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January

09

World Pulp Monthly

Analysis and Forecasts of the International Pulp Market

· Economy: Our economic scenario is again somewhat weaker for first half 2009 than it was in past reports. We continue to assume financial stability will be found in first half 2009, but an economic recovery in the United States and Europe will wait for 2010. · Demand and capacity: Our projections for the key printing and writing sector remain negative for both Europe and North America. There is upside risk to paper and board production in China, to the extent that they are able to reach new export markets quickly to take advantage of their temporarily low production costs. Our model continues to show that there is overcapacity in pulping capacity, with perhaps 2.0 million more tonnes needing to come out of the market before pricing stability is reached. We assume that another round of permanent closures will come in first half 2009, after pulp prices have reached bottom at or below production costs. · Prices: We have revised our near-term price forecast downward, to reflect the downward trend in production costs and relatively slow removal of pulping capacity from the industry. We now see downward pressure on prices over the next several months, to a greater degree than most market participants appear to expect. This weakness in pricing will trigger closures of capacity and set the stage for a period of firming up of prices in second half 2009 and especially in 2010.

Figure 1 NBSK and Lumber Prices in Canadian Dollars

2009 Canadian Dollars

2,000 Real Price WSPF 2X4, C$ 1,800 1,600 1,400 1,200 1,000 800 600 400 200

Source: RISI

Real Price NBSK Europe, Pre-Discount, C$

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0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

World Pulp Monthly - January 2009

Key Developments: Revising Price Forecast Down on Lower Production Costs

· Producer inventories dropped in December, as we expected. We anticipated a small bounceback in shipments in December and a sharp drop in production at pulp mills, and that is what happened according to the December data released in late January by the PPPC. Pulp mill downtime was extensive and many mills that did not shut down instead slowed down production. Producer stocks dropped to below 5.0 million tonnes and days of supply (seasonally-adjusted) dropped by over 5 days to 45.8. That's still above average, but it is a much less desperate situation than having 51 days of supply. The declines in the stocks of both BSK and BHK were significant. · But the December inventory drop was at best a reprieve for producers. The strength in shipments was entirely due to South American producers unloading inventories to China. The shipment/capacity ratio for South American producers was well over 1.0 in December, and well below 1.0 for producers in all other regions. Shipments to China reached an all-time monthly high. As we have said here before, excess inventories take time to be worked off. The only thing that adjusts quickly is the price, which has to fall to a level that makes either buyers or sellers believe that holding those inventories makes sense. That process played out fairly quickly in China, as spot prices plummeted in the October-December period. Chinese buyers have taken a big step toward replenishing inventories, and are still able to buy more out of producer stocks at low prices today. This transfer of inventories from seller to buyers will borrow from demand over the next quarter or two. (Chinese imports of bleached kraft pulp can now be tracked in our new Table 6, which will be a regular part of this report going forward, and can also be seen in Figure 3.)

Figure 2 Seasonally Adjusted Producer Inventories of Chemical Grade Market Pulp (20 Countries)

Days of Supply 60

Source: PPPC, RISI

60 55 Average = 32.6 Days 12/08 = 45.8 50 45 40 35 30 25 20 15 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

55 50 45 40 35 30 25 20 15

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World Pulp Monthly - January 2009

Figure 3 Bleached Kraft Pulp Imports into China

000 Metric Tons/Month, Not Seas. Adj. 800 700 600 500 400 300 200 100 0 00 01 02 03 04 05 06 07 08 BSK BHK 3-Mo. Centered Mov. Avg.

Figure 4 NBSK Transaction Price and Spot Price

US Dollars/Metric Ton, Delivered N. Europe

950 900 850 800 750 700 650 600 550 500 450 400 350 300 98 99 00 01 02 03 04 05 06 07 08 09

Source: RISI Spot Transaction

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World Pulp Monthly - January 2009

Figure 5 NBSK Transaction Prices in Three Currencies

Currency Units per Metric Ton, Del. Northern Europe

Euros, $

1,200 U.S. $ 1,100 1,000 900 800 700 600 500 400

Source: RISI

Canadian $ Euros

300 98 99 00 01 02 03 04 05 06 07 08 09

· Production costs continue to decline. Market wood fiber costs are coming down in most regions of the world, brought down by massive amounts of downtime across the entire industry. Even in regions where domestic fiber costs are relatively stable, the marginal cost of wood has declined substantially as producers are having to reach less far and pay less for the marginal and most expensive fiber. Most other input costs have fallen more than expected, including energy, chemicals and transportation. We have again adjusted our estimated delivered cash costs for higher-cost regions. For BHK, all of the major higher-cost regions are averaging at or under $400 on a delivered cash cost basis, according to our estimates. The exception is mills in Asia, which are in the low- to mid-$400 range, but their costs are coming down quickly, with wood fiber being a key driver. (The hardwood chip market in Asia appears to be oversupplied, based on recent information we have obtained, as demand in China has not kept pace with what was expected from suppliers in places such as Vietnam.) For BSK, delivered cash costs are probably in the $480-490 range and there is still downward pressure for now on these costs as well. · Further price declines ahead? Most market participants appear to believe prices will reach bottom in most regions in February. We are taking the opposite side of this bet. Our pricing model and our cost estimates both point to some further weakness in pricing in the next several months. For BHK, spot prices worldwide are probably headed for below $400, as prices typically drop to just below delivered cash costs in periods of very weak demand. Spot prices for NBSK are already at or below delivered cash costs, but it appears that contract tonnage in the USA is still transacting in many cases for significantly more than this. This likely points to downside pressure on BSK prices in the USA over the next few months. Complicating the issue is the rising level of discounts off of the effective list prices. Discounts could now be a minimum of 15% for large buyers of both BHK and BSK in Europe, and 17-20% in the United States, based on scattered information we are receiving.

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World Pulp Monthly - January 2009

· Capacity closures so far are just the first act. A key reason for our forecast of further weakness in prices is that pulp mill closures are lagging what is necessary to bring the market back into balance. Projections of total pulp mill closures that looked fanciful before the magnitude of the current financial crisis was clear now appear less so. So far, closures are well short of what our model indicates are needed to keep prices at or above delivered cash costs. We are now estimating that at least 4.0 million tonnes of bleached kraft pulping capacity (market, affiliated and integrated) needs to come out of the market in the 2008/2009 period, given our most recent demand projections. We arrived at this number by comparing projected demand to capacity and removing enough capacity to get prices to settle at levels that are break-even on a cash basis, which is where the market must eventually settle. As usual, the capacity response is lagging demand. Most of the redundant mills will not be closed until prices have slipped further, to levels below delivered cash costs. · For BHK, most of the closures have yet to occur. Market participants are well aware that VCP will be starting up its new 1.3 million tonne BHK mill in Brazil in April, with tonnage reaching the market by mid-year. (The effect of pre-selling that tonnage is already being felt.) The timing is very difficult from the producer point of view given the outlook for paper markets in 2009. Our model indicates that approximately 3.0 million tonnes of BHK pulping capacity has to be removed from the market to balance supply and demand (at a relatively weak level) in the 2008/2009 period. We count 1.2 million tonnes of BHK closures or grade switches over the past year, with another 200,000 idled indefinitely and assumed by us to be permanently closed. That leaves approximately 1.5 million tonnes of BHK capacity closures yet to come. Again, we are assuming that it will require the pain of negative cash operating margins to force this capacity out. · For BSK, the bulk of the closures may already have occurred. So far, we count 850,000 tonnes of permanent closures announced or already completed for 2008/2009. This market is less oversupplied, so the amount of further capacity reductions is probably less than for BHK. We assume a further 300,000 tonnes of closure of BSK capacity, but there is significant upside risk to this number. Our model indicates that further price weakness for BSK will be required to trigger these closures, but not as much weakness as is the case for BHK. · BSK producers in Canada face extreme pressures on the lumber side. Reuters reported that lumber futures on the Chicago Mercantile Exchange hit a 23-year low in late January. Crow's reported that in the United States, western SPF 2x4 lumber was quoted at $134 in the final week of January, a level that one Canadian executive called "ridiculous" in a recent conference call, and he was right. Lumber and BSK pulp are joint products for many producers in North America and, importantly, the prices of the two products are usually negatively correlated (Figure 1). But these are unusual times, and the negative correlation has temporarily broken down. Both softwood lumber and pulp are trading at or near record lows in real Canadian dollars. Typically pulp/lumber producers are able to sustain their companies during difficult periods in one market with the cash flow from the other market. The current situation raises the risks of financial distress for indebted producers in both the USA and Canada. This raises the risk that BSK pulp mill closures will exceed our expectations, which would set up a sharper than expected rebound in prices later this year and into 2010 and beyond. Our view continues to be that pulp mills in Canada are "hard to kill," but the current situation in the lumber market makes it somewhat easier. · Further upside risks associated with lower production costs in Asia. Production costs for paper and paperboard in Asia have plummeted in the past six months. For coated freesheet paper made in China and South Korea, it could be as much as $300-400 cheaper on a delivered cash cost basis to reach Europe or the west coast of the United States than it was six months ago. On a percentage basis, the decline in the production costs of recycled paperboard is just as large. The risks here to fiber markets

