copyright © 2007

GRAPHIC PAPERSPAPER MARKET OUTLOOKMAY 2007

MARTIN GLASSEMGE & CO

copyright © 2007

www.emge.com

copyright © 2007

PAPER DEMAND CYCLESWORLD GRAPHIC PAPERS

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1999-01 2000-01 2001-01 2002-01 2003-01 2004-01 2005-01 2006-01 2007-01

CompositeLeading Indicator World Graphic

Paper (to FEB-07)

ased on USA, Japan & W.Europe ONLY

copyright © 2007

ABOUT EMGEGlobal Paper & Board

340 million tonnes

Other

Graphic Papers

Global Graphic Papers Business(140 Million Tonne Industry)

(Euro >90 billion)

Coated woodfree

Uncoated woodfree

Coated mechanical

Uncoated mechanical

Newsprint

EMGE•market analysis and forecasting•concentrated on insight and clarity•global and comprehensive

•demand and production volumes•capacity and operating rates•pricing•production investments•by paper grades and region/country

•industry-specific market research•investments analysis•end use studies•fast response service

copyright © 2007

PRESENTATION OUTLINE

• OVERVIEW / TRENDS – regions, grades, trends

• OUTLOOK / FORECAST – demand, supply, op rates

• DRIVERS – economics, media/communications, print technology

• KEY ISSUES – profitability, demand-price elasticities, industry structure/concentration

copyright © 2007

WORLD PAPER DEMAND BY GRADE

Uncoated Woodfree31%

Coated Woodfree19%Coated Mechanical

13%

Uncoated Mechanical

11%

Newsprint26%

Uncoated Woodfree

Coated Woodfree

Coated Mechanical

Uncoated Mechanical

Newsprint

Global Graphic Paper Demand (2006) = 146 million tonnes

copyright © 2007

PAPER GRADE DEMAND FORECAST (WORLD)AVERAGE %pa GROWTH (2006-2011)

3.5% 3.4%

1.9%

2.4%

1.8%

0.0%

1.0%

2.0%

3.0%

4.0%

Coated

Woodfree

Coated

Mechanical

Uncoated

Woodfree

Uncoated

Mechanical

Newsprint

copyright © 2007

GLOBAL DEMAND TREND

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

19801981198219831984198519861987198819891990199119921993199419951996199719981999200020

01200220

0320042005200620072008200920102011

Graphic Paper Demand - WORLD'000 tonnes

Average AnnualGrowth Rates

1980 to 20062006 to 2011 2.4%

3.1%

copyright © 2007

WORLD PAPER DEMAND TRENDGRAPHIC PAPERS, 1980 - 2011

0

20

40

60

80

100

120

140

160

180

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

N.America

Africa/ME

Oth Europe

Latin America

Other Asia

Japan

W.Europe

Millions tonnes

Average Growth %pa1980-06 : 3.1%

World Growth depends on Asia

and Europe

Average Growth %pa2006-11 : 2.4%

copyright © 2007

REGIONAL PAPER DEMAND/CAPITA

N.A

me

rica

Japa

n

W.E

uro

pe

Oth

er E

ur.

Lat

in A

m.

Chi

na/H

K

Oth

er A

sia

Afr

ica/

ME

0

20

40

60

80

100

120

140128 kg/capita, 2006

125

105

21

12 108 5

copyright © 2007

DEMAND: DEVELOPED v DEVELOPING WORLD

50

100

150

200

250

300

350

400

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Developing NationsAverage %pa Growth:1980-2006

1998-2006

Graphic Paper Demand(1980=100)

5.1%

Developed NationsAverage %pa Growth:1980-2006

1998-2006

WORLD :

2.3%

3.1%5.9%

0.5%

copyright © 2007

REGIONAL GRAPHIC PAPER DEMAND FORECAST AVERAGE %pa GROWTH (2006-2011)

