First Quarter 2008

Exporting recovered fibres, in the first quarter of 2008 was a major challenge in balancing firm to strong export demands with changing monthly freight rates due to a variation in BAF & CAF rates and a highly volatile Dollar.

The strengthening of the Dollar, seen towards the end of 2007, was reversed within the first quarter, as Dollar/Sterling rates rose once again above 2, and the Dollar/Euro rates weakened from 1.46 to well over 1.55.

Demand into the New Year continued on a firmer basis, with export prices of most grades rising steadily. Projected demand from China & other Asian countries, for 2008 was positive with more new capacities being announced, particularly in China.

In the year 2007, total imports into China were in the region of 22.6million MT, of which America supplied some 10 million MT (44%), and Europe supplied 7.15 million MT (32%).

Year on year growth from 2006 to 2007 was just under 3 million MT – meaning 15% more recovered fibre was imported by China.

The growth in exports from Europe to China from 2006 to 2007 was 1.6 million MT, which is an increase of almost 30%.

Demand from other Asian countries (India, Thailand, Indonesia, Vietnam and many others) has also continued to grow.

During the current quarter we saw prices for European OCC strengthen from USD 210+ to USD245+, whereas US OCC prices moved from about USD225 to USD255+.

Exporters from USA were experiencing container shortage problems, and were therefore not able to meet the projected export volume for the quarter.

UK exporters were similarly affected, but with a shortage of vessel space, following the crane collapse at Southampton in January, which took many weeks to put right.

With the easing of the Winter, and increased availability of fibre, and the reduced container availability in the USA, we saw the first signs of a slight weakening in the price of fibre, generally.

Between mid to end March, we saw a small correction in USA OCC export prices, moving downwards from USD255+ to nearer USD250+. At the same time, European OCC prices adjusted from USD245+ to USD240+.

OCC exports from other regions (Japan, Australia, etc.) were adjusted likewise.

With the US recession and the sub-prime crisis, already filtering into weakness in the global stock markets, this will eventually have some impact on demand & liquidity within the industry.

The demand & supply trends in the second and third quarters will pose some new challenges for our industry, which like other industries, we will have to work hard to work through.

Finally, once again, the Shipping Lines have announced their intention of a possible freight increase between April and May, which besides the BAF & CAF increases will be another hurdle for us to overcome in the coming quarter.

FOURTH QUARTER 2007

October started with the imposition of a rather steep freight increase of USD600 per 40’ container, for all Main Ports and USD950 for exports to Thailand & Indonesia.

With the looming freight increases, Asian Mills had procured additional volumes in September, awaiting to see the effect of the increased freight rates, on European export prices.

The net effect of the increase was approximately USD27 perMT, requiring European OCC prices to be increased from the September prices of USD195 to USD220+, at a time when US prices were around USD215+.

With US prices consequently favourable, demand on US supplies increased, with prices rising from USD215 to USD225+, and as a result exports out of Europe during the first 2 weeks of October was greatly reduced.

The European merchants and the Asian Mills, mutually absorbed the freight increase to arrive at a workable position, resulting in increased European exports in the 2nd half of October, at export levels of USD210+ for OCC.

November saw a further increase in freight, with BAF moving upwards by USD30 per 40’ container, whilst the export prices were weak to firm for the month.

At the same time the Shipping Lines introduced increases in European haulage rates e.g. in UK this resulted in an average rise of USD100/150 per 40’ container. With Lines insistent on this increase, additional pressure was exerted on Merchants to absorb further costs to enable export levels to be sustained.

While export costs in Europe continued to increase, US prices weakened slightly by USD10 per MT, which forced down the European OCC prices to Far Eastern Main Ports close to USD200, thus making exporting difficult both for the Merchant as well as the Trader.

Export orders began to strengthen at these reduced price levels, and by the end of the month, prices were again on the way up, this time by around USD3-5, to USD203/205.

December saw again, another freight rise, with BAF going up by a further USD60 per 40’ container.

Between October & December we have seen a freight increase of USD90 being BAF, plus haulage increases of USD100/150 (in UK) and similar hikes in haulage costs throughout Europe.

Export prices were maintained at November levels, but costs continued to rise, thereby making exports a challenging exercise and export levels were only maintained at greatly reduced margins.

The only glimmer of good news that exporters enjoyed during this period was a noticeable strengthening of the US Dollar particularly in December.

This was however tempered by the news of a further BAF increase of around USD170 per 40’ container which was announced in December, to take effect from January 1st 2008.

Exports to the Indian sub-continent were equally affected by all of the above factors, but traders continually endeavoured to maintain export levels albeit at reduced margins,

In summary, we end a rather difficult 2007 on a subdued note and see 2008 as another challenging year ahead.