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World Pulp Monthly - January 2009

are significant. Asian paper and board is made predominantly with market pulp and recovered paper. In the United States, they are made predominantly in integrated mills using virgin woodfiber. With paper and packaging markets in the both the USA and Europe being relatively concentrated in terms of number of producers, those producers are aggressively taking downtime and sustaining prices at levels that are substantially higher than they would be if no downtime were taken. To the extent that Asian producers can exploit (at least temporarily) cheaper fiber and transportation costs by ramping up exports to the high-price regions, those price differentials could be arbitraged away, at least to some extent. Also, if Asian paper is substituted for domestic paper (especially in the United States), world demand for market pulp and perhaps recovered paper could receive a significant boost. It is not easy to ramp up distribution channels to new regions, but the differences between prices and costs are so large at the present time that there has to be consideration given to this possibility.

Price Forecast: Lower in the Near Term; Rebound in Second Half 2009

Our forecast continues to show negative growth in production of printing and writing papers in Europe in both 2009 and 2010. For the United States, the number for 2009 is sharply negative, while for 2010 it is slightly positive, but with downside risks attached. Overall, the outlook for market pulp consumption in these regions remains weak over the forecast horizon. In this environment, what happens in China will play perhaps the key role on the demand side over the next six quarters. Our outlook for China is still relatively positive for late-2009 and into 2010, which is the reasoning for our showing a recovery in pulp shipments later this year. There is upside risk here, associated with the near-term incentive that Asian producers now have to try to ship their paper to Europe and North America to take advantage of prices that are well above delivered cash costs of Asian producers. On the supply side, we see at least 2.0 million tonnes of pulping capacity being withdrawn from production permanently in 2009, taking the total to close to 4.0 million tonnes total. This includes market, affiliated and integrated capacity. Closures have been relatively slow to occur and it appears that what will be required is for operating cash margins to turn significantly negative. With production costs continuing to slip as energy, woodfiber and transportation costs decline, further slippage in pulp prices is likely over the next few months. This is a change in our short-term forecast, which has been showing a temporary bounce in prices (although with considerable warnings that this might not in fact occur). That short-term forecast was based on production costs that were forecasted to be higher than they will turn out to be, and on a somewhat more benign economic forecast. Our model is now showing pulp prices slipping further and stabilizing by mid-year. Based on our economic and capacity scenario, there should be some upward pressure on pulp prices throughout most of second half 2009 and especially in 2010. The decline in hardwood chip prices in Asia is expected to continue, which will lower BHK costs more than expected relative to BSK. We are raising the price differential between BSK and BHK in response to the rising differential in fiber costs.

© World Pulp Monthly provides economic analysis of the international market pulp business and is written by Kurt Schaefer. Subscriptions or client service: Call 866.271.8525 (USA & Canada) or +32.2.536.0747 or email [email protected] Editorial offices: 4 Alfred Circle, Bedford, MA 01730-2340 USA. Copyright 2009 by RISI, Inc. All rights reserved. No part of this publication may be reproduced without the written permission of the copyright owner.

