Asian Pulp and Paper Monitor

January

09

Asian Pulp and Paper Monitor Analysis and Forecasts of the Asian Pulp and Paper Markets • Hong Kong printing and writing paper prices continued to decline in December. Coated woodfree prices fell US$50 and uncoated woodfree prices dropped US$30. Weak demand continued to be the dominating factor. We are forecasting further price declines in the first quarter. On the coated woodfree side, Hong Kong buyers are expected to negotiate hard with the knowledge that prices are lower in other Asian markets. For uncoated woodfree, Southeast Asian producers are expected to reduce offers to gain new orders. Prices are then predicted to remain fairly stable until the fourth quarter, when demand starts to respond to a strengthening economic picture. • Newsprint markets remained dormant in December. Spot offers ranged from US$640 to US$670 in much of Asia, but orders were limited. Negotiations over first quarter contract prices have been slow with many buyers not interested in talking yet; those that did in Hong Kong reportedly settled at US$670, but with very low order levels. Our forecast is for first quarter prices in Hong Kong to plunge US$180, with another small decline in the second quarter. This will leave prices at US$630. Prices are predicted to begin to move higher again beginning in the fourth quarter and into 2010. • All packaging paper prices continued to freefall in December in Hong Kong with imported 175-gsm kraftliner (KLB) prices dropping a record US$40 from last month to US$510. Prices for the three recycled grades dropped mildly: US$30 for 125-gsm krafttop liner, US$25 for 110-gsm corrugating medium and US$30 for 350-gsm coated duplex board (on CIF Hong Kong price terms). Extremely weak demand and oversupplied markets are behind this latest round of price declines. • Prices for all packaging grades are forecast to remain soft in the first quarter of 2009 and are predicted to pick up mildly from the end of second quarter of 2009. For the second half of 2009, prices are forecast to climb further mainly due to the economic rebound as well as the expected increase in recovered paper prices. Prices are predicted to begin to move higher again beginning in the fourth quarter and into 2010.

Economic Outlook China The recent slowdown in Chinese industrial production and exports suggests the economy will be unable to weather a global recession and achieve real GDP growth near 8% in 2009. China’s property market, around 80% of which is housing, is a key driver of demand for domestic heavy industry. Construction of new buildings began to slow considerably in July and actually contracted on a year-over-year basis in September and October (Figure 1). A drop in domestic construction has had a negative impact on the industrial sector as well as global demand for steel, cement, copper, etc. To subscribe or contact client service, visit www.risiinfo.com

Asian Pulp and Paper Monitor - January 2009

Figure 1 Chinese Property Market Partially Responsible for Industrial Slowdown Chinese Floor Space under Construction, Year-over-Year Percent Change

40% 35% 30% 25% 20% 15% 10% 5% 0% -5%

Source: Dragonomics

-10% 03

04

05

06

07

08

For the pulp and paper industry, and specifically packaging, we are concerned more with the production of non-durable goods, which tend to be the consumer goods often destined for export. This sector is being hit directly by falling overseas demand and has less direct exposure to domestic property investment. So far, this picture has not been as bad as the headline number suggests. We can conclude, then, that the current slowdown in Chinese production and GDP is partially home-grown and not just imported weakness from the USA, Europe and elsewhere. This means that government stimulus that targets the property sector and encourages further investment and construction will pay larger dividends than policy aimed at simply supporting exports. A portion of the announced stimulus plan will go toward public housing construction (RMB 280 billion) and infrastructure (RMB 1.8 trillion), which will also support the property sector and heavy industry. Our forecast for Chinese growth near 8% in 2009 rests on the assumption that government stimulus will prove effective since as much of the recent slowdown is attributable to domestic factors as it is to external factors. We emphasize again that fixed-asset investment, not net exports, has been responsible for the lion’s share of Chinese real GDP growth and although we expect weakness in the USA, Europe and elsewhere to undermine China’s export sector, China’s government has the tools and the desire to prop up domestic fixed-asset investment and keep real GDP growth elevated during this recession.

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Asian Pulp and Paper Monitor - January 2009

Newsprint Current Conditions Conditions remained quiet in Asian newsprint markets in December. Buyers continued to sit on the sidelines as slowing economies and the resulting depressing effect on advertising hurt newsprint consumption. Also, buyer inventories reportedly were still ample and buyers believe prices have further to fall. Sellers are taking downtime to try and maintain some balance in the market. Spot prices in December were at about US$640 in Southeast Asia and US$670 in Hong Kong. This is roughly US$20-30 lower than their November levels. In China, newsprint prices finally fell sharply in December, dropping to RMB 4,800 to RMB 5,000 from RMB 5,300 to RMB 5,500 in November. This drop came as the imbalance between demand and supply caught up with suppliers; publishers had well-stocked inventories and reduced orders. Negotiations over first quarter contract prices in Asia are largely incomplete at this time. Many buyers are not ready to begin discussions since they do not need the newsprint yet. Some prices reportedly have settled at about US$670 in Hong Kong, but order levels are down sharply. There is now data available which show the fall off in the markets in Asia in the fourth quarter. First, both Chinese and South Korea newsprint exports were down significantly in November. South Korean exports plunged to 29,000 tonnes in November versus an average of 60,000 tonnes per month for the three prior months, and 51,000 tonnes per month for January through October. Chinese exports averaged 20,000 tonnes per month in October and November versus a monthly average of 33,000 tonnes per month for January through August. Second, customs data reveal that newsprint imports in many markets started to decline in October and November. In Hong Kong, imports were down 41% on a year-over-year basis in November; at 18,000 tonnes, imports were at their lowest level since August of 2001. However, Hong Kong’s demand for the year through November is still up 10%. In Taiwan, imports were off 18% in October and are down 5% for the year through October. Finally, available source data indicate that India’s imports in October retreated following their sharp uptick in September; however, they still came in at a relatively healthy estimate of 137,000 tonnes (compared to an average of 107,000 tonnes per month for January through July and just 77,000 tonnes in October 2007). Very preliminary data suggest Indian imports will fall off more sharply in November (we are estimating that they will fall below 100,000 tonnes for the month). Singapore continued to see healthier import demand in October than a year ago (when demand was off due to an inventory drawdown). For the year to October, Singapore’s imports are up 31%. Overall, we show Asian newsprint imports peaking in the third quarter of 2008 at 865,000 tonnes (see Figure 1). We estimate that they then fell by 200,000 tonnes in the fourth quarter to 670,000 tonnes (the same level as in fourth quarter 2007). Asian newsprint exports followed a similar pattern, reaching 450,000 tonnes in the third quarter of 2008, before tumbling 135,000 tonnes to an estimated 310,000 tonnes in the fourth quarter. Finally, demand in South Korea and, to a lesser extent, in Japan has been dismal in recent months. With almost complete data, demand in Japan in the fourth quarter is estimated to have fallen 4.5% compared to the fourth quarter of 2007; year-over-year declines accelerated over the course of the year, with demand

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Asian Pulp and Paper Monitor - January 2009

Figure 2 Quarterly Asian Newsprint Imports and Exports Thousand Tonnes 1000

Total Imports India

900

Rest of Asia 800

Total Exports

700 600 500 400 300 200 100 0 06

2

3

4

07

2

3

4

08

2

3

4

09

2

3

4

down an estimated 3% for the year as a whole. In South Korea, domestic consumption has plunged, with year-over-year declines averaging 18% for August through November. South Korean demand fell an estimated 8% in 2008.

