<B>Paper Stock Grades Posting Big Declines</B>

Despite earlier indications that paper stock grades were going to start stabilizing as the year comes to an end, more recent indications seem to be calling for some sharp declines in prices for a number of grades as offshore orders seek to take advantage of an overabundance of supply and slightly softer demands on the domestic side to knock down prices.

Export activity seems to be drying up on both the East and West Coast, with some vendors expecting to see prices slide through December and early next year.

A large reason for the sharp decline is the overabundance of supply presently on the market. This is working to suppress any attempts to keep prices firm. The extensive downtime has had an impact on movement in many regions of the country. Although much of the downtime has already been taken, there is likely to be continued slowness in market conditions over the next two months.

While old corrugated has seen some of the biggest hits, most other grades are facing a similar situation. High grades have been coming way off over the past several months, with some vendors saying they are having difficulty moving any material. The decline follows the fall of market pulp, and ends a run of several quarters when strong demand allowed many pulp producers to continuously raise price.

Even the old news market has been experiencing sharp declines in price and demand.

Old Corrugated Containers – Expectations that OCC would start to steady as December came were based on the fact that prices had fallen fairly significantly over the past several months and a base had been formed. With the price at or close to levels where it is not worth collecting, many felt that most board mills would hold prices.

However, early reports have offshore buyers pulling out of the market, allowing for price declines of between $10-$15 a ton to take place. These declines also have been exacerbated by some domestic mills looking to bring their supply back into balance.

There is likely going to be only a limited amount of additional downtime taken over the next several months. Much of the board mill downtime taken this quarter has essentially been earlier scheduled to be taken during the first quarter of next year.

This scenario lends credence to those who still feel that OCC prices should show a nice rebound by the middle of the first quarter of next year.

According to several sources, OCC is moving for the low $60s at the dock on the West Coast, with some vendors feeling the price may dip an additional $3-$5 a ton in December.

Adding to the difficult markets for offshore shipments the cost to ship freight off the West Coast to the Pacific Rim have moved up slightly. This is creating an even greater incentive for Asian consumers to opt out of the market during this slowdown.

On the East Coast markets are in a similar sloppy situation, with prices moving closer to the mid $40 levels. Along with the slide, there does not appear to be much in the way of any turnaround slated for the rest of this year or early next year.

Old News. The old newspaper market has been one of the few sectors that has resisted the pronounced slide. However, No. 6, No. 7, and No. 8 news have all been softening lately. Expectations are growing that most old news grades will decline in December, with possibilities of further erosion early in January.

While demand has been fairly strong through most of this fall, with the end of the year approaching most of the new demand has dried up, creating a reduction in the overall demand for the material.

ONP had strengthened through most of this year as newsprint mills were able to take enough supply off line early in the year to push through several price increases. The improvement in ONP was most impressive during the early fall when OCC prices continued to slump, widening the spread between the two grades.

High Grades. Some of the sharpest declines have been coming at the expense of the high grade market. Several sources have reported that some pulp substitute grades have fallen under the $300 a ton level, with orders few and far between. This slide has mirrored the softening condition of market pulp. Hard whites are reportedly finding very limited market opportunities right now, creating some stress in the market.

Computer paper also is seeing some sharp reductions in price and demand as more pulp producers opt to take downtime to bring balance to the market. Prices for this grade are falling under the $300 a ton level, with little expectation that a near-term bounce will happen.

Office Grades. Another grade that looks to be showing some significant difficulty is coated book stock. The grade has been a yoyo over the past several quarters. Lately, it looks like the grade is back on the downside, with only limited orders at the present time.

The grade had fallen fairly precariously earlier this year when a number of the larger buyers opted to pull out of the grade to let prices soften quite significantly.

Sorted white ledger and office pack, two grades that had held up fairly well on both the East and West Coast also are seeing some modest softening. Although not nearly as difficult a situation as some of the bulk grades, there is a bit of a backing off by some buyers, especially in the Pacific Rim.

While there is some softening, some vendors say the market right now is a wash, with only limited price upside in the short term.

On the West Coast some SWL is moving for as little as $220 a ton, although some feel prices may move down a little more before any bounce takes place.