<B>Slowing Markets Hammer High Grades</B>

The drumbeat continues for many of the high grades. Prices mills are willing to pay continue to decline. Uncertainty about the fiscal health of some deinking grade consumers is causing some packers to back off shipments to some locations. Even with sluggish prices, there doesn’t appear to be much in the way of a groundswell for some consumers to snap up orders.

The continued erosion in prices for market pulp has been one of the biggest specters on the market over the past several days. Over the past two quarters pulp prices have been almost freefalling. Significant downtime continues to be announced as Norscan producers attempt to bring supply and demand back into balance. Recent statistical figures show that pulp levels have been declining. Meanwhile, continued downtime by more pulp producers should help to reduce even further inventory levels over the first half of this year.

Although there hasn’t be any significant turnaround yet, a number of pulp marketers are starting to say that a bottom has been hit. Like the NASDAQ, the industry isn’t expected to see a snap back for prices, but rather a more stable, and what is hoped, sustained price climb.

For handlers of many pulp substitutes and deinking grades, any improvement will be welcome. Since the beginning of the year many paper stock dealers have seen prices drop in $20-$30 a ton increments. The declines have been fed by the slow offshore market.

March could be the nadir, with a number of sources reporting that several of the larger Asian countries that import higher grades of recovered fiber have drastically cut their orders.

The only promising sign is that with lower prices and a slowing economy there has been a decline in new generation, which is keeping prices from slipping even further.

Sorted white ledger is one of the grades that has seen some sharp declines. Korea, one of the key buyers of the grade, has cut back its orders for March. Further, many exports note that a number of Asian mills have yet to commit to any sizable orders over the next few months. This is keeping many suppliers from keeping any optimism short term.

As difficult as the ledger grades are, pulp substitutes are seeing even greater difficulties. Depending on the region of the country, a number of handlers are reporting practically no orders for some grades, regardless of price. Not an enviable situation.

The growing consensus now seems to be that any improvement in many of these higher grades will not happen until perhaps late in the summer or even early fall.

While the market is fairly bleak in the United States, some reports from Europe paint a slightly rosier picture. While collections in many northern European countries are down, it is keeping the supply and demand in balance.

The low grade market, especially OCC and ONP, is holding firm, with reports that SCA is buying a significant amount of OCC from the continent. This is helping keep markets in better balance.

While the European paper market seems somewhat stable, collectors in Western Europe also are seeing sluggishness in orders to Asia.

Part of the reason has been the acute financial problems that a number of Asian mills/companies have been struggling with over the past year.

As pulp remains abundant and at prices that make it impossible to compete with, it is likely that the Asian market will probably remain an uncertain short term market for many European paper stock dealers.