.
The drop has continued in the past four years, with the work force now standing at an estimated 7,000 workers.

North American printing and writing paper shipments fall in May

Overall printing and writing paper shipments in North America at 2.24 million tons in May were 60,000 tons or 3.1% lower than
a year ago, according to data from the Pulp and Paper Products Council. The year-to-date reduction was 189,000 tons or 1.7%.
Mill operating rates declined in three of the four major grade segments, the exception being coated paper, which gained four percentage points to 92% on a shipments-to-capacity basis.
The decline in North American printing and writing paper demand at 5.6% was more than three times the 1.4% decline in production in May. However a 16.4% drop in imports and a 24.1% rise in offshore exports offset the imbalance. Overall mill inventories at the end of May were 2,000 tons lower than at the end of April and 296,000 tons higher than a year ago.

Corrugated Medium Supply Tight

Corrugated Medium is the wavy, middle fluting material in containers. Typical basis weights are 16, 18, 22, 26, 31, 33, 36, and 40, although the standard, and most popular, is 26 pound (pounds/1000square feet) The capacity has shrunk in recent years yielding a relatively tight supply to the market. Many of the higher cost mill locations have closed. The first round of closures started in 2005, totaling 790,000 tons (total market is 10,400,000 tons). Mill locations held by International paper, Smurfit, Menasha, Groveton, and Longview have been affected. Production for 2007 is expected to raise only 1% for 2007. Prices have remained stable. Again, market tightness is a result of curtained supply side NOT demand.

Corrugated Demand is Low

Corrugated box shipments at midyear remain almost 2% lower than a year ago and, even though they appear to have improved by 0.9% in June over May, they still aren’t strong enough yet to provide any traction for the proposed $40/ton price increase on 42-lb linerboard in the East and a $50/ton increase in the West. Statistics show that U.S. containerboard production was flat in June at 2.919 million tons. But, containerboard inventories dropped below 2.4 million tons, according to Fiber Box Association and American Forest and Paper Association .

Box plant inventories reached their lowest level since June 2006 (equal to 3.2 weeks of supply) and that “may be enough to give some teeth to producers' price hike,” writes analyst Claudia Shank of J.P. Morgan Securities in New York. However, other analysts say that that box demand needs to demonstrate positive momentum before a linerboard price hike can gain traction, and demand in June wasn’t robust enough.

Newsprint Market Update

July prices were reportedly down another $5/ton. With the Canadian Dollar at 30+yr highs, a growing percentage of mills are below "cash cost". With pressure from inputs costs and the rising Canadian Dollar, we do not think the current prices can be sustained at current low levels. Most North American producers will support the $25/ton September price hike.

European Fine Paper deliveries fall in May

Total woodfree paper shipments decreased in April, according to the Association of European Fine Paper Manufacturers,
CEPIFINE.
Total coated woodfree deliveries fell by 1% to 783,000 tons compared tothe year-earlier period. Shipments to Europe move up by 1.2% to 607,000 tons, while exports dropped by 7.4% to 176,000 tons. On the uncoated
side, total deliveries decreased by 2.5% to 738,000 tons. Shipments to Europe slipped by 1.6% to 662,000 tons, while those outside the region fell by 10.6% to 76,000 tons.
CEPIFINE statistics include information from the 27 countries in the European Union plus Norway and Switzerland.

US label market tighten as others feel weakness continue

Positive business feedback from narrow web converter segment rose through 2006 and early 2007. “Best April on record” and “best first quarter we ever had” were among comments registered by narrow web label printers. But the economic picture in one influential part of the globe, the United States, is shifting. It is a general tightening whose main contributors are rising interest rates, lower consumer spending, declining real estate prices, and difficulty in generating future organic growth.

The label industry, according to observers, will undergo considerable contraction in North America and to a lesser degree in Europe starting later this year. This has been long predicted and is now expected near term.

Overall GDP growth and near-record low unemployment notwithstanding, the American manufacturing sector is under attack. Consumerism, in the form of demanding shoppers and even more demanding shareholders, continues to pressure retailers to pursue lower costs, better products, and additional services from their vendors, who, in turn insist on similar contributions from their own supply chains. As a result, a great deal of high volume manufacturing, along with its packaging requirements, has departed for lower cost shores, never to return. The effect on the narrow web industry has been a continued reduction in the overall market of products requiring domestically printed labels.

Today’s label printing industry is characterized by price wars, rising print standards and a tightening labor market for skilled press operators. Industry-wide, organic growth has become more and more difficult to achieve, stalling top line growth, making consolidation inevitable. This is precisely what we have been witnessing over the past several years, particularly at the large company level, where acquisitions have spearheaded the growth initiative of industry notables Multi-Color, WS Packaging, Fort Dearborn, York Label, among others. Even at the smaller and midsize company levels, the industry has seen a flurry of ownership turnover, including acquisitions by companies in related industries such as packaging equipment, folding cartons, cans, and bottles.

Go Green

Paper.com recently introduced a new website and included a section for Environmentally Friendly papers. The site has over 40,000 items, many have recycled fiber. The “Green Store” contains Environmentally Preferred Papers (EPP). Most are supplied by vendors that have third party certificates such as Forest Stewardship Council (FSC), Sustainable Forest Initiative (SFI), American Forest and Paper Association (AF&PA), and Chlorine Free Products Association (CFPA). Accordingly, the paper grades are certified to carry Post Consumer Waste (PCW).

Container Board Producers announce Price Increase

From - Deutsche Bank - Equity Research


Smurfit-Stone, the world's largest containerboard producer, began notifying customers on Monday of a $40/ton hike on all
containerboard grades (kraft linerboard, corrugating medium, and white-top linerboard). The hike is effective on August 1. The initiative essentially mirrors an earlier announcement by Weyerhaeuser (NA's #2 producer). The only difference is that Weyerhaeuser is proposing an extra $10/ton on the West Coast, presumably to offset higher wood costs. Weyerhaeuser and Smurfit control nearly 40% of North American containerboard supply. We expect other producers to follow.
Producers in Europe are also announcing price hikes. Over the past few business days, both Smurfit-Kappa (Europe's largest player) and PowerFlute have announced Euro50/mton (equivalent to about $61/ton) price hike on semi-chemical corrugating medium. PowerFlute's hike is scheduled for July 1, Smurfit-Kappa's for August 1.
Price hikes earlier this year fell flat in the face of weak downstream demand for corrugated boxes. The current initiative may
get more traction if the recent rebound in the ISM's manufacturing index translates to stronger industrial production and a corresponding uptick in box volumes. June's 56.0 reading is up sharply from January's 49.3 low. Historically, an ISM reading in the mid-50's is indicative of healthy box markets. Other critical variables include the state of global demand (currently, this appears healthy) and pressure from input costs. On the latter count, after some Q2 easing, global wastepaper markets are again surging. An increase in costs for old corrugated containers (OCC) and other wastepaper grades will boost variable production costs for recycled containerboard mills around the world.

USA Paper and Paperboard Capacity continue to decline

As previously reported by Paper.com, the US paper industry capacity has decreased to less than 100 million tons or 1.6% reduction from 2005. Two primary reasons sited include competition from imports and electronic substitution.
NEWSPRINT
US capacity has been on a steady decline – falling from an all time high of 7.5million tons in 2000 to 5.5milion tons in 2006 (down 26%). This trend is estimated to continue.
UNCOATED MECHANICAL (Value added newsprint)
Capacity has increased to 2.26million tons and slated to slightly increase for next several years.
COATED MECHANICAL PAPER (used for catalogues and publications)
Capacity is down to 4.7million tons. It is believed this level should remain steady for next 2 years.
COATED FREESHEET (upscale magazines and reference)
Capacity for this grade has expanded and many machines that were making mechanical coated grades have upgraded equipment to now produce Coated Free Sheet. Total capacity for 2006 was 5.31million tons.
UNCOATED FREESHEET
Capacity for this grade has trended down since 2000 high of 15.2million tons. 2006 capacity was 13.4million tons. Many of the older machines were shuttered.
Forecasts are for additional decline of 2.5% in 2007 and 1.5% in 2008.

Coated Free Sheet End Users Feel Price Pressure

The USPS postage increases, raising energy, and now increased paper prices for Coated Free Sheet grades have challenged printers that use this grade. Hardest hit, are the West Coast printers where the vast majority of paper was from Asia – a source that recently met with a new USA Tariff. Papers from China and Indonesia were hardest hit, this made up 360,000 tons in 2006.

