Hardwood Usage in the NW Pulp and Paper Industry Western Hardwoods Association Seminar, October 7, 2003

1. Hardwood Usage in the NW Pulp and Paper Industry Western Hardwoods Association Seminar, October 7, 2003 By Tim Gammell, Forest Resources Assn 10/03

2. So, let’s dive in ...

3. ROUGH Overview US Pulp and Paper Industry Production In the US, nearly 60 pulpmills have ceased using wood fiber since 1989

4. FRA Regions - based on timber types, operating conditions

6. US Domestic Pulpwood receipts by region, 2002

7. US Roundwood vs Chips(whole log and residual) by region, 2002

8. NW Pulp & Paper Industry 23 mills, ~ 11million BDTs consumed yearly, producing ~ 9.7 million tons of product (BC & Alberta: 30 mills producing ~ 11.5 million tons of product yearly)

9. Between 1989 and 2001, number of NW Pulp and Paper mills dropped from 35 to 23

10. Weyco/Norpac -- Longview Georgia Pacific -- Wauna Longview Fibre -- Longview Boise -- St. Helens Georgia Pacific -- Camas Blue Heron -- Oregon City SP News -- Newberg Georgia Pacific --Toledo Weyco -- Albany Pope & Talbot -- Halsey Export -- Roseburg, et al. Weyco -- Springfield Stockton Pacific - Samoa

11. Smurfit-Stone -- Missoula Potlatch -- Lewiston Boise -- Wallula  Kimberly Clark - Everett Daishowa America  PonderayNewsprint Port Townsend Paper Inland Empire--Spokane Weyco - Cosmo Simpson Paper

12. A wide variety of pulping methods and products . . . Kraft pulp -- bleached (2,000 pounds in -- 800-850 pounds out) • Boise - St. Helens Specialty Grades, Market Pulp, Tissue • Potlatch -- Lewiston Coated packaging, market pulp, Tissue/toweling Kraft pulp -- unbleached (2,000 pounds in -- 900-1,000 pounds out) • Georgia-Pacific -- Toledo Linerboard • Weyco -- Springfield Linerboard • Weyco -- Albany Linerboard, kraft paper • Longview Fibre -- Longview Linerboard, kraft paper • Smurfit-Stone -- Missoula Linerboard

13. Groundwood/mechanical pulp (2,000 pounds in -- 1,750-1,800 pounds out) • Ponderay News -- Usk Newsprint • Inland Paper -- Spokane Newsprint • SP Newsprint - Newburg Newsprint • Daishowa America - Port Angeles Telephone Directory • Blue Heron Paper - Oregon City Newsprint, Specialty, Bag paper • Georgia-Pacific -- Toledo Corrugating medium • Longview Fibre -- Longview Corrugating medium Semi-chemical pulp -- unbleached (2,000 pounds in -- 1,500-1,600 pounds out)

14. Other mills - finished products Georgia Pacific - Camas, WA Tissue, Specialties Simpson - Tacoma, WA Linerboard, Market Pulp, Unbleached Specialties Pope & Talbot - Halsey, OR Market Pulp Kimberly Clark, Everett, WA Tissue Port Townsend Paper - PT, WA Linerboard, Market Pulp Corrugated Medium Boise -- Wallula White papers, corrugating medium, market pulp Weyco - Cosmopolis, WA Market Pulp Weyco - Longview, WA Bleachboard (milk carton, etc), market pulp, fine paper ... Stockton Pacific - Samoa, CA Market Pulp

15. And Some Major Non-Pulp Fiber Users Medium density fiberboard (Plum Creek) Particleboard (Roseburg) Hardboard (Sierra Pine) BC & Alberta mills, by the way, are primarily (70%) producing market pulp - reflecting focus on export business and distance to markets. A major contrast to relatively diversified Western US mills’ product lines.

16. Iraq’s Sunni triangle

17. Western US “Chip-consuming rectangle” Over 6 of every 10 tons - hardwood fiber - is consumed here Nearly 4 of every 10 tons - all fiber - consumed here

18. Hardwood Usage • 10-11% of total NW consumption - average of the last three years • In 2002, hardwood consumed by NW pulpmills was 1.1 million Bone Dry tons out of total 10.8 million BDT Ten of 23 mills use hardwood. Of those, two use hybrid poplar plantation fiber exclusively, one is into a variety 5 of remaining 7 are in “chip consuming rectangle …”

19. Projected from YTD figures

21. Projected from YTD figures

22. Hardwood Usage - Why? Simply ... • Hardwood usage linked primarily to finished product. • Shorter, smaller diameter fibers fill in imperfections of paper product made from longer larger softwood fibers, providing smoother surfaces for printing, adherence. • hardwood fiber helps absorption, pliability

23. Observations: #1 Fixed costs of paper production high - to get a perspective on capital investment for a sustainable healthy mill: 28 days production to cover costs, profit (if any) is what is made on the last day or two of the month. February is a loser month #2 Cost per ton is [ultimately] key for company decisions, internally and internationally, to make money and re-invest.

25. Mill B - cost of $425 per ton PROFIT PROFIT LOSS

26. Mill F - cost of $480 per ton PROFIT LOSS

27. Terms of Activity: Refocus, reposition, rebuild, replace, expand, sell, trade,

28. #3 There is a life cycle of mills - and a corresponding management outlook for each phase … commodity, ample investing, core business focus, lagging investment, shutdown or buyout, niches - openness to trying new sources, tenacity ...

29. Out West ... #4 Supply of residual chips drives basic existence of pulp mills overall - to clean up after solid woods production #5 Hardwood adds value to diversified products - a plus for overall mill stability.

30. #6 Available fiber important to begin with ..., an abundance however doesn’t trump a decision to close a facility - that is based on other components in the all important cost per ton (wood costs, energy, capitol investment, labor, product markets, personality of CEO/management, & shareholder expectations)

31. Summary #1 Overall, making a living in paper these days is tough ... #2 Pulp mills like “cheap” residuals first. Because hardwood supply has traditionally come from whole log chipping, relative cost is a disincentive ... Questions?