Forecast We have made a downward adjustment to our Asian demand forecast in 2009. We are now predicting that Asian newsprint demand will see no growth in 2009, following a 3% gain in 2008. Generally, our forecast assumes that the first quarter will be the weakest, in part as the inventory correction continues. Demand will then gradually improve over the course of the year, mirroring the recovery in the regional and world economies. This forecast assumes much slower growth in both China and India, and declines in demand in most of the rest of the region. We are forecasting that contract newsprint prices in Hong Kong will plunge US$180 in the first quarter of 2009 (relative to the US$845 contract price in fourth quarter 2008), leaving average transaction prices at US$665. A smaller US$35 decline is projected in the second quarter. We are expecting a little more give in prices in the second quarter as suppliers jockey to win orders when buyers begin to come back into the market. Also, producers will have worked through recovered paper stocks that had been purchased at high prices. We have predicted a price of US$630 for the second quarter. We expect this will be the bottom for prices; we show prices stabilizing in the third quarter before beginning to rise again in the fourth quarter. The upturn will be triggered as demand recovers under the influence of an improving economic picture and inventory rebuilding. One factor that could affect this forecast is if China reintroduces a tax rebate on imported recovered paper, which would lower cash costs for Chinese producers. This could translate into lower prices from these 4

RISI

Asian Pulp and Paper Monitor - January 2009

Figure 3 Hong Kong Newsprint Price US$ per Tonne 900 850 800 750 700 650 600 550 500 450 400 350 97

98

99

00

01

02

03

04

05

06

07

08

09

suppliers and further weaken prices in Hong Kong. The impact on transaction prices may be more in Hong Kong than in other parts of Asia, depending on the willingness of buyers to rely on Chinese suppliers. In 2010, newsprint prices in Hong Kong are predicted to move steadily higher during most of the year; gains will be much more moderate than in 2008. These increases will be driven by a tightening in market conditions and rising costs. Overall, we show prices averaging US$720 in 2010. The risk here is for higher prices if demand bounces back strong, as capacity increases will be limited.

Printing and Writing Paper Current Conditions The market situation in Hong Kong continued to worsen in December and prices fell further with coated woodfree paper prices falling US$50 and uncoated woodfree paper prices dipping US$30. Price reductions have continued as demand has weakened due to cuts in advertising expenditures by corporations, a sharp slowing in the export of printed products and as Hong Kong traders hold back in placing orders as they strive for lower prices. On average, coated woodfree prices in Hong Kong closed at US$780 and uncoated woodfree paper prices were at US$790 in December — down 20% compared to levels six months ago. In China’s domestic market, coated woodfree RMB prices fell for the eighth month in a row in December, declining 3.6% versus November and 36% from their peak in April. Uncoated woodfree (100% virgin fiber) December prices fell 1.5% relative to the previous month, while uncoated woodfree (30% virgin fiber) prices remained almost unchanged. Both were down 19% from their peaks in May. The much more modest price adjustments in December (for example, coated woodfree prices tumbled 11% in both October and November) did generate some positive feelings in the market and Chinese buyers started to think that paper prices might soon reach bottom.

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Asian Pulp and Paper Monitor - January 2009

Figure 4 Chinese Woodfree Imports and Exports Thousand Tonnes 120 Uncoated Woodfree Imports Uncoated Woodfree Exports

100

Coated Woodfree Imports Coated Woodfree Exports 80

60

40

20

0 Jul-08

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

Jan-07

Oct-06

Jul-06

Apr-06

Jan-06

Oct-05

Jul-05

Apr-05

Jan-05

Oct-04

Jul-04

Apr-04

Jan-04

As for trade, China customs data show November coated woodfree exports at 80,000 tonnes, 4.8% lower than October, but 6.7% higher than their monthly average level for the first 10 months of 2008. Uncoated woodfree exports in November plummeted 15% relative to October due to fierce competition from Indonesian and Thai producers. At 34,000 tonnes, Chinese uncoated woodfree exports were at their lowest level of 2008. Market developments in Asia also include production curtailments on the supplier side. In Japan, three top paper producers, Nippon Paper Group, Oji Paper and Hokuetsu Paper Mills, cut production in October and November and aimed for more of the same in December. Based on two months of data, we estimate that Japanese printing and writing paper production fell sharply in the fourth quarter of 2008, declining by 11.1% versus third quarter 2008 and 12.5% versus a year ago. In South Korea, October printing and writing paper production retreated 6.6% versus year-ago levels and we are projecting that November and December production numbers will come in even lower than October’s. South Korean printing and writing paper manufacturers reportedly planned to halt production on their machines for 7-10 days in December to tackle slumping sales in overseas markets. South Korean coated woodfree exports plunged 19% in October versus their average monthly export levels in the third quarter. In China, we have not heard any announcements of machine downtime from Chinese coated woodfree suppliers, but we think mills took longer than usual time for machine maintenance in November and December in order to rebalance the market. As evidence, one report shows that inventories of Chinese coated woodfree suppliers declined by 9% in November relative to October, indicating a slightly improved market balance in December.

Forecast Entering 2009, we expect that coated woodfree paper prices in Hong Kong will fall further in the first quarter as Hong Kong buyers will fight for further reductions by delaying their orders. The New Year and

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Asian Pulp and Paper Monitor - January 2009

Chinese Lunar New Year holidays will leave only 12 trading days in January. In addition, people travel during the Chinese New Year and thus most business activities in China and Hong Kong will not resume until one week after the holiday. Thus, February will only have about 13 business days this year, which will exacerbate an already weak demand. Finally, it was reported that Chinese coated woodfree producers have been offering offshore markets much lower prices than in Hong Kong for the past several months to win big sales to reduce mill inventories. The price gap between these two prices could be up to US$80-100 per tonne, which gives Hong Kong buyers the determination to bargain with suppliers. Based on these factors, we are predicting coated woodfree paper prices will fall another US$30 in Hong Kong in the first quarter of 2009 compared to the prices in December 2008 (US$780). The main upside risk to this forecast is that Hong Kong buyers will quickly look to build inventory if they think current prices are not far from the bottom. Two factors could affect their thinking. First, one market insider indicated that inventories held by major Chinese coated woodfree producers have been reduced from their shockingly high level in September/October. Second, pulp traders believe that pulp prices already reached bottom in late November/early December and they have already started to rebuild their pulp inventory. The main downside risks are that pulp prices will continue to fall and the financial crisis will severely dampen China’s economy in the first quarter of 2009. We forecast coated woodfree prices in Hong Kong will recover slightly in the second quarter due to a small increase in pulp prices, seasonal factors and inventory building by traders. However, this price increase will be short-lived as seasonal factors and economic woes will leave demand still somewhat sluggish in the third quarter. Although we expect that economies will be on the mend at that time, confidence may not have been restored enough to maintain demand at levels to sustain the higher prices. Pulp prices are also expected to be dipping again at this time. Overall, we do not expect to see a real price resurgence until 2010.

Figure 5 Quarterly Woodfree Average Transaction Prices in Hong Kong US Dollars per Tonne 1000 950 Coated 900 Uncoated 850 800 750 700 650 600 00

01

02

03

04

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06

07

08

09

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Asian Pulp and Paper Monitor - January 2009

On the uncoated woodfree front, we are predicting that Thai and Indonesian producers will continue to reduce prices to gain new orders in Hong Kong in the first half of 2009. These reductions come as they face pressure from sagging demand in other overseas markets; their relatively lower production costs give them more leeway to reduce their prices. Therefore, uncoated woodfree prices are predicted to move lower through the third quarter of 2009. Prices are expected to recover in the final quarter of the year as improving economic conditions start to drive up demand again.

