<B>Offshore Markets Looking Weak</B>

The offshore market continues to be lackluster, with most indications that demand will move at continually lower levels. The situation is toughest on the East Coast, where higher freight rates are allowing for more orders to filter out of the West Coast. The old corrugated market appears to be seeing the brunt of the problems, although other grades are feeling some of the downward pressure.

Earlier this summer there was a prevailing opinion that once the summer ended and much of the domestic downtime was taken there would be some type of a bounce. However, this initial optimism is being replaced with a growing sense that markets will be lackluster at best for some of the lower grades.

While the export market helped drive prices earlier this year, the rapid descent has been so steep that many feel OCC prices are at or very near their rock bottom price. Not necessarily so, says one large paper stock exporter. A combination of equipment problems, very high inventories and limited action out Europe highlights the overall problems that are affecting shipments.

The sharp drop in price during the summer came during a time of reduced generation. Some pessimists are now wondering what the market will look like when the fall kicks in and generation levels jump. Without any strong indicator that mills, whether offshore or domestic, will be able to soak up excess inventory the next several months could be rough.

Buying by the Chinese paper industry, especially the America Chung Nam mill, had been a key for many exports. However, there are reports that the big mill that had been buying a tremendous amount of bulk grades is facing some significant equipment problems and is offline while repairs are being made to the equipment.

With the machine down, inventory continues to back up.

Magnifying the problem has been the sharp decline in shipments of recovered fiber from Europe to the Pacific Rim. Over the past decade North America and Europe have been slugging it out over the Asian market. However, there are reports that shipments from Europe are off by as much as 75 percent recently, leading to the opinion that the collective slide could continue for longer than into early fall.

With expectations that the Asian market will remain fairly subdued for the foreseeable future, there is a growing sense that domestic mills will look to continue pushing down OCC prices. The result -- in the short term markets could continue to take a beating.