<b>Export Market Likely to Rebound in Early Fall</b>

The export market is one of the most uncertain markets right now. Although the overwhelming majority of the recovered fiber is consumed domestically, the export market is likely to play a key role in any bounce back for most grades.

This segment of the industry helped drive many of the grades up significantly earlier this year. However, there is more of a herd mentality when looking at the demand market. When sorted white ledger and office pack enjoyed a sharp run-up the middle of the spring, a big reason for the improvement was strong offshore orders, especially to Asia.

The decline in the grades was partly due to the belief that prices had gotten too high. Inventories had become full, allowing mills to reduce their orders. Domestic mills, that still had been the majority consumer of the grade, took this opportunity to cut their prices.

For bulk grades, the scenario was somewhat similar, although the results were more rapid. Old corrugated, during its strong upward climb the first half of this year, was abetted by significant purchases by China. This country, due to its exploding paper industry, is requiring tens of thousands of tons of OCC on a monthly basis.

The need for fiber forced other consumers to match prices during the first half of this year. However, over the past several months strong buying has eased. Overseas there are reports that containers are backing up, and mills in Asia are cutting new purchases.

This move has allowed many of these same mills to cut prices for OCC, as well as old news and mixed paper. Domestic mills have been following suit by lowering their prices and reducing their purchases. This swing is reflected in prices for OCC, which lately have dropped to around the $85-$95 a ton range in many areas.

Although the drop has been sharp, there are some preliminary indications there could be some turning of the export market. Container availability is improving, which is making booking space aboard vessels easier.

Although most paper stock exporters contacted feel that August will not be much better for the market, there is a sense that the export market may start to come back heavier in early September. Asian mills will be looking for more fiber for end-of-year orders. A good chunk of the excess inventory in Asia will likely be consumed, requiring some of these mills to come back into the market.