Cut Sheet Market Update

Current Supply Situation

2

Contents

Dynamics affecting paper supply & pricing Economic Downturn Exchange Rate Raw Materials

Manufacturing base overview Consolidation Mill Closures

Outlook Short to medium term prognosis

Economic DownturnEuropean Paper Market

4

-15%

-12%

-24%

-2%

-11%

-15%-10%

-14%-9%-12%

-23%

-14%

-15%-11%

-6%

-18%

-17%

-12%

-12%

-19%

Significant year on year decline in volumes in all European countries – But growth in other areas

Source: Eugropa - Merchant total sales volumes YTD Nov ’09 vs. PY

Unprecedented market conditions

5

Paper Production Decreased

Economic downturn and associated paper volume decline. Massive over capacity in the Market Mills opt for machine closures

A large number of paper mills have ceased production removing 2,441,000 tonnes from the supply chain

Country Mill Group Capacity Country Mill Group CapacityFrance IP, Marasquel 85,000 France Paperteries de Chatelles 40,000Sweden Klippan, Molndal 20,000 UK Garnett, Otley 15,000Sweden Klippan, Molndal 30,000 UK Sappi, Nash Mill 36,000UK Thompson, Sunderland 30,000 UK Smith Anderson, Leslie 50,000UK Arjo Wiggins, Fort William 75,000 UK Townsend Kappa, Snodland 55,000UK Inveresk, Carrongrove 40,000 Germany Cordier, Salach 80,000Finland UPM, Voikkaa 410,000 Germany Scheufelen, Oberleggenen 15,000Finland UPM, Kymmene 150,000 Netherlands Favinni, Meerssen 10,000Finland UPM, Jamsankoski 120,000 Sweden Klippan, Klippan 60,000Finland StoraEnso, Varkaus 95,000 Netherlands StoraEnso, Bergheizer 235,000Norway CPG, Hunsfos 10,000 UK M_real, Sittingbourne 210,000France Paperteries de Cran 45,000 Germany M_real, Gohrsmuhle 100,000France StoraEnso, Corbehem 250,000 Sweden M_real, Wifsta 175,000

2,441,000Estimated European Capacity Reduction

Financial DynamicsExchange Rate Effect

7

1

1.1

1.2

1.3

1.4

1.5

1.6

Jan-

07

Feb

-07

Ma

r-07

Ap

r-07

Ma

y-07

Jun-

07

Jul-

07

Aug

-07

Sep

-07

Oc

t-07

No

v-07

De

c-0

7

Jan-

08

Feb

-08

Ma

r-08

Ap

r-08

Ma

y-08

Jun-

08

Jul-

08

Aug

-08

Sep

-08

Oc

t-08

No

v-08

De

c-0

8

Jan-

09

Feb

-09

Ma

r-09

Ap

r-09

Ma

y-09

Jun-

09

Jul-

09

Aug

-09

Sep

-09

Oc

t-09

No

v-09

De

c-0

9

Jan-

10

Feb

-10

Ma

r-10

Ap

r-10

Euro

s to

GBP

Exchange Rates

We are all aware of how the £GBP has weakened against the €uro. There are no manufacturers of Copier Paper in the UK today – all

product is imported.

Mills attempting to recover pro-

longed loss making period

8

Net Mill Selling Prices

Average selling prices into main paper markets - indexed

UK 7.79

France 8.04

US 8.50

Italy 7.87

Germany 8.30

Brazil 9.30

Spain 8.10

Raw MaterialsPulp Pricing

10

Impact of Pulp Price Increase on Paper

Production Cost vs. Paper Price Development

-50

0

50

100

150

200

Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Impact of pulp price on paper production cost per ton Change in paper price