Containerboard Current Conditions In December, prices for the three containerboard grades we track in Hong Kong all dropped again. Imported 175-gsm kraftliner (KLB) prices fell a record US$40 from last month to US$510, its biggest price drop in years. The two recycled grades registered record setting declines in November, and continued to weaken in December: 125-gsm kraft-top liner and 110-gsm corrugating medium (both on CIF Hong Kong price terms) dropped between US$25-30 to reach US$320 and US$345, respectively. The extremely weak regional market caused this latest round of price deterioration. The December data also illustrates the strong positive correlation between KLB and recycled containerboard price movements due to the substitution effect between them. The price gap between 175-gsm KLB in Hong Kong and 42 lb unbleached KLB on the US West Coast widened from the historical US$100 level to more than US$150 in July 2008. The price gap reached more than US$170 for December 2008. All indicators (horrible corrugated box shipments in November and a big jump in containerboard inventory during the month) point to an exceptionally weak US containerboard market. This is one factor that contributed to the weakening in imported KLB prices in Hong Kong, since North American producers had abundant supply to offer to the Asian market. Even so, according to AFPA, US linerboard production for exports declined by 13.2% to 237,000 short tons in November — the first year-over-year decline and the lowest volume in 2008. Depending on customers and suppliers, imported 175-gsm KLB listed prices delivered in Hong Kong/South China moved within a range of US$470 to US$560 in December. Mills that are not dedicated to selling into the Asian market held prices at US$550-560 per tonne, but the more realistic price for producers seeking business seems closer to US$500-510 per tonne. Overall, we believe most of the transaction prices for 175gsm KLB were settled at US$510, but with very limited orders closed. Prices for 125-gsm kraft-top liner in Hong Kong traded between US$250 and US$360, with a wide variance in prices depending upon the Asian supplier. Prices for 110-gsm corrugating medium moved between US$200 and US$270. For the region’s dominant Chinese recycled containerboard producers, market reports continued to indicate a very weak demand picture, high inventory levels, lower operating rates and ever increasing market related machine downtime. However, industry sources told us the downward momentum of prices seems milder following the pick up of AOCC prices and the exceptional amount of downtime taken by almost all Chinese containerboard producers in December. Our average transaction prices for kraft-top liner and corrugating medium in Hong Kong closed at US$320 and US$245, respectively, in December. Weak demand is the crucial reason for this new round of price declines. On the domestic side, after hitting a four-year record low of 8.2% in October, Chinese industrial output eased to 5.4% in November, the slowest growth in nine years, as manufacturing output retreated with the drop in export demand and the property market slumped. According to China Federation of Logistic and Purchasing (CFLP), the official agency who publishes the China Manufacturing Purchasing Managers’ Index (PMI), the November PMI reading fell to 38.8, its lowest level since the index started in January 2005. A PMI reading above 50 indicates the manufacturing economy is expanding, while a reading below 50 indicates contraction.

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Asian Pulp and Paper Monitor - January 2009

On the external frontier, China’s customs agency reported that November’s exports fell 2.2% from a year earlier, and this was the first decline since June 2001. That marked a major shift from a 19.2% gain in October and a nearly 26% rise in 2007. Imports suffered an even steeper drop in November, down 17.9% year-over-year, after rising 15.6% in October and more than 20% in 2007. The import slowdown suggests waning domestic demand, falling prices and faltering demand for exports because more than half of China’s imports are used to manufacturer outbound shipments. In fact, overall Chinese exports for 2008 are forecast to record their slowest growth rate since 1997-1998 when the Asian financial crisis hit the region. In addition, export demand for Chinese containerboard itself already was poor, weakened in part since mid-April 2008 when the Chinese government changed its policy on the “recovered paper processed trade.” We have mentioned this policy several times in our previous Monitors. Basically, since April 2008, Chinese containerboard mills have to pay 17% Value Added Tax (VAT) when importing OCC and converting it into either linerboard or corrugating medium. If they export this board, they have to pay 17% VAT on the added value part and do not receive any tax rebate. This has put all Chinese containerboard mills into a very uncompetitive position in Asia since that time. Based on China Customs statistics through November, we estimate that its containerboard exports will hit only 200,000 tonnes in 2008, down from 430,000 tonnes (or 55%) in 2007. At the moment, it is uncertain if this policy will be changed before it expires in April 2009. On the supply side, in order to survive in this oversupplied containerboard market, reports indicated that almost all Chinese containerboard producers in Southern/Eastern China continued to shut down their machines through December. Market related downtime was also reported in other parts of China. We estimate that the average operating rates for Chinese containerboard producers dropped to 55-60% between November and December, compared with an average of 80-85% in the first half of 2008.

Figure 6 Asian Kraftliner Imports Thousand Tonnes 300 275

Rest of Asia

250

China/Hong Kong

225 200 175 150 125 100 04

05

06

07

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9

Asian Pulp and Paper Monitor - January 2009

Forecast We did not change our price forecast for the Asian containerboard market this month because the recent flood of economic and industry data was largely in line with our expectations from last month. We notice the CFLP’s PMI rebounded mildly to 41.2% in December 2008, up from 38.8% in the previous month. However, except for suppliers’ delivery time, all components of the index, such as new orders (at 37.3) and new export orders (at 30.7), were below 50, indicating a weakening manufacturing sector in China. Given this, we believe demand for all containerboard grades will falter further in the first quarter of 2009. Thus, for the two recycled containerboard grades, we predict that downward pricing pressure will remain in place during the next few months due to the unbalanced market conditions. We estimate that inventory adjustments between raw materials and finished products will likely normalize by the end of second quarter 2009, which will help industrial growth. Therefore, we project that China’s economy will start to pick up from the end of second quarter 2009 and its containerboard industry will follow the same pattern due to their high correlation. Consequently, prices are predicted to pick up mildly from the end of second quarter 2009. For the second half of 2009, prices are forecast to climb up further mainly due to the overall economy rebound as well as the expected OCC price increase. Overall, kraft-top prices are projected to average US$356 in 2009, and move up to an average of US$390 in 2010. Meanwhile, corrugating medium prices should average US$293 in 2009 and US$314 in 2010. For imported virgin fiber based KLB, according to RISI’s December issue of the Paper Packaging Monitor, we project the US box market will remain weak for much of 2009 before it gradually picks up in 2010. Thus we expect the average transaction price for 175-gsm KLB in Hong Kong to soften in the first half of 2009 before picking up again in the second half. For most of the year, under the strong price competition from recycled containerboard, the price of 175-gsm KLB in Hong Kong is expected to move in the US$485-500 range before picking up again in 2010, mainly based on our macroeconomic forecast that the Asian economy will most likely recover from late 2009 and gradually accelerate in 2010 following the US economy. Listed below are two of the major factors backing up our forecast that China’s economy will start to pick up from the end of the second quarter of 2009 and its containerboard industry will follow the same pattern.

10

1.

Home Appliances to the Chinese Countryside: This campaign was announced by the Chinese government in late November 2008. Home appliances including washing machines, color TVs, refrigerators and cell phones will be made available in rural areas and the government will subsidize farmers with a 13% discount when they buy these appliances. The campaign is slated to last four years and started as a test in 14 provinces on December 1, 2008. The campaign will be formally launched nationwide on February 1, 2009. The government expects to sell 480 million units and generate RMB 920 billion of domestic consumption. Because the home appliances industry is one of the key end-use markets for containerboard, we think this campaign will lead to the increase in domestic demand for corrugated containers starting from end of the first quarter.

2.

Export Value Added Tax (VAT) rebate adjustment: To prevent the Chinese export engine from faltering any further, the Chinese government has increased the export VAT rebate four times since August 2008 (August, November and December 2008 and January 2009). These adjustments covered more than 6,000 items. We notice some of the containerboard key end-user sectors such as garments and textiles, furniture, toys and home appliances are among those 6,000 items. Even though the demand from China’s big trading partners such as the USA, Europe and Japan is still weak, the VAT rebate will at least make Chinese exports more competitive in the short run. We think such adjustment will help to enhance the domestic demand for corrugated containers starting from the second quarter.

RISI

Asian Pulp and Paper Monitor - January 2009

Figure 7 Quarterly Hong Kong Containerboard Prices US$ per Tonne 600 Kraft-top

550

KLB 175

500

Medium

450 400 350 300 250 200 150 100 99

00

01

02

03

04

05

06

07

08

09

The main downside risk to our analysis remains the severity of the recession for the US and European economies and the degree of impact this will have on Asian/Chinese demand.

Boxboard Current Conditions In December, market reports in Hong Kong indicated that all Asian suppliers lowered their prices for 350gsm coated duplex. However, the range in prices was very wide: some suppliers offered as little as US$350 per tonne (from Taiwan), while others still asked for as much as US$460 (from Indonesia). Overall, we think most of the transactions closed at around US$410-430. As a result, we show average transaction prices for our benchmark grade, 350-gsm coated duplex in Hong Kong, at US$420, down by another US$30 from last month. We have repeatedly noted in our previous Monitors that the latest available data indicates that domestic demand in some of the region’s major duplex countries has been relatively strong compared with 2007. For example, South Korea’s boxboard demand has been up by more than 8% (first 10 months of data) and Japan has grown by 3% during the same period. This performance could be explained by the dominant role the food and beverage industry plays in these two countries, especially in Japan. As we all know, these industries are usually less affected by an overall sluggish economy and weak consumer spending than other manufacturing sectors. However, for another important duplex producing country, Taiwan, demand levels contracted by 2% during the first 10 months of 2008. According to Taiwan’s Finance Ministry, the island’s exports in December fell a record 41.9% from a year earlier, while imports dropped a record 44.6%. The global economic downturn has led Taiwanese technology companies, the island’s largest employers, to freeze hiring, cut jobs

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Asian Pulp and Paper Monitor - January 2009

and reduce wages as demand shrinks in its major markets such as China and the USA. Given this, we expect Taiwan’s boxboard demand will decline by 2%, compared with 5% growth in 2007. In the region’s all important China market, industry sources continued to report weak demand and inventory accumulation during the last month. However, market reports also indicate that the downward price momentum seems milder following the recent rebound of AONP price and the massive market related downtime. In addition, domestic demand accounts for the majority of boxboard demand in China and this has been less affected by the global downturn than sectors that depend on external demand. Accordingly, China’s boxboard market is less oversupplied than the containerboard market. Export demand for Chinese boxboard has been weak since April 2008 when the Chinese government changed its policy on the “recovered paper processed trade.” We have mentioned this policy several times in our previous Monitors. Essentially, since April 2008, Chinese boxboard mills have to pay 17% Value Added Tax (VAT) when importing ONP and converting it into duplex board. If they export this board, they have to pay 17% VAT on the added value part and do not receive any tax rebate. This has put all Chinese boxboard mills into a very uncompetitive position in Asia. In fact, year-to-date trade data show Chinese coated boxboard exports were down by 2% through October. We project that Chinese boxboard exports will contract by 2-3% for 2008, compared to the 150% average growth rate recorded in 2005-2007. The effects of the weak demand picture in the Hong Kong/South China region could also be reflected in the combined China/ Hong Kong duplex import data. Based on our estimates for the first 10 months of data, imports were down by more than 3%, compared with the same period last year.

Figure 8 China/Hong Kong Boxboard Imports Thousand Tonnes; Quarterly Rates 600 550 500 450 400 350 300 250 200 150 100 00

12

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Asian Pulp and Paper Monitor - January 2009

Forecast We did not change our price forecast for the Asian boxboard market this month because the recently announced economic and industry data was largely in line with our expectations from last month. For the first quarter of 2009, we forecast that producers will lower their prices further: prices are forecast to slip to an average of US$447 based on weaker seasonal demand, rising inventory levels, lower operating rates and moderating cost pressures (ONP and energy). We project that China’s economy will start to pick up from the end of second quarter of 2009 and thus the boxboard industry will follow the same pattern due to their high correlation. Therefore, prices are predicted to pick up mildly from the end of the second quarter. For the second half of 2009, prices are forecast to climb further mainly due to the recovery for the overall economy as well as the expected ONP price increase. Even so, for second half 2009, we forecast that duplex prices in Hong Kong will struggle to reach the US$492-502 range. Prices should pick up again in 2010, mainly based on our macroeconomic forecast that the Asian economy will most likely bottom out from second half 2009 and gradually moves up in 2010 following the US economy. The main upside risk comes from Chinese government policy. To prevent the Chinese export engine from faltering any further, the Chinese government has increased the export VAT rebate four times since August 2008 (August, November and December 2008 and January 2009). These adjustments covered more than 6,000 items. We notice some of the boxboard key end-user sectors such as garments and textiles, toys and home appliances are among those 6,000 items. Although demand from China’s big trading partners such as the USA, Europe and Japan is still weak, the VAT rebate will at least make Chinese exports more competitive in the short run. We think such adjustment will help to enhance the domestic demand for boxboard starting from second quarter of 2009. The main downside risk remains unchanged from last month and that is the severity of the recession for the US and European economies and the degree of impact this has on Asian demand.

Figure 9 Quarterly Hong Kong Coated Duplex Transaction Price US$ per Tonne 650

600

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500

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400

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300 00

01

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Asian Pulp and Paper Monitor - January 2009

Table 1 Newsprint Monthly Summary US Dollars Per Tonne and 000 Tonnes

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

600

600

600

740

740

740

870

870

870

845

845

845

556

578

609

623

684

704

733

789

839

867

869

—

570

589

605

620

675

741

765

823

863

865

—

—

658

648

684

565

652

569

659

678

754

901

818

—

574

579

605

611

627

674

737

759

840

839

—

—

Unit Export Values (FOB) South Korea

516

531

535

581

640

650

708

781

794

785

799

—

ONP Del'd to Asia *

230

233

244

241

268

290

298

264

256

216

94

75

320

297

335

299

316

306

305

313

300

290

308

—

17

16

16

16

23

9

17

15

22

9

15

—

15

18

13

12

12

7

13

16

15

16

12

—

318

300

333

295

304

305

301

314

293

297

305

—

88

68

91

87

87

90

92

69

68

80

88

—

1

1

1

0

1

0

0

0

0

0

0

—

54

47

48

48

49

41

46

68

62

50

29

—

140

115

138

135

135

130

138

137

130

130

117

—

34

21

29

30

32

29

33

26

32

29

—

—

34

21

29

30

32

29

33

26

32

29

—

—

0

0

0

0

0

0

0

0

0

0

—

—

52

38

45

47

56

38

50

42

54

39

—

—

40

27

40

31

32

27

31

22

27

31

20

—

Transaction Prices in Hong Kong Standard 48.8 gsm Unit Import Values (CIF) Hong Kong Taiwan China Singapore

Japan App. Consumption Imports Exports Production South Korea App. Consumption Imports Exports Production Taiwan App. Consumption Net Imports Production Asian Newsprint Imports Japan/S. Korea/Taiwan China/Hong Kong Malaysia/Singapore Subtotal

24

19

22

25

20

24

21

31

37

—

—

—

116

85

107

103

108

88

102

95

118

—

—

—

* Price of ONP (old newspapers), CIF China and SE Asia, from the U.S.

14

RISI

Asian Pulp and Paper Monitor - January 2009

Table 2 Newsprint Forecast US Dollars Per Tonne and 000 Tonnes

Quarterly

Annual

2008

2008

2008

2008

2009

2009

2009

2009

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Transaction Prices in Hong Kong 600 Standard 48.8 gsm

740

870

845

665

630

630

Cost Indicators ONP Del'd to Asia *

266

273

128

90

111

-0.7%

-1.6%

3.4%

2.6%

235

Macroeconomic Indicators (% change, year ago) Real GDP Growth Japan 1.3% 0.7% 0.0% East/Southeast Asia ** 7.1% 5.2% 3.7% Regional Capacity Japan China Other Asia Total

*

2008

2009

2010

640

571

764

641

719

128

145

192

226

119

176

-0.4%

0.1%

0.8%

2.1%

0.3%

-0.3%

1.7%

4.3%

5.0%

5.4%

6.1%

4.8%

4.3%

5.9%

995

995

995

995

992

992

992

992

3,979

3,979

3,970

3,920

1,048

1,106

1,196

1,215

1,217

1,217

1,217

1,217

4,466

4,564

4,867

5,095

1,139

1,140

1,141

1,161

1,193

1,198

1,200

1,201

4,505

4,581

4,792

4,935

3,181

3,240

3,331

3,371

3,402

3,407

3,409

3,410

350

364

344

344

353

359

1,547

1,460

1,400

4

4

3

3

3

3

39

18

12

15

256

171

167

197

220

251

978

885

834

1,002

Market Balance: Major Net Exporters *** 361 385 App. Consumption Imports 7 4 Exports 244 215 Production 598 596 Operating Rate 87% 87% Asian Newsprint Trade Imports Exports Net Imports

2007

12,949 13,124 13,629 13,950

1,423

602

531

508

538

570

606

2,487

2,327

2,222

2,411

88%

78%

74%

79%

83%

89%

89%

85%

81%

88%

2,971

2,832

2,821

703

735

865

668

592

698

753

789

2,720

425

350

416

285

288

361

409

458

1,881

1,477

1,516

1,741

277

385

449

383

304

337

344

330

839

1,494

1,316

1,081

Price of ONP (old newspapers), CIF China and SE Asia, from the US.

