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PAPER MARKET OUTLOOK -- Stocks Are on the Rise

February 2005

Technology Editor

Experience has taught printers to error on the side of caution when it comes to managing paper. Any tendency toward overreacting is understandable, given how essential this raw material is to the process. It's easy to imagine the sense of helplessness from having a press sit idle or turning away business for want of paper.

The critical role of paper helps explain much of the past volatility in the marketplace. In recent years, paper buyers and suppliers have both taken steps to instill more stability and rationality in the market, and there were some indications of this effort paying off in 2004. It is still possible, though, that the industry has yet to experience sufficient pressure to spark a big and prolonged swing in the market.

Proposed price increases did generally "stick" this past year as suppliers put customers on allocation. The commercial sector took these developments in stride, for the most part. There were some signs of stockpiling.

Papermakers have taken dramatic actions in an attempt to bring supply and demand more in line. The latest industry moves have been more limited in scope, but indicate that this reshaping is ongoing.

From a dollar standpoint, the biggest news was MeadWestvaco's agreement to sell its papers business and associated assets for $2.3 billion to a new company controlled by Cerberus Capital Management L.P., a New York-based private investment firm. The operation is basically remaining intact, however, with the current management team continuing to lead the business.

SMART Papers agreed to acquire Fraser Papers' pulp and papermaking operations in Park Falls, WI, as well as a converting, distribution and customer service facility in West Chicago, IL. The transaction includes the premium specialty brands Torchglow, Worx, Glacier, Brights, Synergy, Passport, Genesis, Pegasus, Outback, Magna Carta and Mosaic.

Paper Mergers Covered

Mohawk Paper Mills, meanwhile, signed a letter of intent to purchase International Paper's Fine Papers Business, which includes the writing, text and covers papers and artist papers segments. The Strathmore, Brite Hue, Via and Beckett brands are also to be transferred in the sale.

With growth in the U.S. economy expected to remain strong, but moderate from 2004 rates, the outlook for paper in the first half of 2005 is status quo. The mechanical paper sector is likely to remain the most challenging, in part due to a strike at UPM North America's Miramichi facility along with work being done on machines by other producers.


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