DISCLAIMER OF WARRANTY Although RISI, Inc. shall use its best efforts to provide accurate and reliable information, RISI, Inc. does not warrant the accuracy thereof. RISI, Inc. MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED FROM THE USE OF ITS SERVICES AND MAKES NO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. RISI, Inc. SUPPLIES ALL SERVICES ON AN "AS IS" BASIS. If notified of an error in its Services, RISI, Inc. shall take reasonable steps to correct such an error.

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World Pulp Monthly - January 2009

Table 1* 20 Country Chemical Paper Grade Market Pulp Summary

Thousand Tonnes, Seasonally Adjusted

Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008

20 Major Producing Countries** Shipments (Actual) Shipments (Seas Adj) %Ch - Year Earlier Producer Inventories (Actual) Producer Inventories (Seas Adj) Days Of Supply Capacity Strike-Adj Capacity Shipments/Capacity

3,495 3,451 5.9 3,142 3,214 28 3,695 3,695 0.93

3,344 3,452 5.2 3,255 3,308 29 3,728 3,728 0.92

3,615 3,418 4.5 3,344 3,460 30 3,794 3,794 0.91

3,349 3,437 6.1 3,762 3,563 31 3,823 3,823 0.89

3,362 3,411 6.9 3,884 3,717 33 3,842 3,842 0.90

3,587 3,447 4.4 3,888 3,860 34 3,836 3,836 0.95

3,551 3,644 7.2 3,670 3,643 30 3,844 3,844 0.90

3,488 3,467 2.3 3,669 3,813 33 3,852 3,852 0.89

3,432 3,440 1.7 3,698 3,915 34 3,863 3,863 0.90

3,406 3,478 -1.1 4,051 3,931 34 3,869 3,869 0.82

3,175 3,175 -7.7 4,419 4,276 40 3,873 3,873 0.82

3,178 3,164 -4.5 4,655 4,744 45 3,901 3,901 0.80

3,161 3,123 -9.5 4,907 5,023 48 3,881 3,881 0.78

2,926 3,027 -12.3 5,069 5,166 51 3,839 3,839 0.86

3,478 3,286 -3.9 4,832 *** 5,013 *** 46 3,733 3,733 0.86

PRI C E S AN D C OSTS (U .S. DOLLARS PE R TON N E ) Pri c es Del. to N . E uro pe N o rthern Bl. Softwood Kraft Bl. Birch Kraft Bl. Hardwood Kraft So uthern Bl. Softwood Kraft Bl. Hardwood Kraft Bl. Brazilian Eucalyptus Kraft Pri c es Del. to U n i ted States N o rthern Bl. Softwood Kraft Bl. Hardwood Kraft So uthern Bl. Softwood Kraft Bl. Hardwood Kraft Bl. Brazilian Eucalyptus Kraft

830 750 740

850 750 740

870 780 770

880 780 770

880 800 790

880 800 790

900 840 830

900 840 830

900 840 830

895 840 830

880 840 830

860 820 810

780 730 720

680 660 650

635 590 570

790 730 750

810 730 750

830 760 780

840 760 780

840 780 800

840 780 800

860 820 840

860 820 840

860 820 840

855 820 840

845 820 840

820 800 820

740 710 730

640 640 660

590 560 590

850 750

850 750

875 775

880 780

880 800

880 800

880 800

880 800

880 815

885 815

885 815

870 810

840 760

785 720

730 660

810 750 775

810 750 775

840 780 805

840 780 805

840 800 825

840 800 825

840 805 860

840 805 860

840 805 860

845 805 860

845 805 860

830 800 845

800 760 785

745 720 745

705 660 680

Avg V ar. C o s t Del. to N . E uro pe, Hi g h C o s t Reg i o n Bl. Softwood Kraft Bl. Hardwood Kraft

619 512 631 526 635 539 631 549 630 559 630 567 630 575 629 578 630 578 634 573 629 568 615 562 589 554 575 547 567 540

Pri c e/V ar. C o s t Rati o s B efo re Di s c o un ts , Hi g h C o s t Reg i o n Bl. Softwood Kraft Bl. Hardwood Kraft

1.34 1.46 1.35 1.42 1.37 1.45 1.40 1.42 1.40 1.43 1.40 1.41 1.43 1.46 1.43 1.45 1.43 1.45 1.41 1.47 1.40 1.48 1.40 1.46 1.32 1.32 1.18 1.21 1.12 1.09

