REASON FOR PRICE INCREASES

The answer lies with two equity/hedge funds who have invested heavily into the North American paper making industry. At the time of this newsletter one firm controls over 42% of the coated sheet market and another equity firm controls over 35% of the uncoated sheet market. What these firms have done is buy up a number of pulp mills and have shut down either the entire plant or production lines creating a capacity shortage in the market. This capacity shortage is causing the paper industry to discontinue lower margin paper products and increase their pricing on the remaining lines that they produce. Their attitude is that if our suppliers don't accept the increase then they will ship their products overseas and take advantage of the weak dollar. We are actually hearing rumors of possible supply shortages in liner and other essential sheets. Combine the paper capacity issues with the price run ups in general commodity prices (oil, platinum, etc.) and you have the making of a perfect pricing storm. 1 don't have a prediction as to how many or what size increases we will see in 2009 and beyond, but the strength or weakness of the economy will drive the frequency and severity of these increases. Because the cost to enter the paper making industry is so large, 1 feel certain that we will see the situation remaining unchanged for the next several years.

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