<B>Paper Stock Grades Edging Downward</B>

There is starting to be concern about softening in the old corrugated market in more areas of the country. Although there still is movement of material, several vendors report of mills starting to see a backing up of supplies. There also have been indications of a number of mills looking to kick down their price by switching to use greater amounts of wood chips.

Several other paper stock dealers note that some mills are using greater amounts of double-lined kraft cuttings due to the closeness in price between DLK and OCC.

One broker notes that a number of Northwest mills are looking to knock prices down by as much as $15 a ton this month. The mood seems to be focused on the oversupply of both finished product and raw material, which could allow more mills to reduce their new OCC purchases.

Reflecting concerns about the short-term market for OCC, many handlers of the grade see a plethora of downtime working to lessen the number of consumers of the grade. While the holiday could cause a run of OCC by some mills to prevent any shortages from cropping up, a number of mill buyers say they are sitting with high inventories, and will not likely have to dip into the market to buy additional tonnages.

There isn't much sign of Asian mills jumping back into the market in the near future. With more signs of OCC sliding, a number of the big OCC consumers offshore may opt to sit back and allow prices to decline even further.

The Mexican market also is not expected to help stem any OCC declines. Mexican mills are opting out of the market in the short term.

While downtime continues to play a big role in the OCC market lately, there are some regional differences that are keeping trends different from area to area. A significant number of board mills being idled are in the Southeast, which has put pressure on some packers to drop prices. However, there were reports of one large consumer attempting to drop prices by $10 a ton this month only to have to go back and raise prices.

On the coastal regions, both East and West, reports are trickling in that container availability is becoming more difficult. With space more difficult to book, more material is being redirected inward. It is not certain how long this situation will last, although some exporters feel the situation will be short lived.

As for offshore buyers, there isn't any clear-cut sense of how strong some of the larger Asian buyers will come back into the market.

Although some regions are expressing short-term concerns about the OCC market, the trend still looks positive. With generation of new OCC supply declining, some mill buyers have expressed concern that the extended July 4^th holiday could put a number of board mills on alert about running out of fiber to feed their machines.

This opinion is not shared by all. A number of paper stock dealers say many of the board mills are loaded with supply, and should have no problem with supply for any length of time.

Mixed paper continues to be a booming grade, with roofing mills, building products companies and other mills feeding the upward move. Prices continue to be fairly strong, although some packers feel that mixed paper could see some modest declines if OCC takes a major hit. While partly driven by higher OCC prices enjoyed through the first half of this year, mixed paper is now benefiting from better demand from the building products industry.

Old news also is in fairly strong shape lately. Deinked news and No. 9 news are both in good demand across the country, leading to some tightness in the overall market. One broker notes strong buying by the building products industry helping propel the grade.

An area being closely watched is the ability of newsprint producers to push through price increases for the finished product. A number of the largest producers in North America are scheduling price hikes. Whether these increases stick may help determine any continued strength in the ONP market.

The sore subject grades continue to office grades. Prices are expected to dip further this month. At the same time, movement has started to slow down. The dip in the grade seems to be coming from all areas. Softening in the grade appears to be coming throughout the country. Offshore mills are forgoing any additional purchases. Domestic mills also are reducing their intake of the grade, which is accelerating the decline. Although the price looks to dip a little this month, a number of paper stock dealers express the feeling that prices are starting to stabilize and will likely not dip much further.

While not a direct correlation, pulp prices continue to increase. This has helped drive many of the pulp substitute prices much higher. A number of pulp producers are once again looking to raise their prices. Whether or not this most recent pulp price increase sticks, however, is starting to generate a good deal of mixed signals. Many brokers feel that there have been too many price increases, and consumers may resist any additional increases.