* Data revised December 2006, adding estimated German BSK, removing Portugal to conform to revised industry association reporting. ** Canada, United States, Finland, Sweden, Norway, Brazil, Chile, Argentina, Germany, Spain, France, Belgium, Austria, South Africa, Swaziland, Morocco, New Zealand New Zealand, Japan, South Korea. These countries represent 81% of world supply in 2006 *** Estimated

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World Pulp Monthly - January 2009

Table 2* 20 Country Chemical Paper Grade Market Pulp Summary

Thousand Tonnes, Seasonally Adjusted

Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Jan 2010 Feb 2010 Mar 2010

20 Major Producing Countries** Shipments (Actual) Shipments (Seas Adj) %Ch - Year Earlier Producer Inventories (Actual) Producer Inventories (Seas Adj) Days Of Supply Capacity Strike-Adj Capacity Shipments/Capacity

3,141 3,224 -6.2 5,091 4,984 46 3,735 3,735 0.86

3,208 3,255 -4.6 4,974 4,893 45 3,675 3,675 0.89

3,482 3,346 -2.9 4,592 4,645 42 3,630 3,630 0.92

3,290 3,376 -7.4 4,335 4,388 39 3,585 3,585 0.94

3,335 3,315 -4.4 4,064 4,269 39 3,565 3,565 0.93

3,368 3,376 -1.9 3,841 4,111 37 3,555 3,555 0.95

3,277 3,346 -3.8 4,062 4,017 36 3,585 3,585 0.93

3,376 3,376 6.3 3,983 3,916 35 3,595 3,595 0.94

3,452 3,437 8.6 3,650 3,798 33 3,610 3,610 0.95

3,448 3,407 9.1 3,559 3,737 33 3,630 3,630 0.94

3,322 3,437 13.5 3,520 3,671 32 3,635 3,635 0.95

3,700 3,498 6.5 3,345 3,583 31 3,640 3,640 0.96

3,438 3,528 9.4 3,566 3,493 30 3,635 3,635 0.97

3,477 3,528 8.4 3,468 3,423 29 3,635 3,635 0.97

3,704 3,559 6.4 3,250 3,348 28 3,635 3,635 0.98

PRI C E S AN D C OSTS (U .S. DOLLARS PE R TON N E ) Pri c es Del. to N . E uro pe N o rthern Bl. Softwood Kraft Bl. Birch Kraft Bl. Hardwood Kraft So uthern Bl. Softwood Kraft Bl. Hardwood Kraft Bl. Brazilian Eucalyptus Kraft Pri c es Del. to U n i ted States N o rthern Bl. Softwood Kraft Bl. Hardwood Kraft So uthern Bl. Softwood Kraft Bl. Hardwood Kraft Bl. Brazilian Eucalyptus Kraft Avg V ar. C o s t Del. to N . E uro pe Bl. Softwood Kraft Bl. Hardwood Kraft

567 531 565 525 564 521 565 519 565 517 565 514 565 513 565 511 565 509 565 507 565 505 565 503 565 499 565 498 565 497

600 550 540

570 510 500

550 480 470

550 470 460

550 470 460

550 470 460

550 470 460

550 470 460

550 470 460

560 480 470

570 490 480

585 515 505

595 525 515

610 540 530

630 560 550

565 530 550

530 490 510

510 460 480

510 450 470

510 450 470

510 450 470

510 450 470

510 450 470

510 450 470

520 460 480

530 470 490

545 495 515

555 505 525

570 520 540

590 540 560

700 620

645 570

615 520

595 500

595 500

595 500

595 500

595 500

595 490

605 500

610 510

625 535

635 545

650 560

670 580

675 620 640

615 570 590

585 520 540

565 500 520

560 500 520

560 500 520

560 500 520

560 500 520

560 490 510

570 500 520

575 510 530

590 535 555

600 545 565

615 560 580

635 580 600

Pri c e/V ar. C o s t Rati o s B efo re Di s c o un ts Bl. Softwood Kraft Bl. Hardwood Kraft

