Cut Sheet Market Update

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					  Paper Market Update :

Background information on
 June 2010 price increase
Contents
 Dynamics affecting paper supply & pricing
    Economic Downturn
       • (11% reduction in UK paper consumption)
    Exchange rate falls
       • (leading to lower returns for importing mills)
    Raw material increases (leading to higher mill costs)
       • Pulp
       • Oil
       • Diesel
 Manufacturing base overview
    Despite consolidation and closures a significant number of mills are at
     risk
 World Events
    Supply challenges

 Paper Prices 2003 -2010                                                  2
Demand is down

 Paper consumption has fallen during the recession right
  across Europe and there has been an 11% reduction in the
  UK




                                                             3
 Unprecedented Market Conditions

  Significant year on
  year decline in
  paper volumes in                                                               -23%
  all countries                                           -13%

                                                                     -10%
                                                          -16%
                                  -21%
                                                     -14%
                                            -9%
                                                                           0%
                                                             -11%
                                                   -13%
                                                                   -11%
                                            -10%                            -10%
                                                      -8%        -13%
                                                                          -13%
                                                                                   -10%
                                                            -15%
                          -5%
                                    -20%




                                                                                          4
Source: Eugropa - Merchant total sales volumes 2009 vs. 2008
Paper Mill consolidation and closure

 Mills are making unsustainable returns and continue to close

 Since 2005 mill closures have taken 3,000,000 tonnes out of
  production across Europe

 Despite industry consolidation and closures a significant
  number of mills remain at risk




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    Source : Bank of England
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                                                                                         Monthly average Spot exchange rate, Euro into Sterling




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Input Costs are Rising

   Pulp prices are rising sharply – the largest raw material

   Oil prices are increasing again – Paper manufacturing
    uses high levels of energy

   Diesel prices are rising – distribution is a significant
    element in the cost of paper




                                                                7
                      Wood Pulp Prices




Source : PPI Europe
                                         8
9
Source : US Energy Information Administration   10
World Events

 Added to the issues facing the industry there have been a
  number of events that have happened in 2010 to make the
  situation for supply and demand even more challenging




                                                              11
Chilean Earthquake
                                        At the end of February, 12,000 people
                                        were left homeless by an 8.8
                                        magnitude earthquake, the world’s
                                        fifth-strongest in a century in Chile.




It also claimed a number of pulp mills.
Chile is home to about 8% of the worlds pulp
production. All 6 market pulp mills have been
closed.
Manufacturing has just started in one or two
of the sites again but the down time has
created shortages of pulp and a number of
paper mills have had machines standing idle
without pulp to produce paper

                                                                             12
Finnish Stevedores Strike




A Finnish stevedores' walkout crippled the
country's foreign trade for two weeks. About 80%
of Finland's exports are shipped by sea.
Finland produces about 4% of the worlds pulp

"The strike's effects will reduce Finnish work and
jobs in the wood-processing industry as well as in
its supplier network in other sectors," Timo
Jaatinen, the managing director of the lobby, said
in a statement.                                      13
Swedish Paper Mill Strikes

A 10-day strike during April by some 3,000 paper mill
workers that has cost the industry some 50 million
Euros

Paper workers from 6 mills had been on strike since
April 16, and the union warned that another 7
production units would join the strike if last-bid talks
broke down.

The second round of strikes has been narrowly
avoided after unions reached an agreement with
employers over pay increases.



www.swedishwire.com/business/4095-swedish-
paper-mills-strike-is-over

                                                           14
Paper prices over the last 7 year period

 Despite all of these issues the average price of all papers
  sold by merchants in the UK, whilst fluctuating over the last 7
  years was only 3.29% higher in February 2010 than those of
  February 2003

 If we look at coated sheets alone then the figure is only 2%
  higher over the same time frame

 Compare this to the Retail Price Index which is 17% higher
  during the same period, meaning that in real terms the price
  of paper has fallen in this time


                                                                 15
Price Index 2003-2010
                                     Average Price of All Paper Products 2003 to Present

                               130




                               120
  Index (January 2003 = 100)




                               110




                               100




                               90

                                                                                           Index Set at Jan 03
                                                                                           Average Sales Price
                                                                                           Retail Price Index
                               80
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                                                                                                                 16
 Source: National Association of Paper Merchants
Price Index 2003-2010
                                            Average Price Coated Sheets 2003 to Present

                               130




                               120
 Index (January 2003 = 100)




                               110




                               100




                               90

                                                                                          Index Set Jan 03
                                                                                          Average Sales Price
                                                                                          Retail Price Index
                               80
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                                                                                                                17
                              Source: National Association of Paper Merchants
Looking ahead

 It will be some time before “normal” Pulp production is
  resumed
 Oil and diesel costs look set to continue to rise
 But the £ looks although it will strengthen against the Euro
  providing some relief

 Overall Paper Manufacturers will continue to apply pressure
  under the threat of closure to increase prices and restore
  their returns




                                                                 18

				
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