Industry Reports

Deutsche Bank Reports Summaries

051205 Deutsche Bank - MeadWestvaco

Deutsche Bank - Equity Research

MWV is in the process of announcing a $40-$70/ton price hike on Bleached Paperboard (SBS) effective Jan 1st. For two-sided polyethylene coated grades, the announced increase is $70/ton. For one-sided PET coated grades, the announced increase is for $60/ton. For all other SBS grades, the increase is $40/ton. The hike announcement comes a week after MWV announced plans to close a 180K tpy SBS machine in Evadale, TX. Earlier this year MWV closed a 130K tpy SBS machine at their Covington, VA mill. On a nameplate basis, the two closures amount to about 5% of North American SBS capacity. In practical terms, MWV has suggested the net impact will be smaller, as efficiency gains at remaining plants offset a portion of the shutdowns. We think that about half of this number could be recovered from efficiency gains. However, even so, the shutdowns should contribute to some short-term tightening in the market.

Other players have yet to act, but we would expect further announcements. The #1 player by market share is International Paper (IP.N). Potlatch (not covered by DB, PCH.N) is the #3 producer. Among our coverage names, Rock-Tenn (RKT.N) is also highly levered to SBS by virtue of their recent acquisition of Gulf States. Georgia-Pacific, Smurfit-Stone and Weyerhaeuser all have modest degrees of SBS exposure. Producers have faced significant cost increases as a result of run-ups in energy & chemical costs. They need to raise prices in order to offset these costs. Our 2006 price forecast for Bleached Paperboard/SBS included a $35/ton hike. This latest announcement goes well beyond our forecasted hike. However, for the moment, we are leaving our 2006 estimates on MWV, IP, and RKT unchanged.

For more information, please click on the attached document.

051205 Dr Paper's Pulse on Pricing

Deutsche Bank - Equity Research

UNCOATED FREE SHEET

European producers are announcing Q1 price hikes, will NA producers follow? Estimated transaction prices on both offset and repro bond rose $5/ton in November. This may be the result of energy-related surcharges or some "clean-up" at the bottom of the market. Last week, Domtar announced the incremental closure of 115k tpy of UFS. WY recently closed 280k tpy at a Western CN Mill. October shipments of uncoated free sheet were down 1.4% y/y. Shipment data has been consistently weak throughout the year, down 3.6% YTD. We're increasingly convinced that some combination of WY, DTC and Boise white paper businesses is inevitable - - - probably in the next 4-5 mo's. All 3 producers seem to recognize the need to act.

COATED FREE SHEET

We've been a bit surprised by reports of stable pricing in the trade papers, since many sources report a very competitive market. Trade paper prices on No. 3 60lb rolls rose $5/ton in November - reflecting estimated benefit from surcharges. October CFS demand was up 7.3% y/y, the third positive month in a row, but remains down 1.1% YTD. Capacity mgmt has given producers some pricing leverage for the time being. Sappi closed a 115k tpy machine @ Muskegon, MI this month and Pasadena Paper is not reopening its 170k/tpy in Pasadena, TX after closing it before Hurricane Rita. Cascades recently announced the closure of its 165k tpy mill in Thunder Bay, Ont. Domtar announced the permanent closure of its Cornwall and Ottawa mills, which include about 130k incremental tpy of CFS.

BLEACHED BOARD / SBS

Last week MWV announced the inderfinite shutdown of its 180k tpy Evadale SBS machine; this follows the closure of the 130k tpy mill at Covington. With offsetting efficiency gains, we think the net closure will be about 1/2 of the total amount. In an already tight market however this will certainly give support to October's $40/ton price hike. One special note. During 4Q, Pulp & Paper Week will readjust (downward) current and historical prices on bleached kraft board 16pt folding cartons.

For more information, please click on the attached document.

051202 Deutsche Bank - Dr Paper's Weekly Wrap Up

Deutsche Bank - Equity Research

More capacity closures. DTC announced 115K of UFS . . . more to come? WY is closing 350K in Plymouth, NC, 1% of NA capacity. MWV closing 180K SBS machine - 3% of NA capacity.

IP @ an inflection point? Fundamentals are improving in all 3 of IP's largest paper businesses. Moreover, IP's timberland auction appears to be going well - $7-8B wouldn't surprise - - - it could come in 1 deal in 06H1.

Timber REITs: Plum Creek investor meeting provides greater confidence in our bullish thesis on both PCL & RYN. HBU land could be worth more than expected. We raised target prices on both: PCL to $42, RYN to $55.

