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Forestry Research Note


December 1, 2006
By Pulp & Paper Canada

The North American newsprint statistics for September continue to point to an impending disaster for producers are the drop in consumption accelerates and pricing power sways to more of a buyer’s mark…

The North American newsprint statistics for September continue to point to an impending disaster for producers are the drop in consumption accelerates and pricing power sways to more of a buyer’s market. We note that newsprint pricing, as tracked by Foex Indexes Ltd., topped out at US$643.88 per tonne (30 lb. Newsprint) on June 6th and has traded down U.S.$7.31 per tonne since that time. We also note that Abitibi’s (TSX:A) price hike roll-back (on August 17th) from the US$40 per tonne previously announced to US$20 per tonne, spoke volumes about the state of the pricing momentum. We continue to believe that additional newsprint capacity needs to be curtailed to support current prices, let alone any additional price increases. We have pointed out (on more than one occasion!) that without additional newsprint capacity closures, newsprint prices will continue their downward slide. Stora’s decision to restart its Port Hawkesbury newsprint machine by the end of the year makes the need even greater. In addition, we expect that newsprint producers will soon feel higher fibre costs as sawmills curtail production due to low lumber prices, unfavourable exchange rates and the implementation of an export tax under the Softwood Lumber Agreement 2006. We note that the majority of fibre for Eastern Canadian newsprint mills comes from sawmill residuals directly or indrecitly through pulp logs that are made available by sawmills. To add further challenges, the North American economy continues to soften, with weaker newsprint advertising starting to be felt by publishers (especially in the home sections of newspapers) and the Canadian dollar is showing little downward movement. We continue to see little basis for sustained earnings momentum among North American newsprint producers, except for the one-time events of the softwood lumber refund.

The previous is an excerpt from the Salman Partners October 23, 2006 Forestry Research Note. For the complete report, or more information, please see www.salmanpartners.com

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