** Includes South Korea, Indonesia, Taiwan, Malaysia, Singapore, Thailand, Hong Kong and Philippines. Weighted by GDP at purchasing power parity exchange rates in 2000. *** Includes South Korea, Indonesia and the Philippines.

RISI

15

Asian Pulp and Paper Monitor - January 2009

Table 3a Printing & Writing Paper Monthly Summary US$ per Tonne and 000 Tonnes

Jan

Feb

Mar

Apr

May

June

July

Aug

Sep

Oct

Nov

Dec

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

960

970

980

990

980

970

960

920

820

790

830

780

Woodfree Transaction Prices in Hong Kong (sheets) Hong Kong (US$ per Tonne) Uncoated (70-80 gsm) 915 930 Coated (128-157 gsm) China (RMB per Tonne)* Uncoated (80-120gsm) 10-30% (virgin fiber) 100% (virgin fiber) Coated (128-157 gsm) Exchange Rate RMB per US$ Japan App. Consumption Net Imports Production South Korea App. Consumption Net Imports Production Taiwan App. Consumption Net Imports Production

860

870

970

980

1,000

970

950

940

920

890

6,400

6,500

6,700

6,800

6,900

6,900

6,700

6,700

6,500

6,000

5,600

5,600

7,600

7,600

7,800

8,150

8,150

7,850

7,850

7,650

7,350

7,050

6,700

6,600

7,550

7,650

8,150

8,500

8,400

8,000

7,800

7,550

7,100

6,300

5,600

5,400

7.24

7.16

7.07

6.99

6.97

6.90

6.84

6.85

6.83

6.84

6.83

6.85

1,003

940

1,036

957

978

933

986

974

970

918

—

—

-16

-32

-22

-30

-33

-31

-31

-23

-11

-6

—

—

1,019

971

1,058

987

1,011

964

1,016

997

974

924

846

—

230

193

225

199

204

196

194

183

189

210

—

—

-47

-53

-59

-73

-77

-58

-79

-70

-58

-48

—

—

276

246

284

272

281

254

273

253

247

258

—

—

80

62

78

73

76

75

77

72

63

52

—

—

14

3

10

7

11

9

12

12

13

3

—

—

66

59

68

66

65

66

65

60

50

49

—

—

* includes VAT

16

RISI

Asian Pulp and Paper Monitor - January 2009

Table 3b Printing & Writing Paper Imports Thousand Tonnes

Annual

China Coated Woodfree Uncoated Woodfree Coated Mechanical* Uncoated Mechanical* Hong Kong Coated Woodfree Uncoated Woodfree Coated Mechanical* Uncoated Mechanical* Japan Coated Woodfree Uncoated Woodfree Coated Mechanical Uncoated Mechanical South Korea Coated Woodfree Uncoated Woodfree Coated Mechanical Uncoated Mechanical Taiwan Coated Woodfree Uncoated Woodfree Coated Mechanical Uncoated Mechanical

Jan

Feb

Mar

Apr

May

June

Jul

Aug

Sep

Oct

Nov

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

27

22

30

28

29

29

33

25

30

23

32

30

27

32

24

26

10

11

15

9

7

3

7

5

6

7

28 11 2

23 10 2

32 15 4

14 4

2006

2007

23

429

392

21

21

371

367

—

—

66

101

—

—

9

25

12

11

12

11

9

12

10

9

6

9

8

178

128

17

14

15

17

18

16

14

16

13

13

12

256

194

9

9

11

10

8

9

8

7

4

—

—

82

105

1

1

1

1

1

1

1

1

1

—

—

8

12

10

9

8

6

8

7

8

10

12

6

—

188

109

38

35

40

31

30

31

30

31

31

32

—

428

364

9

9

11

12

9

9

14

16

18

29

—

315

214

3

3

3

6

4

8

5

7

6

8

—

42

49

6

5

5

3

3

2

2

3

2

2

—

50

50

27

23

24

21

20

17

22

17

17

21

—

275

266

10

5

7

8

8

6

8

8

10

6

—

82

77

0

0

1

0

0

0

0

0

0

0

—

4

8

11

9

14

12

16

14

16

14

11

10

—

119

129

16

10

15

13

12

12

14

13

14

7

—

136

124

3

2

2

2

3

3

3

3

2

2

—

17

17

2

2

2

2

1

1

0

2

1

0

—

13

21

* Derived from reporting countries exports to destination country.

RISI

17

Asian Pulp and Paper Monitor - January 2009

Table 3c Printing & Writing Paper Exports Thousand Tonnes

Annual

China Coated Woodfree Uncoated Woodfree Coated Mechanical Uncoated Mechanical Japan Coated Woodfree Uncoated Woodfree Coated Mechanical Uncoated Mechanical South Korea Coated Woodfree Uncoated Woodfree Coated Mechanical Uncoated Mechanical Taiwan Coated Woodfree Uncoated Woodfree Coated Mechanical Uncoated Mechanical

18

Jan

Feb

Mar

Apr

2008

2008

2008

2008

2008

64

72

81

70

48

45

49

49

44

34

55

10

6

12

May June

Jul

Aug

Sep

Oct

Nov

2006

2008

2008

2008

2008

2008

2008

2007

62

69

62

88

94

84

47

40

46

48

46

40

80

839

844

34

550

525

43

30

24

24

29

23

14

10

6

7

11

7

28

25

251

478

4

4

15

55

28

29

24

28

30

30

34

29

28

28

—

305

307

26

27

27

28

24

24

26

26

25

28

—

313

340

22

31

32

29

29

31

27

29

25

25

—

109

164

0

0

0

0

1

0

1

0

1

1

—

14

12

83

82

85

93

95

95

98

88

80

72

—

6

7

7

9

12

13

12

10

7

5

—

67

79

0

0

0

0

0

0

0

0

0

0

—

1

0

1

2

3

4

1

0

2

0

0

0

—

3

5

13

16

18

18

16

16

14

13

13

11

—

167

179

5

4

6

5

1,054 1,046

6

5

6

6

3

5

—

58

62

0

0

0

0

0

0

0

0

0

0

—

0

0

0

0

0

0

0

0

0

0

0

0

—

5

4

RISI

Asian Pulp and Paper Monitor - January 2009

Table 4a Printing & Writing Paper Forecast US Dollars Per Tonne and 000 Tonnes

Quarterly 08 Q1

Annual

08 Q2

08 Q3

08 Q4

09 Q1

09 Q2

09 Q3

09 Q4

2007

2008

2009

2010

980

970

843

753

747

730

740

856

931

743

790

755

827

913

752

780

Woodfree Transaction Prices (Sheets) Hong Kong (US$ per Tonne) Uncoated (70-80 gsm) Coated (128-157 gsm) China (RMB per Tonne) Uncoated (80-120gsm) (10-30% virgin fiber) (100% virgin fiber) Coated (128-157 gsm) Exchange Rate RMB per US$

932 900

983

937

833

750

760

745

6,533

6,867

6,633

5,733

5,400

5,350

5,300

5,400

5,325

6,442

5,363

5,500

7,666

8,050

7,617

6,783

6,400

6,300

6,200

6,300

6,925

7,529

6,300

6,400

6,825

7,333

5,363

5,450

7,783

8,300

7,483

5,767

5,350

5,400

5,300

5,400

7.16

6.96

6.84

6.85

6.84

6.83

6.81

6.79

7.61

6.95

6.82

6.68

742

627

504

531

517

525

715

716

519

577

716

576

441

489

460

478

597

664

467

511

Cost Indicators: Pulp Prices Delivered to Asia * BSKP from Canada 743 753 BHKP from Indonesia 667 695 Macroeconomic Indicators (%CHYA) Real GDP Growth Japan East/Southeast Asia **

1.3%

0.7%

0.0%

-0.7%

-1.6%

-0.4%

0.1%

0.8%

2.1%

0.3%

-0.3%

1.7%

7.1%

5.2%

3.7%

3.4%

2.6%

4.3%

5.0%

5.4%

6.1%

4.8%

4.3%

5.9%

* Weighted average of unit import values for China and South Korea for bleached softwood kraft pulp from Canada and bleached hardwood kraft pulp from Indonesia. ** Includes South Korea, Indonesia, Taiwan, Malaysia, Singapore, Thailand, Hong Kong and Philippines.

