First Quarter 2009 Report

2009 has brought with it the dreaded confirmation that we are in a global recession with businesses having to fight an increasing credit squeeze supplemented by weakening consumer demand. We are seeing press headlines talking of Recession, Deflation, Rising Unemployment and Protectionism. Tackling this Global Economic uncertainty is the biggest challenge facing us today.

2009 will go into history as the year of Deepest Global recession since the 1930s with businesses remaining depressed without any prospect of a meaningful recovery in the near future. Factories are cutting both Staff & Output with a view to maintaining low inventory levels.

China is today facing lower economic growth as export demand has slowed down compared to the high levels of the first half of 2008. Both China and India have been forced to revise their GDP for 2009 to levels of 6 to 7%.

Exports of Recovered Fibre which reached very low levels in the last quarter of 2008, staged a recovery in January 2009. Demand levels became more firm albeit at slightly lower levels then the first qtr of 2008. Domestic demand within the Asian economies continued to remain firm.

During Jan & February exports to China, India, Indonesia, Thailand and other Asian Countries continued to grow assisted by favourable freight rates and the strengthening dollar. European OCC prices moved up from USD 75/80 in Nov / Dec 08 to levels of USD 90/95 by the end of the current quarter. Stocks of New Paper at the Paper Mills were high due to weakening prices and weak demand. Demand for other grades – Mixed Waste, News and Pams and all middle grades were equally showing increasing levels of activity.

Banks have imposed big increases in costs for processing, discounting and payment under Letters of Credit due to the current Banking / Credit crisis. This additional cost makes export pricing even more challenging.

Our key Partners, Shipping Lines, have also announced freight increases to take effect between 01 March & 01st April with further increases to follow. Additionally many of the Lines have found it necessary to withdraw 15 to 25% of the ships operating the Europe Asia Service due to lack of cargo. This will eventually affect availability of space on the ships in the second quarter.

Both India and Indonesia are planning to bring in stricter quality controls on Imported Fibres. The Ministry of Trade of Indonesia has already issued a Decree in December that requires all fibre shipments arriving in Indonesia as of the 24th of June 09 to have been pre inspected either by SGS or Bureau Veritas to ensure Recovered Fibre and not Waste is imported. Similarly India is currently examining ways of controlling Recovered Fibre imported into India to ensure it meets their quality specifications.

The good news is that Global Consumption of Paper is to continue, maybe at slightly reduced levels during this period of recession, and therefore there will be a continued demand for fibre. . With weakening demand and falling prices of New Paper, exports of Recovered Fibre will continue but at lower price levels and increasing costs from all our key partners – the Banks and the increasing freight rates.