::The Center for Paper Business and Industry Studies::

060925 Deutsche Bank Report - Dr. Paper's Pulse on Pricing

Deutsche Bank - Equity Research

MARKET PULP
The market still appears solid, but some pulp brokers are starting
to voice concerns. Domestic producers raised prices $20/mton in
September. World shipments are up 5.2% through August, led by a
surge in shipments outside of North America, particularly on
hardwood grades. New Latin American capacity is starting to ramp up
and at least one Canadian mill has restarted.   In Chile, Arauco's
Nueva Aldea started up this month and CMPC is expected to ramp up
its Santa Fe # 2 line in November.   In Canada, Terrace Bay Pulp
started up its 350k/mtpy NBSK line in Ontario and may restart a
smaller 2nd (125k tpy) line.

LUMBER
The Random Lengths composite fell $15/mbf to $286/mbf last week.
The 10 year low for the composite was $265/mbf in November of 2002.
Some higher-cost mills are bleeding.   Canadian mills are reportedly
pushing lumber across the border in front of an October 1 imposition
of a 15% export tax. British Columbia mills are dealing with yrs
worth of "beetle kill" wood and mills across NA continue to focus on
using lower-cost, small diameter logs.

PANELS
The structural panel composite plummetted $19/mbf to $274/mbf last
week. The benchmark grade of OSB (7/16" in the North Central
region) fell $18/mbf to $155/mbf. We believe OSB is now
below "delivered cash cost" for many mills - - - so further shuts
seem inevitable. Earlier this month, LPX announced the indefinite
closure of a 500K msf Quebec OSB mill (pointing to high wood,
transportation & energy costs as well as the strong CN$). Closures
by Kruger and Tembec have also been announced.

060922 Deutsche Bank Report - Dr. Paper's Weekly Wrap-Up

Deutsche Bank - Equity Research

* Newsprint consumption at the US dailies fell 7.8% y/y in August.
Inventories rose m/m on both an absolute & a "days of supply" basis.
48 days of supply typically indicates a "buyers market."

* No sign of weakness yet in containerboard. August box ship's rose
3.1% y/y. Inventories appear balanced. Pricing is reportedly stable.
Trade sources report that box vol's remain healthy in Sept.

* Who will benefit from lower energy costs? In papers, IP, SSCC,
and TIN. WPP helped by lower nat gas and flattening in pulp curve.
Among pkg'ers, OI should benefit as hedges roll off.

060922 Deutsche Bank Report - Is Sentiment Toward Timberland Cooling?

Deutsche Bank - Equity Research

* A new sense of caution among timberland investors
A recent trip to a major timber investment conference revealed a
decidedly more cautious attitude among the participants. Caution
came from all corners of the conference hall: TIMO's, institutional
investors, investment advisors and appraisers. In the view of many
at the conference, there has simply been too much money (and too many
new timberland managers) chasing too few investment quality
properties.

* How to account for the shift?
Increasingly aggressive valuations are certainly one factor, but near-
term fundamentals are also weighing on many minds. Wood products
like lumber & plywood are the primary end products of timber, and
it's clear that those markets are heading into a cyclical downturn.
Other factors include rising interest rates and cooling real estate
markets, which may be making investors more circumspect about the
potential of “HBU” lands.

* Implications for timber REITs
We don't think that now is the time to panic for shareholders in PCL
and RYN. Based on the sluggish performance of these stocks over the
last several months, we think that much of the negative news to come
is already “priced in” to the stocks. We also think that both
companies have net asset values which far exceed their current stock
prices and that, at current levels, these stocks offer long-term
value under any reasonable timberland valuation scenario.

* Implications for public forest companies
The option of monetizing timberland at favorable multiples will still
remain. The TIMO business is not going away. There are simply too
many arguments for this approach to timberland ownership &
management, and tax isn't the only consideration. We do suspect,
however, that the flow of new capital into the TIMO's will slow and
that valuations could retreat on a relative basis.

* Bottom line?
The timberland party looks to be winding down. However, debate over
the optimal ownership regime for timberland has not ended. We
believe that public shareholders will continue to pressure integrated
public companies to unlock value. Based on conversations across the
trade, we believe that capital remains available for well-conceived
investments in domestic & offshore timberland. The market for global
fiber continues to expand and they aren't making any more land.