<B>Low Grades Finding Their Equilibrium on Domestic Front</B>

The hammering the domestic market has taken in regards to paper stock markets has left many vendors staggered. Like the NASDAQ’s fall from grace, many of the high flying paper stock grades saw the tail end of last year drive many prices down to lows not seen in well over a year.

Downtime by mills throughout North America, a slowing economy, and declining demand for the finished product all came together, causing problems for many paper stock dealers.

A more recent problem is the soaring cost of energy. With paper and board mills significant consumers of energy, a spike in energy costs on the West Coast has had a tremendous impact on overall operations.

The improved market environment is happening to varying degrees, depending on the region of the country. While West Coast dealers see high energy costs cutting into the operating schedules by some mills, mills in other regions of the country are seeing a steady flow of material to the mills.

Paper stock operators in the Southern United States report of having little if any problem moving old corrugated, old news and even mixed paper. This is a sharp change from several weeks ago when it became extremely difficult to obtain any orders, regardless of the price.

The strength in orders has yet to result in sharply higher prices. This may change if inclement weather chokes off some supply. Already there has been some extreme weather in the Northeastern U.S. Heavy snowfall will likely create some reductions in curbside collected materials. This may force some mills to become more aggressive in the market, setting off higher prices for a number of the bulk grades.

One grade that more vendors feel is primed to see some strengthening is OCC. While the price is down, it probably won’t drop much further. One mill buyer notes that there is still a significant amount of OCC available, while demand is only modest right now. It does appear that there is more of an attempt by mills to hold prices at the present level to prevent a total drop where some grades could be landfilled, rather than collected and processed.

The downward trend for ONP could become extreme in some areas. Several reports have ONP declining by $10 a ton next month, with only minimal offshore activity. This opinion is not shared by all. Some vendors feel that while domestic mills may attempt to hold prices at a low level as newsprint producers attempt to supply of finished product, heavy snow in many parts of the Northeast could choke off supply, helping firm up ONP prices.

While some vendors feel that OCC is primed for a turnaround, a number of purchasing manager, perhaps hinting at concerns with soaring prices, note that they can get all the tonnage they need at their present prices. Further, some add, there is some softening cropping in up in a number of regions of the country which could warrant softer prices.

On the East Coast, several paper stock dealers note a discrepancy between what appears to be a modest uptick on the offshore side with some domestic mills looking to push prices down further than their present state.

Limited upside for rest of January seems to be apparent. Another factor working to keep a lid on the upside is the short term slowness in the export market, partly due to Chinese New Year.

West Coast paper stock dealers also are having to reconcile themselves with the continued problems with soaring energy costs. The problems afflicting much of the West Coast is creating significant problems for paper and paperboard mills, who rely heavily on energy consumption to produce their finished product.

One of the most apparent trends has been the move by some mills to either reduce or shut down operations as a way to lessen energy costs.

Since last year a number of mills have taken downtime. These companies attribute the soaring energy costs for idling operations.

According to one mill official, several larger paper mills in Northern California took downtime last month to offset the higher energy prices. Moving into January, and with prices still high, other mills on the West Coast are looking to take steps to reduce their costs. Whether it is downtime or a reduction in operations, this trend is reducing the number of end markets for many of the collected grades of recovered fiber, especially bulk grades.

Despite the continuous problems with West Coast domestic mills, there are a number of vendors who still see the signs of a rally for many paper stock grades. Strengthening export markets are allowing many vendors to move some material off shore. At the same time, with

Despite the less than upbeat markets on the West Coast, most vendors are starting to express more of an upbeat mood. While price moves are still uncertain, there does appear to be an opinion that more mills are looking to not allow prices to dip much further. This could indicate a base is being formed.

Mixed paper also seems to be finding a base. Prices seem to be holding up fairly well in a number of regions. As OCC starts to slowly work itself out of the sharp drop that was seen late last year, mixed paper markets will likely start to see some upswing.