RISI

19

Asian Pulp and Paper Monitor - January 2009

Table 4b Printing & Writing Paper Forecast Thousand Tonnes

Annual 2004

China App. Consumption Net Imports Production Capacity Operating Rate Japan App. Consumption Net Imports Production Capacity Operating Rate Other Asia App. Consumption Net Imports Production Capacity Operating Rate

20

13,627

2005 14,345

2006 15,194

2007 16,437

2008 17,481

2009 18,254

2010 19,182

2011 20,375

627

-5

-906

-991

-1,119

-1,289

-1,862

-2,367

13,000

14,350

16,100

17,428

18,600

19,543

21,043

22,742

14,904

16,332

17,931

18,366

19,626

21,126

22,469

23,967

87%

88%

90%

95%

95%

93%

94%

95%

11,664

11,763

11,805

11,589

11,604

11,490

11,657

11,847

280

288

233

-87

-319

-438

-564

-484

11,384

11,475

11,572

11,676

11,923

11,927

12,222

12,331

12,096

11,977

12,173

12,236

12,608

12,761

12,920

13,043

94%

96%

95%

95%

95%

93%

95%

95%

9,502

13,143

10,041

10,473

11,216

11,827

12,034

12,554

-1161

-1156

-1155

-1078

-991

-1113

-1224

-1,328

10,663

11,197

11,628

12,294

12,816

13,147

13,778

14,471

11,996

12,349

12,884

13,570

14,360

14,983

15,406

15,988

89%

91%

90%

91%

89%

88%

89%

91%

RISI

Asian Pulp and Paper Monitor - January 2009

Table 5 Containerboard Monthly Summary US Dollars Per Tonne and 000 Tonnes

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

525

535

540

540

540

545

545

560

560

540

510

430

450

475

465

450

435

435

435

410

350

320

370

390

420

405

395

385

385

385

360

270

245

534

692

668

-5,196

639

567

627

575

818

—

—

—

595

573

557

591

546

564

—

—

—

—

—

—

602

604

600

598

596

592

610

609

622

620

623

—

475

321

321

344

—

—

320

—

359

—

—

—

Unit Export Values (FOB) South Korean Testliner South Korean Medium

418

431

450

440

463

495

478

488

461

428

367

—

360

371

387

398

410

405

412

395

384

356

330

—

OCC Del'd to Asia *

234

240

251

225

220

218

228

223

210

163

74

69

719

717

779

806

764

770

806

755

818

815

—

—

Transaction Prices in Hong Kong Kraftliner 175 gsm 515 Kraft-Top Liner 415 Corrugating Medium 345 Unit Import Values (CIF) Kraftliner Hong Kong Singapore South Korea Testliner Del'd to Hong Kong from Taiwan

Japan App. Consumption Kraftliner Imports Other Net Imports Production South Korea App. Consumption Kraftliner Imports Other Net Imports Production Taiwan App. Consumption Kraftliner Imports Other Net Imports Production

6

6

4

5

5

5

6

4

5

8

—

—

-4

-9

-12

-7

-8

-11

-9

-7

-4

-2

—

—

717

719

787

808

766

776

809

758

817

810

—

—

298

247

291

312

283

284

314

301

299

304

—

—

14

11

14

12

9

6

10

8

8

7

—

—

-29

-34

-42

-35

-32

-20

-29

-19

-16

-18

—

—

313

270

319

335

305

297

333

312

307

315

—

—

145

136

178

177

185

165

135

139

118

116

—

—

4

5

6

5

5

4

5

5

4

3

—

—

-47

-45

-41

-39

-31

-32

-37

-42

-45

-56

—

—

189

176

213

211

211

193

166

176

159

169

—

—

* Price of OCC (old corrugated containers), CIF China and SE Asia, from the US.

RISI

21

Asian Pulp and Paper Monitor - January 2009

Table 6 Containerboard Forecast US Dollars Per Tonne and 000 Tonnes

Quarterly

Annual

2008

2008

2008

2008

2009

2009

2009

2009

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

525

540

550

537

495

485

490

432

463

435

360

315

355

375

368

407

385

292

270

295

Cost Indicators: Fiber Prices Delivered to Asia OCC * 242 221 Unbleached Kraft Pulp ** 532 525

220

102

82

520

497

Transaction Prices in Hong Kong Kraftliner 175 gsm Kraft-Top Liner Corrugating Medium

Macroeconomic Indicators (% change, year ago) Industrial Production Growth Japan 2.5% 1.0% -1.9% East/Southeast Asia *** 8.3% 6.5% 4.4% Regional Capacity Japan China Other Asia Total

2008

2009

2010

500

512

538

493

513

380

416

423

356

390

305

300

319

363

293

314

109

124

144

194

196

115

168

473

458

434

441

582

519

451

467

-6.4%

-6.6%

-5.5%

-3.7%

0.6%

2.9%

-1.3%

-3.9%

3.0%

3.9%

4.1%

4.5%

6.8%

7.3%

4.5%

5.7%

5.7%

7.6%

2,531

2,535

2,539

2,542

2,523

2,527

2,531

2,534

10,131 10,146

10,115 10,320

7,651

7,916

8,316

9,047

8,707

8,858

8,864 10,124

28,139 32,930

36,552 38,349

4,380

4,435

4,528

4,526

4,549

4,569

4,700

5,011

17,397 17,869

18,630 19,295

14,562 14,886 15,383 16,115 15,779 15,954 16,095 17,668

55,667 60,945

65,297 67,964

Market Balance: Major Net Exporters **** 2,285 2,436 App. Consumption Kraftliner Imports 65 57 Other Net Imports -375 -318 Production 2,595 2,698 Capacity 3,142 3,157 Operating Rate 83% 85% Asian Kraftliner Imports China/Hong Kong Other Asia Total

2007

2,324

2,199

2,262

2,328

2,326

9,277

9,244

55

54

44

46

51

2,282 54

208

230

195

215

-355

-329

-331

-390

-391

-323

-1,648

-1,377

-1,436

-664

2,624

2,474

2,549

2,673

2,666

2,551

10,717 10,391

10,439 11,786

3,182

3,112

3,232

3,260

3,255

3,195

12,357 12,593

12,944 13,257

82%

79%

79%

82%

82%

80%

87%

83%

81%

89%

131

161

180

123

140

150

142

179

621

595

611

632

164

176

189

125

151

147

142

168

581

655

610

630

295

337

369

248

291

297

284

347

1,202

1,249

1,220

1,262

*

Price of OCC (old corrugated containers), CIF China and SE Asia, from the US.

**

Weighted average of unit import values for China and South Korea.

*** Includes South Korea, Indonesia, Taiwan, Malaysia, Singapore, Thailand, Hong Kong and Philippines. Weighted by GDP at purchasing power parity exchange rates in 2000. **** Includes South Korea, Taiwan, Indonesia and Thailand.