2.1%

6.4%

0.2%

1.1%

6.3%

4.1%

2.9%2.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

W.Europe EastEurope

N.America Japan China Other Asia Rest ofWorld

WORLD

GRAPHIC PAPERS (%pa 2006-2011)

copyright © 2007

ECONOMIC OUTLOOK (consensus)

2.8

3.3

3.9

2.4 2.4

3.3

2.3

3.0

3.4

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2006 2007f 2008f

W.Europe USA World

copyright © 2007

END OF THE BUSH-BLAIR STATUS QUOFORTHCOMING POLITICAL EVENTS

• France – election of president (May 2007)• UK – election of new Prime Minister (by end-2007)• Russia – election of Duma (end-2007),

election of President (1st round March 2008)

• China – election of Parliament (end-2007),election of President (March 2008)[Beijing Olympics, 6-24 August 2008]

• USA – election of President (November 2008),election of House of Rep. (November 2008)

copyright © 2007

ECONOMIC SENTIMENT INDICATOR - EU

86

88

90

92

94

96

98

100

102

104

106

108

110

112

114

116

118

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

EU SURVEY INDEX

March2007

copyright © 2007

CONSUMER CONFIDENCE INDICATOR - EU

-20

-15

-10

-5

0

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

Consumer Confidence Indicator, EU

March2007

copyright © 2007

PAPER DEMAND CYCLES – W.EUROPE

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

1999-01 2000-01 2001-01 2002-01 2003-01 2004-01 2005-01 2006-01 2007-01

CompositeLeading Indicator W.European

GraphicPaper

(to FEB-07)

* CLI based on USA, Japan & W.Europe ONLY

% pa - 3MMA Growth

copyright © 2007

HOUSING STARTS – USA

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06

US Housing Starts, 3mma

copyright © 2007

PAPER DEMAND CYCLES – N.AMERICA

-12%

-8%

-4%

0%

4%

8%

12%

1999-01 2000-01 2001-01 2002-01 2003-01 2004-01 2005-01 2006-01 2007-01

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

CompositeLeading Indicator

(RH-scale)N.American

GraphicPaper

(to FEB-07)

% pa - 3MMA Growth

copyright © 2007

GDP - CHINAREAL GDP GROWTH

10.5

9.6

8.8

7.8

7.1

8.0

7.3

8.0

10.0 10.19.9

9.79.5

5.0

6.0

7.0

8.0

9.0

10.0

11.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006f 2007f

Source:EMGE/Concensus/OECD

Average GDP Growth

(1995-2005) : 8.8%

copyright © 2007

GRAPHIC PAPERS - CHINADEMAND & SUPPLY

6000

8000

10000

12000

14000

16000

18000

20000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Demand

Production

Production

Demand

'000 tonnes

Forecast

copyright © 2007

PRINT SHARE OF ADVERTISING

0%

10%

20%

30%

40%

50%

60%

70%

80%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006f

W.EUROPE

N.AMERICA

JAPAN

Print Share of Adspend

copyright © 2007

ADVERTISING EXPENDITURE FORECASTSGrowth 2007 (Current Prices)sources: ZenithOptimedia, World Advertising Research Centre, Universal McCann, Carat

USAGermanyUKFranceSpain Italy 3.3 3.1 8.2 2.6

5.4 4.9 4.8 4.03.3 3.4 3.4 2.03.7 3.9 5.3 4.21.6 1.5 1.4 1.54.1 3.8 4.8 5.2

ZENITH WARC McCANN CARAT

copyright © 2007

PAPER MEDIA UNDER GREATER PRESSURE (EMEA)

0

100000

200000

300000

400000

500000

600000

700000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumer Spending and Advertisng Expenditure (US$ Millions)

EMEA ENTERTAINMENT AND MEDIA MARKET

Screen-Based Media

(TV, Films, Video Gaming, Internet etc)

Outdoor-Based Media (Sports, Theme Parks etc)

Audio-Based Media (Radio, Music etc)

