Forecasting U.S. Demand for Uncoated Free Sheet

Memphis Area SAS User’s GroupFebruary 18, 2005

Tom NunnikhovenInternational Paper, Memphis

Business Modeling & Optimization Services(901)419-7564

Topics

• Uncoated Free Sheet – What it is• Historical Demand • Industry Segments• Consumption Patterns and Forecasts by Segment• UFS Forecast for 2003 and Results

US TOTAL UFS PAPER DOMESTIC SUPPLY THE 70s, THE 80s, AND THE 90s

' 'P&CP UFS DEMAND STUDY. PROGRAM: US33.SAS.

M T

ON

S

1000

1500

2000

2500

3000

3500

4000

'

72Q1 77Q1 82Q1 87Q1 92Q1 97Q1 02Q1 07Q1

US TOTAL UFS PAPER DOMESTIC SUPPLY WE REACH THE NEW MILLENIUM...

' 'P&CP UFS DEMAND STUDY. PROGRAM: US33.SAS.

M T

on

s

1000

1500

2000

2500

3000

3500

4000

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72Q1 77Q1 82Q1 87Q1 92Q1 97Q1 02Q1 07Q1

UFS Domestic Supply Average Rates of Change

Year Annual Change

1972 – 1979 +3.6%

1981- 1989 +4.0%

1990 – 1999 +2.1%

2000 -1.4%

2001 -7.4%

2002 -1.2%

2003 ???

Uncoated Free Sheet Industry Segments

• Printing• Envelope• Business• Forms• Tablet• Other

Prospects Differ Greatly Between Segments …

-

TABLET PAPER DOMESTIC SUPPLY

' 'P&CP UFS DEMAND STUDY. PROGRAM: US33.SAS.

M T

on

s

0

25

50

75

100

125

150

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72Q1 77Q1 82Q1 87Q1 92Q1 97Q1 02Q1 07Q1

BUSINESS PAPER DOMESTIC SUPPLY

' 'P&CP UFS DEMAND STUDY. PROGRAM: US33.SAS.

M T

on

s

0

250

500

750

1000

1250

1500

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72Q1 77Q1 82Q1 87Q1 92Q1 97Q1 02Q1 07Q1

Segments Have Consistent Relationships with U.S. Economic Metrics

TABLET PAPER CONSUMPTION RATE

' 'P&CP UFS DEMAND STUDY. PROGRAM: US33.SAS.

To

ns / $

Billio

n G

DP

, 1996$

0

25

50

75

100

125

'

72Q1 77Q1 82Q1 87Q1 92Q1 97Q1 02Q1 07Q1

BUSINESS PAPER CONSUMPTION RATE

' 'P&CP UFS DEMAND STUDY. PROGRAM: US33.SAS.

To

ns

/ M E

mp

loye

es

0

5

10

15

20

25

'

72Q1 77Q1 82Q1 87Q1 92Q1 97Q1 02Q1 07Q1

Method for Forecasting UFS

• For each segment– Model consumption rate per unit– Project the U.S. economy component– Project the segment demand based on this

BUSINESS PAPER CONSUMPTION RATE TONS PER 1000 EMPLOYEES, HIGH PAPER-CONSUMING OCCUPATIONS

TRENDLINE: -3.13 + 0.63 * YEAR, R-SQUARED = 0.97P&CP UFS DEMAND STUDY. PROGRAM: US33.SAS.

TO

NS

/ M

EM

PL

OY

EE

S

0

5

10

15

20

25

'

72Q1 77Q1 82Q1 87Q1 92Q1 97Q1 02Q1 07Q1

Employment, High-Paper Consuming Occupations, Seasonally Adjusted (Manufacturing; Finance, Real Estate, Insurance; Government, Health, Education)

_______ Actual. ------- DRI (Global Insights) ForecastP&CP UFS DEMAND STUDY. PROGRAM: US33.SAS.

M E

mp

loye

es

40000

42500

45000

47500

50000

52500

55000

57500

60000

62500

65000

'

72Q1 77Q1 82Q1 87Q1 92Q1 97Q1 02Q1 07Q1

UFS Business Paper Domestic Supply Fitted to Employment in High Paper Consuming Occupations

_______ Actual. ----- Projected from Trend in Tons / M EmployeesP&CP UFS DEMAND STUDY. PROGRAM: US33.SAS.

M T

on

s

0

250

500

750

1000

1250

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1750

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72Q1 77Q1 82Q1 87Q1 92Q1 97Q1 02Q1 07Q1

Total UFS Domestic Supply is Projected from the Six Segments Combined

US TOTAL UFS PAPER DOMESTIC SUPPLY

_______ Actual. ----- FITTED AND FORECASTP&CP UFS DEMAND STUDY. PROGRAM: US33.SAS.

M T

ON

S

1000 1250 1500 1750 2000 2250 2500 2750 3000 3250 3500 3750 4000

'

72Q1 77Q1 82Q1 87Q1 92Q1 97Q1 02Q1 07Q1

Results

• Change in UFS Domestic Supply, 2003

– