<B>Paper Stock Exports Holding Firm</B>

Exports are where it is at. That seems to be the opinion of many paper stock dealers on the East and West Coast. Prices for some offshore orders have been strong enough to stave off lackluster domestic markets.

Led by the continued drought in OCC markets, more vendors are finding some positives when looking at shipping to the Pacific Rim, especially China. Prices on the East Coast have been holding up fairly well. Along with stronger shipments to China Thailand has become a larger buyer of the grade lately. According to several vendors, OCC prices are moving for around the $70 a ton range at the dock, compared domestically.

How long the price strength for offshore orders holds out, however, is still uncertain. There is some fretting about the possibility of China opting to pull back orders. If this happens, some vendors think prices could drop off more sharply than they are right now.

While OCC markets on the export market have improved, domestic activity remains listless. Reduced buying, sluggish finished product orders and high inventory levels of both raw materials and finished product are all working to keep a tight lid on any OCC price breakout. It seems highly unlikely there is much of an upside for the grade over the next several months.

More ominous has been the talk in the market about further large-scale downtime planned by some of the larger paperboard companies. While many mills are still announcing inventory correction downtimes of a week or more, there could be several more shutdowns, which could choke off more of the demand.

The old news market appears to be in better shape. Once again much of the improvement is due to better offshore orders. Exporters on both the East and West Coast state that demand has been holding up, especially for No. 8 deinked news. Prices continue to run above OCC, partly due to the better pricing being seen for finished newsprint. Korea seems to be the biggest driver for the grade lately, Along with Korea, China has been a steadier buyer of the grade, as has the Philippines. The movement off the grade is strong also due to good purchase orders by domestic mills. Newsprint mills continue to run at a strong clip. Which is helping keep the flow of the grade at a better than expected clip.

The pulp substitute market is generating a significant amount of difference in opinion lately. Some exporters are reporting strong orders and solid prices. They point to both domestic mills and offshore buyers as helping keep grades such as hard white envelopes moving at a good clip.

However, there continue to be reports by other vendors, as well as Wall Street analysts, who are forecasting price softening for many pulp grades. And, if pulp grades start to see lower prices it will be inevitable that pulp substitutes will start to see lower prices.

In fact, many industry analysts are calling for North American paper companies to continue taking downtime to remove excess capacity from the market. One industry report has International Paper taking two of its machines off line, although one is reportedly expected to come back on line early this month.

With many pulp producers attempting to devise strategies for maintaining strong pulp prices, there appears to be some signals that many pulp producers are starting to inventory more of the market pulp. Even recent figures from the Canadian Pulp & Paper Council showed a decline in the amount of pulp that is being shipped, as more mills in Canada attempt to bring supply and demand into balance.

Moving down even further there are some uncertainty about the deinking grades and office grades. Once again the export market is somewhat stable, although concern with slowing domestic buying has put some cautiousness into the market. Whether the domestic market will start to vie with offshore buyers still uncertain, although the expectations are the export markets should be enough to keep a semblance of stability in the deinking grade market.