Changes in the Paper Industry

1
Changes in the Paper Industry

• American Business Media Meeting
• June 14, 2006

2
Agenda

• Industry Dynamics
• Consolidation
• Capacity Rationalization
• Exchange Rates
• Input Costs
• Future Trends
• Coated Paper Demand/Supply Outlook
• Demand Drivers
• Demand/Supply Balance
• Imports
• Operating Rates

3
Industry Dynamics
4
Coated and SC Papers Represent 16 of the
Overall North American Paper Market
North American Paper Capacity by Grade
Total Capacity 96.1 million tons
Source Jaakko Poyry and RISI
5
Our Industry Keeps Consolidating
U.S.
Europe, Africa and Asia
Canada
International Paper Georgia-Pacific Weyerhaeuser
Union Camp Fort James Westvaco Mead Bowater
Boise Cascade Consolidated Papers Smurfit
Stone Stone Container Temple-Inland Champion Wil
lamette Gaylord
Amcor April APP Paperlinx AssiDomain Fletcher
Paper Nippon Paper AWA ENCE Haindl Mitsubishi
Paper Norske Skog Carter Holt Harvey Jefferson
Smurfit Group
Oji Paper Enso Portucel Stora SCA Burgo Sappi UPM
D.S. Smith Metsa Serla SEPI
Abitibi Donohue St. Laurent Alliance Tembec M
acMillan Bloedel Avenor Domtar Pacifica
Paper Catalyst (formerly Norske Canada)
Source FactSet, Company Reports and Bernstein
6
Market Share Concentration Among the Leaders
Continues to Increase
Source Credit Suisse First Boston, RISI, IP CSC
Estimates
7
Major Coated Freesheet Capacity Changes(000
Short Tons)
Still included in industry capacity numbers
Source RISI, Company Press Releases
8
Major Coated Groundwood Capacity Changes(000
Short Tons)
Still included in industry capacity numbers
Source RISI, Company Press Releases
9
Since Jan02, the Canadian Dollar has gained more
than 40 against the U.S. Dollar
Source Oanda.com
10
Input costs have risen dramatically over the
past several years
Costs
Pricing
Source RISI, IP CSC Papers
11
Industry Trends

• Continued industry consolidation/capacity
  rationalization
• Increased focus on very specific product groups
  (MeadWestvaco with Packaging, IP with UCFS and
  Packaging)
• Entry of private equity groups (NewPage)

12
Coated Paper Demand/Supply Outlook
13
Coated and SC Papers are Primarily Used in the
Magazine, Catalog, Inserts, and CP End-User
Segments
Source Jaakko Poyry
14
A healthy economy will continue to drive demand
for Coated and SC papers in North America

• Higher consumer confidence
• Higher retail spending
• New store launches
• Increased targeting of customers

Increased Catalog Circulation
North American Coated Paper Demand
Improving Economy
Increased Insert Circulation
Annual GDP growth of 3 expected

• Higher corporate profits
• Increased advertising
• Subscription growth
• New magazine title launches
• Increased ad pages

Annual growth of 1-3 expected (2005-2010)
Increased Magazine Circulation
Increased Commercial Print Activity
Source Bureau of Economic Analysis and RISI
15
Asia is the fastest growing region for Coated
Paper Demand (2005-2010)
Source RISI
16
Through 2010, there will be limited coated paper
capacity expansions in North America and Europe
Source RISI
17
Global CFS Demand Supply
000 Short Tons
Source RISI
18
Global CGW Demand Supply
000 Short Tons
Source RISI
19
U.S. Coated Paper Imports Have Stabilized
000 Short Tons
Global Producers Establish Foothold in North
America
Imports Stabilize
Source RISI
20
Global Operating Rates
Source RISI (Not adjusted for strikes)
21
Summary

• NA coated paper market mature, but will continue
  to grow 1 to 3 per year through 2010
• Global coated paper demand to grow 3 to 4 per
  year, driven by strong demand in Asia
• Coated paper demand/supply has come more in-line
  following major capacity closures in NA and W.
  Europe (2005-2007)
• There will be limited coated paper capacity
  growth in these regions through 2010 Significant
  capacity growth in Asia
• U.S. imports have stabilized
• NA and global operating rates to remain strong
  for next several years CGW market to be
  slightly stronger than CFS