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

061218 Deutsche Bank Report - Dr. Paper's Pulse on Pricing

Deutsche Bank - Equity Research

MARKET PULP
Most producers have announced NBSK hikes in January - $20/mton in NA
& $30/mton in Europe. Robust global demand, up 4.4% YTD, and tight
supply is supporting higher pulp prices. Global inventories remain
low at 29 days of supply. New supply is gradually ramping up in
Chile. Arauco's Nueva Aldea started up last month and CMPC has
reportedly started up its Santa Fe # 2 line; both lines however are
running slowly with limited production. Terrace Bay Pulp restarted
its 350k/mtpy NBSK line in Ontario.

UNCOATED FREE SHEET
Offset prices only fell $10/ton in December, and copy paper prices
were flat, suggesting that producer's market related downtime is
helping to shore up the market during the seasonally weak period.
IP appears to be considering an accelerated closure of the 350K
Pensacola, FL UFS machine. We think the industry needs to cut
supply by 400-500K/tons. With pricing at "mid-cycle" levels, high
costs mean that profitability is still poor.

NEWSPRINT
Stora Enso restarted its 195k mtpy newsprint mill at Port Hawkesbury
Nov. 24th. The market appears headed for another shake-out.
Standard newsprint prices have fallen $15/mton since October.
October consumption figures at the US daily newspapers were off a
distressing 9%. YTD consumption is down 7.9% YTD. Overcapacity in
Asia & publishers' desire for pricing leverage is likely to bring
some Chinese tonnage to the US - the publishers don't need to bring
in much paper to create a big pricing lever.

061215 Deutsche Bank Report - Dr. Paper's Weekly Wrap-Up

Deutsche Bank - Equity Research

Temple-Inland & Weyerhaeuser upgraded to BUY. While near-term
fundamentals are weak, there is increasing pressure by major
shareholders to accelerate restructuring & unlock value. Pressure
appears greatest on WY - our work suggests underlying asset value of
$115/share.

November's box #'s reflect economic easing. Ship's fell 1.7% y/y.
With 98.1% operating rate, inventories continue to increase.
January's $40/ton price hike will be a tough fight and require lots
of supply discipline.

Can pulp go higher? Domtar & Tembec joined Weyerhaeuser w/
$20/mton NBSK hike for January 1 in NA. Hardwood hikes announced as
well.

061214 Deutsche Bank Report - Has Weyerhaeuser Drama Moved to Second Act?

Deutsche Bank - Equity Research

* Upgrading WY and TIN
We are upgrading WY from Hold to Buy and raising our price target
from $65 to $80. We are also upgrading TIN from Hold to Buy and
raising our price target from $40 to $55. We think that these stocks
will trade increasingly on views of long-term intrinsic value rather
than near-term earnings and cashflow.

* The timber tax bill is struggling in Congress
Changes in Congress have reduced the likelihood of a reduction in the
federal tax rate on timberland earnings at C-corps. Moreover, even
if it were successfully implemented, the timber tax bill would not
eliminate all of the questions about the vertically-integrated model
in the forest products industry. Other issues include the varying
costs of capital among the ownership structures, management of
timberland cashflows, and the question of whether vertical
integration creates value.

* Franklin Mutual Shares has gone public with its concerns about WY
The issues at Weyerhaeuser go beyond the question of timberland
ownership to the breadth and performance of Weyerhaeuser's various
operating business. While management and the Board appear to
understand the issues, the question is whether the firm is prepared
to go far enough and fast enough? Activist investors, capital-rich
private equity & timberland investment firms, and low interest rates
create a potentially combustible situation.

* Key differences between TIN & WY
While both firms have huge landholdings and are highly-exposed to
cyclical weakness in building materials, real estate, and corrugated
packaging, TIN continues to show impressive relative performance
gains in its operating business. TIN also has a well-conceived &
well-staffed plan to unlock value in its real estate and
landholdings. TIN continues to suggest a willingness to eventually
spin-off this business. Finally, we find TIN to be more modestly
valued on most near-term financial metrics.

* Valuation/Risk
Company-specific valuation/risk statements about TIN & WY are
provided below in the main text. On average, paper companies are
trading around 1.6x book value and 5.3x estimated “peak” earnings - -
- a bit more than half of the of the historically high “peak”
multiple. The primary risks involve momentum in the economy, the
health of demand within key grades like containerboard, and
additional energy, chemical, and freight cost inflation.

061211 Deutsche Bank Report - Dr. Paper's Pulse on Pricing

Deutsche Bank - Equity Research

* FRAMING LUMBER
the Random Lengths composite fell $2/mbf to $276/mbf last week.
Prices are just above the 10-yr low of $265/mbf - recorded in
November of 2002. However, that low was reached at a time when the
CN$ was very weak - - - suggesting that mill nets at many CN mills
are significantly lower today.

* STRUCTURAL PANELS
The structural panel composite fell $10/mbf to $266/mbf last week.
The benchmark grade of OSB (7/16" in the North Central region) fell
$15/mbf to $155/mbf. We believe OSB is below "delivered cash cost"
for some mills and regard further shuts as inevitable. LPX,
Ainsworth, Kruger and Tembec have announced capacity withdrawals.

* MARKET PULP
Mercer is out with more hike initiatives for January - $20/mton in
NA & $40/mton in Europe. Robust global demand, up 4.4% YTD, and
tight supply is supporting higher pulp prices. Global inventories
remain low at 29 days of supply. New supply is gradually ramping up
in Chile. Arauco's Nueva Aldea started up last month and CMPC has
reportedly started up its Santa Fe # 2 line; both lines however are
running slowly with limited production. Terrace Bay Pulp started up
its 350k/mtpy NBSK line in Ontario.