1.06 1.04 1.01 0.97 0.98 0.92 0.97 0.91 0.97 0.91 0.97 0.91 0.97 0.92 0.97 0.92 0.97 0.92 0.99 0.95 1.01 0.97 1.04 1.02 1.05 1.05 1.08 1.08 1.11 1.13

* Data revised December 2006, adding estimated German BSK, removing Portugal to conform to revised industry association reporting. ** Canada, United States, Finland, Sweden, Norway, Brazil, Chile, Argentina, Germany, Spain, France, Belgium, Austria, South Africa, Swaziland, Morocco, New Zealand New Zealand, Japan, South Korea. These countries represent 81% of world supply in 2006

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World Pulp Monthly - January 2009

Table 3* Chemical Paper Grade Market Pulp Shipments by Grade and Destination

Thousand Tonnes, Seasonally Adjusted

Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008

SHI PM E N TS B Y G RADE 20 Major Producing Countries** Shipments 3,451 %Ch Year Ago 5.9 Bleached Softwood Kraft Shipments %Ch Year Ago

3,452 5.2

3,418 4.5

3,437 6.1

3,411 6.9

3,447 4.4

3,644 7.2

3,467 2.3

3,440 1.7

3,478 -1.1

3,175 -7.7

3,164 -4.5

3,123 -9.5

3,027 -12.3

3,286 -3.9

1,780 2.4

1,797 3.0

1,734 -1.2

1,723 -2.5

1,751 -1.3

1,753 0.5

1,909 4.4

1,739 -1.3

1,676 -3.7

1,842 1.3

1,608 -10.6

1,640 -3.8

1,623 -8.8

1,529 -14.9

1,573 -9.3

Bleached Hardwood Kraft Shipments 1,523 %Ch Year Ago 10.7 Unbleached Kraft Shipments %Ch Year Ago Sulfite Shipments %Ch Year Ago

1,525 10.3

1,541 12.1

1,577 19.0

1,555 21.8

1,562 10.7

1,607 13.0

1,609 9.9

1,638 8.4

1,516 -1.9

1,457 -3.0

1,418 -2.0

1,400 -8.1

1,402 -8.0

1,618 5.0

139 3.2

122 -16.1

135 2.4

127 -6.3

95 -26.7

123 -12.1

120 -14.4

111 -27.7

117 -2.6

111 -23.7

101 -21.2

97 -35.6

92 -34.0

88 -27.9

86 -35.8

8 -11.1

8 0.0

8 0.0

9 0.0

9 0.0

9 0.0

9 -10.0

9 0.0

9 0.0

9 12.5

9 0.0

9 0.0

8 0.0

8 0.0

8 0.0

SHI PM E N TS B Y DE STI N ATI ON To North America 728 %Ch Year Ago -1.4 To W. Europe %Ch Year Ago To E. Europe %Ch Year Ago To Lat. America %Ch Year Ago To Japan %Ch Year Ago To Asia/Africa %Ch Year Ago

