<B>Low Grades, Led by OCC, Heading Down</B>

The OCC market could be summed up with the simple phrase "Look Out Below." OCC, already sliding during the past few months, is expected to post some extreme drops in many parts of the country. There is expected to be some significant pounding of prices downward, with very little short-term optimism for the grade.

Downtime has been prevalent, with Weyerhaeuser taking significant downtime across its mill operations. Other mills also have been extending scheduled downtime far past their originally planned shutdowns.

Several sources note that Weyerhaeuser will be taking around 40,000 tons of downtime that will curb any demands from many regions. In the Midwest there are indications that prices may drop by $30-$40 a ton, a tough drop for a grade that has been suffering as of late.

Downtime continues to be the big problem for OCC suppliers. Several sources note that Weyerhaeuser will be taking between 45,000-60,000 tons of production off line, which will put further downward pressure on the grade.

If August OCC prices decline by as steep a level there is concern that some tonnage could be redirected away from collection and toward landfilling.

Along with widespread downtime throughout the country, especially the Midwest, the Chinese market has stepped out of the market for the grade. This has exacerbated the downward decline in the grade.

For China, there are reports that the Nine Dragons mill, which had been one of the driving factors for the surge for OCC, is having some equipment problems. This is cutting into the demand for the grade.

While the next month could be rocky, there is some optimism further down the road. With prices in some regions declining to as low as $40-$50 a ton, some offshore buyers could step into the market and buy heavy. There is some feeling that the decline could be followed by a fairly sharp spike upward as some domestic and offshore mills feel prices have hit their lows.

The slide in OCC prices is not an isolated grade. Double-lined kraft cuttings also have been coming way off, with some sources noting prices for the grade have sunk to OCC price levels. One source notes that box shops are sitting with high inventories of DLK on hand. "DLK is backed up beyond belief," he notes.

Other low grades also are feeling the pinch, although the situation is not as extreme. Mixed paper and old news are seeing some downward pressure, although there is a modest amount more strength in these two grades.

Old news is benefiting, to a degree, by the improved newsprint market. As several newsprint mills look to push through finished product price increases Sept. 1, there is a better balance between supply and demand. Although some significant shutdowns are creating some regional imbalances, overall it appears that ONP has been able to weather the price hits better than OCC.