For more information, please click on the attached document.

051201 Deutsche Bank - International Paper

Deutsche Bank - Equity Research

International Paper {Ticker: IP.N, Recommendation: Buy}.

Could International Papers' stock actually start to "work"? The bull's case is strengthening. There are two reasons. First, conditions are starting to improve in IP's 3 largest paper businesses - the firm's financial heart. Second, we're receiving a number of positive indicators about progress on IP's huge land sale initiative - the centerpiece of IP's restructuring program.

Signs of life in the paper business

The turnaround in containerboard (IP's biggest business) has been sharper & steeper than we expected. While supply-side reductions have been the biggest driver, domestic demand is also rebounding. Uncoated free sheet (4.8MM tons/yr for IP in NA) hasn't turned yet. However, the inflection point could be closer than most observers realize. In bleached paperboard, supply side moves along with higher costs for competing materials could help improve market dynamics.

Encouraging news on IP's huge timber sale program

Industry contacts suggest that preliminary valuation numbers on IP land have been strong. If all of IP's HBU land is included in the process, we think the full 6.7MM/acre package could easily bring $7- 8B (well above many current estimates). We would not be surprised if a single wholesale bid were to take out all of the IP lands.

Neither a cyclical turn, nor the restructuring, will solve all of IP's issues. Nonetheless, we think prospects have brightened significantly over the past couple of months and we think those prospects could quickly be reflected in the stock. We reiterate our BUY rating. Our current earnings estimates remain unchanged for the moment.

051129 Deutsche Bank - MeadWestvaco

Deutsche Bank - Equity Research

MeadWestvaco {Ticker: MWV.N, Target Price: USD 35, Recommendation: Buy}.

MeadWestvaco announced today the indefinite idling of a bleached paperboard (SBS) machine in Evadale, Texas. The machine produces roughly 180K tons per year of bleached paperboard. The shutdown will be complete in 2006Q1. 180K represents approximately 10% of MWV's SBS capacity and approximately 3% of NA total capacity. The news comes in the wake of MWV's Q3 closure of a 130K SBS machine at its Covington, VA mill - roughly 2% of NA capacity. We expect some of the closure impact to be offset by productivity gains on the remaining machines, so we would not assume a full 310K net reduction impact in the market.

Still, this is clearly good news for the bleached board sector. SBS operating rates are 93.2% YTD, so the shutdowns could easily start to swing the balance point in the sector. The news is a positive datapoint for MWV and highlights their recent commitment to cut costs and balance supply/demand. The closures are also positive for International Paper (NYSE: IP), the world's biggest bleached board producer, and Rock-Tenn (NYSE(RKT). RKT recently acquired a bleached paperboard mill from Gulf States. Finally, Potlatch (NYSE: PCH - - - not covered at DB), could be the biggest relative winner. Potlatch is the #3 SBS producer in the NA market and is currently converting to a timber REIT structure. An improving SBS market could help any efforts to shed non real estate assets. For now, we are maintaining our Buy ratings on MWV as well as IP and RKT.

For more information, please click on the attached document.

051129 Deutsche Bank - Weyerhaeuser

Deutsche Bank - Equity Research

Weyerhaeuser {Ticker: WY.N, Closing Price: USD 64.92, Target Price: USD 71.00, Recommendation: Buy}.

Two more restructuring moves

Weyerhaeuser today announced (1) the indefinite idling of a 350K/tpy recycled linerboard machine at Plymouth, NC and (2) the intent to sell its composite panels business. The shutdown removes nearly 1% of US containerboard capacity at a point when the market has begun to tighten rapidly.

Containerboard was already a tight market

Even before this shut, containerboard industry figures showed a strengthening market. Box shipments jumped 2.6% y/y in October. Moreover, box plant inventories stand at only 2.8 weeks of supply, the lowest level we can find in over 20 years of data. October's operating rate was 95.3%. This latest closure removes another 350K tons of annual capacity, which represents almost 1% of US containerboard capacity.

The containerboard takeaway?

The linerboard mill shut will further tighten an already tight market, making it significantly easier to push through the price hikes that the industry desperately needs to offset rising input costs. Moreover, with significant capacity rationalization on the box plant side by Smurfit-Stone, passing through these containerboard hikes into box prices may become a bit more manageable.

The panel board takeaway?

The composite panel sale looks like another clear sign that WY is dead serious about restructuring. The company has been under pressure from shareholders and there has been clear evidence over the past 6-7 months that they are responding.

For more information, please click on the attached document.