22

9,198 10,231

RISI

Asian Pulp and Paper Monitor - January 2009

Table 7 Boxboard Monthly Summary US Dollars Per Tonne and 000 Tonnes

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

Transaction Prices in Hong Kong Coated Duplex 350 gsm 500

540

620

640

640

620

600

590

580

560

450

420

623

664

643

—

—

—

Unit Import Values for Coated Duplex Delivered to Hong Kong (CIF) From South Korea 562 536 525 565 588 619 From Taiwan — 846 — 449 524 551 From Indonesia 870 825 840 — 886 —

—

597

625

—

—

—

993

554

—

—

—

—

—

Unit Export Values for Coated Duplex (FOB) South Korea 598 606 631 Taiwan 493 508 523

626

654

657

648

670

653

620

558

526

549

604

610

577

560

521

—

—

ONP Del'd to Asia* Japan App. Consumption Imports Exports Production South Korea App. Consumption Exports Production Taiwan App. Consumption Imports Exports Production China/HK Imports **

230

233

244

241

268

290

298

264

256

216

94

75

164

160

172

170

169

172

173

158

175

183

—

—

22

18

18

18

17

20

22

17

22

26

—

—

4

4

3

4

3

3

3

3

3

3

—

—

146

145

156

156

155

156

154

144

156

159

—

—

58

45

57

49

54

57

53

54

61

50

—

—

57

57

60

67

66

57

55

43

36

45

—

—

111

98

111

110

115

111

103

94

93

91

—

—

50

29

47

44

49

56

49

34

41

33

—

—

3

3

2

4

3

4

5

4

6

3

—

—

30

31

32

34

30

27

23

27

24

31

—

—

76

57

76

74

76

79

67

57

59

62

—

—

70

76

82

82

89

82

83

81

60

74

—

—

Note: Data do not include liquid packaging. * Price of ONP (old newspapers), CIF China and SE Asia, from the US. ** Data for China/Hong Kong imports are RISI estimates.

RISI

23

Asian Pulp and Paper Monitor - January 2009

Table 8 Boxboard Forecast US Dollars Per Tonne and 000 Tonnes

Quarterly

Annual

2008

2008

2008

2008

2009

2009

2009

2009

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Transaction Prices in Hong Kong Coated Duplex 350 gsm 553

633

590

477

447

472

492

502

273

128

90

111

128

145

192

226

119

176

716

576

441

489

460

478

597

664

467

511

-6.4%

-6.6%

-5.5%

-3.7%

0.6%

2.9%

-1.3%

-3.9%

3.0%

3.9%

4.1%

4.5%

6.8%

7.3%

4.5%

5.7%

5.7%

7.6%

2,054

2,051

2,051

1997

11,183 12,458 13,665

14797

Cost Indicators: Fiber Prices Delivered to Asia 235 266 ONP Del'd to Asia * BHKP From Indonesia ** 667 695

Macroeconomic Indicators (% change, year ago) Industrial Production Growth 2.5% 1.0% -1.9% Japan East/Southeast Asia *** 8.3% 6.5% 4.4% Regional Capacity Japan China Other TOTAL

2009

2010

471

563

478

548

513

513

513

513

513

513

513

513

3,081

3,093

3,132

3,579

3,586

3,591

3,654

1,756

1,779

1,784

1,787

1,826

1,826

1,826

1,826

7,343

7463

5,325

5,373

5,390

5,432

5,918

5,925

5,929

5,992

19,828 21,648 23,058

24257

2506.1 2525.9 2543.4

2690

228

253

633

594

608

668

653

615

-245

-291

-273

-289

-298

-336

6,687

7,140

-1105 -1141.9 -1195.3 -1217.3

878

885

881

957

951

951

3611.1 3667.8 3738.7

3908

1,077

1,094

1,105

1,105

1,105

1,105

4033.9 4345.6 4421.6

4447

82%

81%

80%

87%

86%

86%

90%

84%

85%

88%

224

220

240

230

245

176

944

925

891

878

Note: Data do not include liquid packaging *

Price of ONP (old newspapers), CIF China and SE Asia, from the US.

**

Weighted average of unit import values for China and South Korea.

*** Includes South Korea, Taiwan, Malaysia, Singapore, Thailand, Hong Kong and Philippines. Weighted by GDP at purchasing power parity exchange rates in 2000. **** Includes South Korea, Taiwan and Indonesia.

24

2008

3,056

Market Balance: Major Net Exporters **** App. Consumption 636 663 Net Imports -293 -313 Production 929 975 Capacity 1,082 1,092 Operating Rate 86% 89% China/HK Imports

2007

RISI

Asian Pulp and Paper Monitor - January 2009

Table 9 Bleached Kraft Pulp Monthly Summary US Dollars Per Tonne and 000 Tonnes

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

2007

2007

2007

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

762

772

743

784

768

814

768

783

770

727

731

733

735

741

745

746

744

720

717

728

728

738

746

755

759

757

734

737

728

748

744

764

753

756

752

749

750

745

708

747

751

754

765

764

787

772

780

785

780

794

791

803

720

728

724

731

736

744

746

748

740

744

740

732

719

711

713

710

719

721

732

733

733

733

737

736

731

671

76

74

79

88

56

90

74

83

76

74

84

72

81

241

282

226

371

254

294

337

272

299

312

283

347

306

52

54

45

62

48

48

48

46

48

49

44

50

39

370

411

350

521

358

430

456

401

423

434

411

469

425

126

139

134

182

116

150

135

137

143

144

146

125

159

101

93

86

109

78

103

103

92

82

110

95

121

114

51

66

42

100

60

44

84

69

89

61

60

98

60

44

55

45

61

45

61

72

50

42

66

51

54

55

48

58

42

67

58

71

62

53

66

54

59

71

38

633

648

642

667

671

717

692

711

725

735

750

767

773

624

622

643

652

667

678

692

710

703

707

734

727

689

622

639

645

651

668

682

695

711

724

730

739

742

724

615

630

640

654

659

688

686

699

699

709

723

716

689

632

649

654

672

686

714

713

725

732

746

746

750

745

607

611

613

628

658

656

682

709

686

702

743

743

728

641

650

656

661

673

686

693

726

727

718

728

750

734

Bleached Softwood Kraft Unit Import Values (CIF) Japan Average China Average S. Korea Average Received from: Canada US Chile Russia Import Volumes Japan China South Korea Subtotal Received from: Canada US Chile Russia Other

749

791.16

781

807

808

743.3

747

739

711

760.96

759

765

751

Bleached Hardwood Kraft Unit Import Values (CIF) Japan Average China Average S. Korea Average Received from: Indonesia Canada Brazil US Import Volumes Japan China South Korea Subtotal Received from: Indonesia Canada Brazil US Other

35

84

56

44

57

60

55

49

48

84

41

60

44

208

263

219

330

289

253

393

322

298

391

283

396

229

141

138

116

147

131

128

126

121

111

130

114

118

123

383

485

391

521

477

441

573

492

457

605

439

574

396

126

127

170

173

114

131

174

144

160

168

139

208

164

61

66

66

65

63

57

47

46

40

51

41

38

36

76

156

44

136

174

115

182

135

111

196

107

152

87

35

32

27

36

29

34

39

32

42

48

30

33

28

86

104

83

111

97

103

131

136

104

141

122

143

81

RISI

25

Asian Pulp and Paper Monitor - January 2009

Table 10 Bleached Kraft Pulp Quarterly Summary US Dollars Per Tonne and 000 Tonnes Annual 2006

