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Q4 PAPER OUTLOOK -- On-the-Cheap Sheets

September 2003

Moving in fits and starts is about the best that can be said for the paper industry's attempts to rebound from its recent market woes. Across most grades, prices have been seen to be on the rise, but also continuing to decline. In both cases, the change has been relatively minor.

The quarterly financial reports from major manufacturers again tell the story. Common themes include a continuation of competitive market conditions and rising costs.

"This has been a particularly difficult quarter for the company," reports Sappi CEO Jonathan Leslie. "Our third quarter results were achieved against a background of lower pulp prices, weak demand for coated fine paper and increasingly competitive markets. North American sales were flat compared to a year earlier and were down 3 percent compared to the previous quarter." Leslie says low-priced imports from Asia and Europe continue to depress prices in the region.

Compared to 2002, MeadWestvaco says market conditions have continued to deteriorate, as reflected in lower shipments for coated, carbonless and specialty papers. The company reports that coated paper prices and shipment levels were down from its previous quarter. Continuing high energy and raw materials costs were contributing factors in the firm posting an operating loss for the quarter, asserts John Luke Jr., chairman and CEO.

For the third time in 2003, Domtar Inc. announced plans to curtail production in response to slack demand. After this latest move, it reportedly will have scaled back production by 52,000 tons of paper. Boise Cascade, meanwhile, notes that its quarterly volume declined because of market-related curtailment of 67,000 tons of production during the period.

Prices for uncoated paper also declined, according to International Paper. Volumes were slightly lower, reveals John Dillon, chairman and CEO, adding that he doesn't expect the outlook to change in the second half of the year. "We anticipate a very tough external environment. We expect flat demand, but raw material and energy costs should improve."

While noting that global economic activity remains muted, Stora Enso's CEO, Jukka Härmälä, sees some positive indications in the North American market. "There are signs that advertising spending is beginning to recover from the impact of the Iraq War," he contends.

The data in the most recent Publishers Information Bureau (PIB) monthly report tends to back his belief, but it still shows marked disparity between magazine ad revenues and pages. Through July 2003, advertising revenue was up 9.6 percent compared to the same period in 2002, but ad pages were only up 1.6 percent.


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