Paper Profits Down

Although the paper industry enjoyed positive momentum in the 4Q2006, the recent cost increases and lower demand have offset gains from recent price increases. RISI, a paper association researcher, recently reported that most paper producers were successful in raising prices; however, costs also increased for such components as fiber, chemicals, energy, transportation and labor. The survey revealed 19 companies reported positive quarterly earnings; five companies reported lower income, and, eight companies reported a net loss.

MARKET PULP

Hardwood pulp prices rose "across the board" in June, narrowing its very wide spread compared to softwood. The price differential between the two grades is now $100/ton. The spread has been as low as $15/ton in recent history. The interesting question is whether this will force another round of capacity closures. Some producers have announced $20/mton July NBSK price hikes.

Neenah Paper to Further Consolidate Fine Paper Operations

Neenah Paper announced plans to permanently close its fine paper mill located in Urbana, Ohio. The mill, with capacity
of approximately 39,000 tons per year, was acquired by the company with the purchase of Fox River Paper in March 2007. With the shutdown of the Urbana mill and the previous closure of the Housatonic, Massachusetts mill, the company is maximizing cost efficiencies by shifting fine paper manufacturing to utilize existing available capacity at the other mills. Paper.com has all the Neenah and Fox River popular grades in stock and ready for immediate delivery.

NEWSPRINT market

Newsprint prices continue to slide. June ' prices down $15/mton to $585. April consumption at US dailies remained weak, falling 9.8% this year, together with weak advertising revenues. The Canadian dollar at a 30 year high is hurting imports from Canada into USA. Catalyst Paper Mill announced that it’s shutting a 134,000-tpy directory machine at
Port Alberni, BC. Even more striking, Kruger has announced plans for market downtime at several mills. Most players appear to waiting for Abitibi and Bowater deal to resolve before making capacity decisions.

Consolidated Graphics to Acquire Cyril Scott Co.

Consolidated Graphics has signed a memorandum to acquire The Cyril Scott Co. of Lancaster, OH.
Cyril Scott is a commercial printing company that produces multi-featured print products for the direct mail market, including pop-up/ pop-out, nested designs and kiss-cut sticker options, as well as specialty laser labels and clean-release cards.

Domtar schedules downtime

Domtar Paper facility in Dryden, ON producing 285,000 tons/yr of uncoated Freesheet mill announced two weeks of downtime. The converting operation at the mill also will shut down.

Abitibi and Bowater hike North American SC prices

Momentum behind the price increase for publication paper grades in North America have gathered pace.
Abitibi-Consolidated announced today that it will hike the price of supercalendered (SC) grades $60/ton ($3/cwt) next month.
Bowater, Verso and Stora Enso have also told customers their SCA and SCB products will cost $60/ton more next month, in line with increases on coated paper grades announced by many North American manufacturers last week. SC is the grade that many Sunday newspaper inserts outlining large store sales are printed on.

Magazine Revenue Will Grow -- but Slowly

Magazines can expect relatively steady revenue growth over the next four years or so, but not by big margins and
not without some struggle, according to the latest annual Global Entertainment and Media Outlook from PricewaterhouseCoopers. Consumer magazine revenue in the U.S. will expand by 1.5% this year, 2.3% next year,
3.1% in 2009, 3.3% in 2010 and 3.2% in 2011, according to the report. Advertising revenue will grow more quickly than circulation revenue, with 2.8% growth expected in 2007, for example, while circulation revenue slips 0.2%. In
2011, the forecast predicts magazine ad revenue will jump 4.2% but circulation revenue will increase only 1.8%.

No Reprieve on Postal Rate Hike

Catalog mailers can kiss any dreams of a postal rake hike reprieve goodbye. The U.S. Postal Service’s Board of
Governors (BOG) on June 19 rejected the Postal Regulatory Commission’s temporary rate reduction. That means catalogers, who were hit hardest when the new pricing structure took effect May 14, will have to live with the postage increases of 20%-25%, and as high as 40%. The PRC had less than one month ago recommended to the BOG a temporary rate reduction of $0.03 in its reconsideration of rates for Standard Mail flats--the category affecting most catalogers. The PRC recommended the temporary lower rates last through Sept. 29, before fiscal year 2008 begins for the USPS on Oct. 1.

How about those postal hikes?

On average, first class rates are going up by seven percent, periodical hikes range from 20 to 25 percent, and rates for standard mail, depending on shape, will increase by up to 40 percent. The new rates took effect May 14, except those for periodicals (magazines and newspapers), which become effective July 15.