2007

2007

2007

2007

2008

2008

2008

2004

2005

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

2006

2007

691

713

730

754

758

792

774

663

719

861

786

730

740

746

792

571

550

620

737

743

539

507

582

665

684

705

715

721

737

775

757

762

546

519

586

706

679

701

717

727

735

665

698

722

744

754

752

754

748

550

512

591

720

772

779

788

575

572

619

732

664

687

708

716

659

678

702

708

724

735

744

738

543

503

573

709

712

724

733

735

517

484

573

700

250

233

245

708

731

794

219

227

232

232

229

1,047

963

1,004

924

800

747

916

905

941

2,479

2,912

2,772

3,073

Bleached Softwood Kraft Unit Import Values (CIF) Japan Average China Average S. Korea Average Received from: Canada US Chile Russia Import Volumes Japan China South Korea Subtotal Received from: Canada US Chile Russia Other

130

149

129

136

151

158

142

143

560

592

534

566

1,088

1,113

1169

1155

1125

1306

1280

1,314

4,086

4,466

4,309

4,562

405

367

439

401

398

448

416

415

1,649

1,761

1,709

1,608

214

204

230

245

279

290

276

326

784

822

833

961

155

213

203

212

158

204

242

218

618

664

568

787

146

164

140

137

143

167

164

170

513

609

588

585

169

164

157

160

147

197

182

184

521

610

610

628

571

609

587

605

643

687

709

749

462

494

552

611

555

574

581

604

629

664

701

721

452

486

542

596

559

591

578

599

635

666

709

737

461

489

542

601

558

582

578

598

630

666

694

715

444

479

541

596

552

604

594

613

645

690

723

747

472

502

544

616

552

558

561

588

610

648

691

725

460

489

536

578

544

611

596

620

648

673

715

730

469

497

548

618

211

170

187

171

175

161

152

186

936

850

831

702

738

720

774

782

689

873

1013

1,070

2,992

2,613

2,953

2,966

Bleached Hardwood Kraft Unit Import Values (CIF) Japan Average China Average S. Korea Average Received from: Indonesia Canada Brazil US Import Volumes Japan China South Korea Subtotal Received from: Indonesia Canada Brazil US Other

26

334

410

369

319

395

406

357

362

1,513

1,482

1,464

1,493

1,283

1,301

1330

1272

1259

1439

1522

1,618

5,441

4,946

5,249

5,161

518

517

432

388

423

418

478

516

2,118

2,148

1,906

1,759

143

130

157

132

193

185

133

130

833

658

744

612

335

304

319

330

276

424

427

455

1,251

1,111

1,454

1,229

90

110

98

72

94

100

113

111

536

400

372

374

196

240

324

351

272

311

371

406

703

630

773

1,186

RISI

Asian Pulp and Paper Monitor - January 2009

Table 11 Other Wood Pulp and Recovered Paper Monthly Summary US Dollars Per Tonne

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

June

July

Aug

Sep

Oct

2007

2007

2007

2008

2008

2008

2008

2008

2008

2008

2008

2008

2008

592

560

550

539

513

505

503

515

617

609

592

576

569

556

554

200

210

219

223

224

233

248

249

232

245

247

250

255

265

276

277

270

214

223

230

231

232

244

261

261

250

193

202

215

221

222

174

174

219

190

196

205

209

216

229

244

256

204

209

218

221

223

235

248

257

194

198

208

213

222

233

249

260

196

203

212

211

212

221

222

237

Unbleached Kraft Pulp Unit Import Values (CIF) China South Korea

557

515

508

505

513

513

566

561

560

553

548

241

234

233

227

225

263

271

270

263

Old Corrugated Containers Unit Import Values (CIF) China Average S. Korean Average Received from: US Europe/Japan

248

249

246

243

371

337

237

192

184

262

265

272

280

281

284

294

304

301

271

277

285

296

295

249

261

263

265

261

Old Newspapers Unit Import Values (CIF) China Average S. Korean Average Received from: US Europe/Japan

Asian Recovered Paper Imports * Japan 6 5 China 1,555 1,953 South Korea 114 111 Taiwan 101 68 Indonesia 174 204 Thailand 113 94 Subtotal 2,061 2,436 Received from: US Europe Japan Other

269

6

6

6

5

5

5

4

5

5

5

6

1,648

1,796

1,820

2,301

2,235

2,246

1,808

2,020

1,940

2,146

1,985

106

118

93

93

105

110

81

137

136

138

127

62

73

71

118

68

85

95

107

96

68

28

171

221

193

189

197

191

77

108

90

97

117

137

2,070

2,323

2,273

2,803

2,727

2,775

2,285

168 129

192

176

—

—

150

125

101

72

2,611

2,477

—

—

800

1,107

894

1,020

948

1,172

1,050

1,054

856

956

1,044

—

—

653

642

568

720

737

899

958

1,001

751

853

784

—

—

252

302

258

215

262

316

295

325

306

383

303

—

—

357

385

350

368

327

415

425

395

373

410

347

—

—

* These six countries accounted for 90% of Asian recovered paper imports in 2007.

RISI

27

Asian Pulp and Paper Monitor - January 2009

Table 12 Other Wood Pulp and Recovered Paper Quarterly Summary US Dollars Per Tonne Annual 2006

2007

2007

2007

2007

2008

2008

2008

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

2004

2005

2006

2007

547

552

576

594

568

523

511

509

412

434

487

571

537

579

619

635

608

568

558

558

424

426

484

612

147

161

179

189

210

184

188

220

223

241

227

247

231

146

149

144

184

257

275

268

176

182

177

218

163

179

202

203

142

142

169

182

223

236

259

248

156

163

155

202

203

203

240

252

137

139

135

172

150

166

184

155

170

189

182

197

219

377

272

143

148

143

182

192

210

88

199

131

150

150

149

192

155

172

145

158

191

186

200

223

357

286

151

155

148

187

179

183

204

215

261

263

135

139

137

179

81

77

72

72

12,301 17,032 19,623

22,562

Unbleached Kraft Pulp Unit Import Values (CIF) China South Korea Old Corrugated Containers Unit Import Values (CIF) China Average S. Korean Average Received from: US Europe/Japan Old Newspapers Unit Import Values (CIF) China Average S. Korean Average Received from: US Europe/Japan

Asian Recovered Paper Imports * Japan 19 China 4,988 South Korea 282 Taiwan 178 Indonesia 484 Thailand 266 Subtotal 6,217 Received from: US Europe Japan Other

18

17

15

17

16

15

15

5,957

5,813

5,636

5,156

5,918

6,290

6,105

262

290

299

331

305

297

411

272

191

289

230

262

248

271

900

675

763

982

569

555

552

549

603

556

—

2,202

1,958

2,082

2,225

941

946

1,003

1,016

17,966 22,038 24,753

28,033

1,542

1,350

1,210

1,130

248

241

243

284

295

383

376

7,325

7,107

7,034

6,567

7,399

7,789

—

2,575

2,973

2,600

2,828

2,800

3,140

2,960

—

4,580

5,047 10,479

1,785

2,335

2,436

2,146

1,863

2,356

2,709

—

1,831

2,810

7,121

954

940

1,030

953

812

793

926

—

534

253

3,740

3,734

903

1,077

1,041

1,107

1,092

1,109

1,193

—

979

1,100

3,413

4,446

11,202 8,780

* These six countries accounted for 90% of Asian recovered paper imports in 2007.

© Asian Pulp and Paper Monitor provides economic analysis of the Asian pulp and paper market and is written and prepared by Alex He, Beth Lis, Sandy Lu and Scott Howard. Subscriptions or client service: Call 866.271.8525 (USA & Canada) or +32.2.536.0747 or email [email protected]. Editorial offices: 4 Alfred Circle, Bedford, MA 01730-2340 USA. Copyright 2009 by RISI, Inc. All rights reserved. No part of this publication may be reproduced without the written permission of the copyright owner.

DISCLAIMER OF WARRANTY Although RISI, Inc. shall use its best efforts to provide accurate and reliable information, RISI, Inc. does not warrant the accuracy thereof. RISI, Inc. MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED FROM THE USE OF ITS SERVICES AND MAKES NO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. RISI, Inc. SUPPLIES ALL SERVICES ON AN “AS IS” BASIS. If notified of an error in its Services, RISI, Inc. shall take reasonable steps to correct such an error.

28

RISI