1,317 3.0 64 6.3 219 19.6 202 0.4 911 12.9

747 4.9 1,305 -0.4 72 22.0 208 11.3 188 -9.7 914 15.3

678 -10.5 1,283 -2.1 63 -5.2 214 10.0 228 8.1 941 30.1

742 2.6 1,351 4.6 63 -6.1 209 9.6 183 -7.4 911 16.2

739 2.6 1,350 4.8 67 9.4 214 12.7 207 19.5 871 9.4

699 -4.7 1,315 1.3 68 4.7 209 9.3 206 7.8 953 15.4

731 -5.1 1,365 5.2 67 -4.1 221 19.1 180 -7.9 1043 23.9

698 -6.3 1,274 -3.0 71 2.9 229 22.3 222 8.3 985 11.8

663 -11.1 1,334 3.1 73 7.0 232 21.1 171 -18.1 933 9.7

685 -9.1 1,291 -9.9 80 17.2 217 9.5 193 10.3 1037 13.3

658 -11.7 1,217 -9.8 58 -5.7 211 2.3 198 1.8 835 -5.8

661 -9.6 1,265 3.1 88 33.0 208 -3.8 164 -16.0 775 -11.5

651 -10.5 1,252 -4.9 69 7.1 217 -1.2 185 -8.3 724 -20.6

574 -23.2 1,161 -11.1 56 -22.6 208 -0.1 175 -6.9 837 -8.5

587 -13.3 1,146 -10.7 59 -5.9 195 -8.8 157 -30.9 1114 18.3

* Data revised December 2006, adding estimated German BSK, removing Portugal to conform to revised industry association reporting. ** Canada, United States, Finland, Sweden, Norway, Brazil, Chile, Argentina, Germany, Spain, France, Belgium, Austria, South Africa, Swaziland, Morocco, New Zealand New Zealand, Japan, South Korea. These countries represent 81% of world supply in 2006

RISI

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World Pulp Monthly - January 2009

Table 4* Chemical Paper Grade Market Pulp Inventory and Days of Supply

Thousand Tonnes, Seasonally Adjusted

Oct 2007

Nov 2007

Dec 2007

Jan 2008

Feb 2008

Mar 2008

Apr 2008

May 2008

Jun 2008

Jul 2008

Aug 2008

Sep 2008

Oct 2008

Nov 2008

Dec 2008

2 0 M ajo r Pro duc i n g C o un tri es * * Inventories 3,214 3,308 Days Of Supply 28 29 B leac hed So ftwo o d K raft Inventories 1,545 Days Of Supply 26 B leac hed Hardwo o d K raft Inventories 1,526 Days Of Supply 30 U n b leac hed K raft Inventories Days Of Supply S u l f i te Inventories Days Of Supply

3,460 30

3,563 31

3,717 33

3,860 34

3,643 30

3,813 33

3,915 34

3,931 34

4,276 40

4,744 45

5,023 48

5,166 51

5,013 *** 46

1,544 26

1,578 27

1,683 29

1,785 31

1,882 32

1,726 27

1,751 30

1,795 32

1,714 28

1,938 36

2,041 37

2,085 39

2,164 42

2,093 *** 40

1,600 31

1,708 33

1,713 33

1,745 34

1,785 34

1,745 33

1,888 35

1,956 36

2,063 41

2,187 45

2,543 54

2,779 60

2,839 61

2,748 *** 51

135 29

156 38

167 37

159 37

180 57

185 45

164 41

167 45

159 41

148 40

145 43

154 47

153 50

157 54

166 *** 58

8 30

8 30

8 30

8 27

7 23

7 23

7 23

7 23

6 20

6 20

6 20

6 20

6 23

6 23

6 *** 23

* Data revised December 2006, adding estimated German BSK, removing Portugal to conform to revised industry association reporting. ** Canada, United States, Finland, Sweden, Norway, Brazil, Chile, Argentina, Germany, Spain, France, Belgium, Austria, South Africa, Swaziland, Morocco, New Zealand New Zealand, Japan, South Korea. These countries represent 81% of world supply in 2006 *** Estimated

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World Pulp Monthly - January 2009

Table 5 Market Pulp Price Summary

US Dollars Per Tonnes, Transaction Prices

Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009

DE LI V E RE D TO N . E U ROPE N o rthern Bl. Softwood Kraft Bl. Birch Kraft Bl. Hardwood Kraft So uthern Bl. Softwood Kraft Bl. Hardwood Kraft Bl. Kraft Fluff (Untreated) Bl. Eucalyptus Kraft Bl. Hardwood CTMP N o rthern Bl. Softwood Kraft Bl. Hardwood Kraft** Maple Mixed Aspen So uthern Bl. Softwood Kraft Bl. Hardwood Kraft Bl. Kraft Fluff (Untreated) Bl. Eucalyptus Kraft Bl. Softwood CTMP Deinked Pulp Northern Bl. Softwood Kraft Southern Bl. Softwood Kraft

870 780 770 880 780 770 880 800 790 880 800 790 900 840 830 900 840 830 900 840 830 895 840 830 880 840 830 860 820 810 780 730 720 680 660 650 635 * 590 * 570 * 600 550 540