Paper-Based Media

(Newspapers, Magazines, Books etc)

source: Pricewaterhouse Coopers LLP

copyright © 2007

WORLD GRAPHIC PAPERS MARKET SUMMARY

'000 tonnes 2006 2007 2008 2009 2010 2011 2006-011World Demand 145690 146835 152255 153890 158305 164295 18605Growth 0.8% 3.7% 1.1% 2.9% 3.8% 2.4%

World Capacity/Supply 158810 159500 161700 165525 168180 170070 11260Growth 0.4% 1.4% 2.4% 1.6% 1.1% 1.4%

Operating Rate 92% 92% 94% 93% 94% 97%

EMGE & Co. © 2007

copyright © 2007

CAPACITY INCREASE FORECAST BY REGION

2.4mt

3.3mt3.8mt

1.4mt

-1.3mt

1mt

-2000

-1000

0

1000

2000

3000

4000

China Other(non-Jap) Asia

W.Europe Japan N.America Others

'000 tonnes, 2007-11

copyright © 2007

GLOBAL GRAPHIC PAPER CAPACITYCAPACITY GROWTH

GRAPHIC PAPER CAPACITY GROWTH

1.2%

1.5%

2.4%

1.3%

0.2%

1.1%

2.6%

1.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1990-00 2000-06 2007 2008 2009 2010 2011

2006-11%pa growth :

copyright © 2007

WORLD DEMAND/SUPPLY, GRAPHIC PAPERSDEMAND SUPPLY BALANCE

87%88%

91% 91%92% 92%

94%93%

94%

97%

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

80%

85%

90%

95%

100%

105%

110%

Demand - LHS

Capacity - LHS

Capacity

Demand

'000 tonnes Op.Rate

Forecast

copyright © 2007

OPERATING PROFITS – FINE PAPERSFINE PAPER COMPANIES, 2006 Q4

7%

5% 4%4%

2%

-33%-4%

-2%

0%

2%

4%

6%

8%

UPM StoraEnso Domtar IP Pr. Papers SAPPI Europe M-Real

Operating Profits as % of Sales - 2006 Q4

copyright © 2007

OPERATING PROFITS – MAGAZINE PAPERSMAGAZINE PAPER COMPANIES, 2006 Q4

10%8%

6%4%

2%1%

-2%

-4%

0%

4%

8%

12%

SCA* UPM Stora-Enso NorskeSkog

Bowater M-Real* Abitibi-Cons.

* includes other paper grades

copyright © 2007

TOP 5 GRAPHIC PAPER SUPPLIERS1990 vs 2007 CAPACITY – GRAPHIC PAPERS

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

1990 2007

'000 tonnes

3.2%3.1%

2.8%

7.2%

8.0%

6.1%

4.5%

3.5%

GEORGIA-PACIFIC

STORA FELDMUHLE

FLETCHER CHALLENGE

INTERNATIONAL PAPER

CHAMPION

UPM

STORA ENSO

IP

NORSKE SKOG

ABITIBI/BOWATER

4.4%

3.3%

15%

29%

copyright © 2007

TOP 5 NEWSPRINT SUPPLIERS1990 vs 2007 CAPACITY – NEWSPRINT

0

2000

4000

6000

8000

10000

12000

14000

16000

1990 2007

'000 tonnes

5%

4%

4%

16%

12%

5%

5%

4%

AVENOR

STORA FELDMUHLE

STONE-CONS.

FLETCHER CHALLENGE

ABITIBI PRICE

UPM

STORA ENSO

NORSKE SKOG

NIPPON

AbitibiBowater

6%

5%

24%

42%

copyright © 2007

HERFINDAHL-HIRSCHMAN INDEX - NEWSPRINT

0

500

1000

1500

2000

2500

3000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

1800

Japan

West Europe

North AmericaHHI above 1800 = Highly Concentrated

World

based on capacity shares

HHI 1000-1800 = Moderately Concentrated