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

So, let’s dive in...

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

FRA Regions - based on timber types, operating conditions

US Domestic Pulpwood receipts by region, 2002

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

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)

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

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

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

A wide variety of pulping methods and products... Boise - St. Helens Specialty Grades, Market Pulp, Tissue Potlatch -- Lewiston Coated packaging, market pulp, Tissue/toweling Kraft pulp -- bleached (2,000 pounds in pounds out) Kraft pulp -- unbleached (2,000 pounds in ,000 pounds out) Georgia-Pacific -- ToledoLinerboard Weyco -- SpringfieldLinerboard Weyco -- AlbanyLinerboard, kraft paper Longview Fibre -- LongviewLinerboard, kraft paper Smurfit-Stone -- MissoulaLinerboard

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 Groundwood/mechanical pulp (2,000 pounds in -- 1,750-1,800 pounds out) Georgia-Pacific -- ToledoCorrugating medium Longview Fibre -- LongviewCorrugating medium Semi-chemical pulp -- unbleached (2,000 pounds in -- 1,500-1,600 pounds out)

Georgia Pacific - Camas, WATissue, Specialties Simpson - Tacoma, WALinerboard, Market Pulp, Unbleached Specialties Pope & Talbot - Halsey, ORMarket Pulp Kimberly Clark, Everett, WATissue Port Townsend Paper - PT, WALinerboard, Market Pulp Corrugated Medium Boise -- Wallula White papers, corrugating medium, market pulp Weyco - Cosmopolis, WAMarket Pulp Weyco - Longview, WABleachboard (milk carton, etc), market pulp, fine paper... Stockton Pacific - Samoa, CAMarket Pulp Other mills - finished products

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.

Iraq’s Sunni triangle

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

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 Hardwood Usage 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 …”

Projected from YTD figures

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 Hardwood Usage - Why? Simply...

#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. Observations Observations : February is a loser month #2 Cost per ton is [ultimately] key for company decisions, internally and internationally, to make money and re-invest.

PROFIT LOSS Mill B - cost of $425 per ton

PROFIT LOSS Mill F - cost of $480 per ton

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

#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...

#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. Out West...

#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)

Summary Questions? #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...