830 760 870 780 740

840 760 895 780 740

840 780 900 800 760

840 780 900 800 760

860 820 900 840 800

860 820 900 840 800

860 820 900 840 800

855 820 920 840 800

845 820 930 840 800

820 800 930 820 780

740 710 930 730 690

640 640 900 660 620

590 * 560 * 900 590 * 550 *

565 530 850 550 510

DE LI V E RE D TO U N I TE D STATE S

875 775 780 775 775 880 780 785 780 780 880 800 805 800 800 880 800 805 800 800 880 800 805 800 805 880 800 805 800 805 880 815 825 815 815 885 815 825 815 815 885 815 825 815 815 870 810 820 810 810 840 760 770 760 760 785 720 720 720 720 730 * 660 660 660 660 700 620 620 620 620

840 780 870 805 735 680

840 780 895 805 735 705

840 800 900 825 735 730

840 800 900 825 735 730

840 805 900 860 735 750

840 805 900 860 735 750

840 805 900 860 735 765

845 805 915 860 735 765

845 805 930 860 735 765

830 800 930 845 720 765

800 760 930 785 690 765

745 720 900 745 650 725

705 * 660 900 680 600 640

675 620 850 640 565 600

DE LI V E RE D TO J APAN , N E T PRI C E

760 750 760 750 760 750 760 750 770 750 770 750 770 750 770 750 760 740 730 720 650 640 575 565 530 * 520 * 490 480

DE LI V E RE D TO S. K ORE A, N E T PRI C E Northern Bl. Softwood Kraft * Denotes Revision ** Reflects wet lap pulp prices as well as dried; not an average of the maple, mixed, and aspen prices. With the exception of Japan and Korea, prices are reported before any large buyer or fidelity discounts. These discounts are currently 5-20% and would reduce this month's reported prices by this amount to arrive at a net price.

750 750 760 760 760 760 760 760 750 720 650 575 530 * 490

RISI

11

World Pulp Monthly - January 2009

Table 6 China Pulp Imports, by Supplying Region

Thousand Tonnes

Jun 2008

Jul 2008

Aug 2008

Sep 2008

Oct 2008

Nov 2008

Dec 2008

YTD 2009

YTD 2008

%Ch

12M Total*

C HI N A I M PORTS B SK Total Canada United States South America Eastern Europe Western Europe Oceania/Asia B HK Total South America Oceania/Asia Eastern Europe Canada United States Western Europe MEC Total Canada Oceania/Asia Western Europe Eastern Europe United States South America U KP Total Eastern Europe United States South America Oceania/Asia Canada Western Europe Source: China Customs Data * Rolling 12-month total

304 92 46 76 37 45 8

313 110 65 48 57 26 7

283 93 56 47 45 31 11

351 85 83 80 46 46 11

309 115 69 51 49 20 5

226 56 58 41 32 37 3

260 102 37 58 45 16 1

3,578 1,133 706 672 562 396 111

3,086 1,018 518 558 493 337 162

16% 11% 36% 20% 14% 17% -31%

3,578 1,133 706 672 562 396 111

299 153 102 12 14 18 0

391 208 120 16 19 22 7

284 156 86 18 12 9 3

396 185 153 23 15 12 5

229 84 107 16 6 9 5

242 129 85 9 11 1 5

299 106 157 17 16 0 3

3,728 1,847 1,320 198 176 127 49

2,975 1,209 1,213 193 183 121 42

25% 53% 9% 2% -4% 5% 15%

3,728 1,847 1,320 198 176 127 49

106 84 9 4 9 0 0

115 100 6 6 3 0 0

96 76 9 7 4 0 0

85 67 5 1 13 0 0

62 48 7 4 4 0 0

37 26 5 0 5 0 0

52 45 5 1 1 0 0

1,110 889 92 62 64 2 0

1,044 900 90 42 9 2 0

6% -1% 2% 48% 595% 13% -100%

1,110 889 92 62 64 2 0

47 25 5 6 7 3 0

42 15 4 9 7 2 0

45 20 7 4 10 4 0

51 20 10 10 8 3 0

37 12 8 9 6 1 0

26 9 4 5 6 1 0

33 11 9 2 8 3 0

538 204 105 93 82 27 0

731 216 272 84 92 26 1

-26% -5% -61% 10% -10% 5% -78%

538 204 105 93 82 27 0

12

RISI

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