Projection according to RISI’s forecast

Projection according to

announced increases

Change vs. October, €/tn

11

Pulp Price - Benchmarking

300

400

500

600

700

800

900

1000

1100

18/0

7/20

0622

/08/

2006

26/0

9/20

0631

/10/

2006

05/1

2/20

0609

/01/

2007

13/0

2/20

0720

/03/

2007

24/0

4/20

0729

/05/

2007

03/0

7/20

0709

/08/

2007

11/0

9/20

0716

/10/

2007

20/1

1/20

0727

/12/

2007

29/0

1/20

0804

/03/

2008

08/0

4/20

0813

/05/

2008

17/0

6/20

0822

/07/

2008

26/0

8/20

0830

/09/

2008

04/1

1/20

0809

/12/

2008

13/0

1/20

0817

/02/

2009

24/0

3/20

0928

/04/

2009

02/0

6/20

0907

/07/

2009

11/0

8/20

0915

/09/

2008

20/1

0/20

0924

/11/

2009

29/1

2/20

0902

/02/

2010

09/0

3/20

1013

/04/

2010

18/0

5/20

1022

/06/

2010

$USD

/Mt

Softwood Softwood (RISI forecast)Hardwood Hardwood (RISI forecast)

• Pulp price currently comprises 60% of variable manufacturing cost of standard WFU paper

12

Global Shortage

8% of global pulp supply became to halt for an indefinite period

immediate

shortage of pulp

Manufacturing BaseHow are the Mills handling the economic

downturn and declining returns ?

14

Production Consolidation

10 Years Ago

10 Manufacturers

70% of Supply

Today

6 Manufacturers

88% of Supply

•UPM•Stora•MReal

•GPS•Mondi•IP

15

Industry Order Flow v Production

Capacity Cumulative WFU order inflow in 2010 is 17% higher than production capacity

125,000

150,000

175,000

200,000

225,000

1 2 3 4 5 6 7 8 9 10

practical production capacity

16

Capacity v Demand

85%86%

88%

91%90%

92%93%

94% 94%

97%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Mill

Util

isa

tion

%

-1,000

1,000

3,000

5,000

7,000

9,000

11,000

13,000

Vo

lum

e 0

00's

to

nn

es

Utilisation

Demand

Capacity

Continued growth in demand for printing and writing papers combined with the increased utilisation rates by the mills (due to excess capacity being taken out of the market) is demonstrated by the shrinking gap between the demand and capacity lines.

17

Paper Production Decreased

Economic downturn and associated paper volume decline. Massive over capacity in the Market Mills opt for machine closures

A large number of paper mills have ceased production removing 2,441,000 tonnes from the supply chain

Country Mill Group Capacity Country Mill Group CapacityFrance IP, Marasquel 85,000 France Paperteries de Chatelles 40,000Sweden Klippan, Molndal 20,000 UK Garnett, Otley 15,000Sweden Klippan, Molndal 30,000 UK Sappi, Nash Mill 36,000UK Thompson, Sunderland 30,000 UK Smith Anderson, Leslie 50,000UK Arjo Wiggins, Fort William 75,000 UK Townsend Kappa, Snodland 55,000UK Inveresk, Carrongrove 40,000 Germany Cordier, Salach 80,000Finland UPM, Voikkaa 410,000 Germany Scheufelen, Oberleggenen 15,000Finland UPM, Kymmene 150,000 Netherlands Favinni, Meerssen 10,000Finland UPM, Jamsankoski 120,000 Sweden Klippan, Klippan 60,000Finland StoraEnso, Varkaus 95,000 Netherlands StoraEnso, Bergheizer 235,000Norway CPG, Hunsfos 10,000 UK M_real, Sittingbourne 210,000France Paperteries de Cran 45,000 Germany M_real, Gohrsmuhle 100,000France StoraEnso, Corbehem 250,000 Sweden M_real, Wifsta 175,000

2,441,000Estimated European Capacity Reduction

Outlook

19

Outlook

Unless Ex Mill market pricing reaches sustainable levels supply into the UK will continue to be restricted. Exchange rate – 2 year 27% differential Capacity Price Inflation - Pulp Mills currently actively switching production from Cut Sheet to

other products that give better return e.g. Envelope Base Further price increases notified from May/June

MReal UPM Stora IP Mondi Steinbeis – April, May & September

Mills already talking about September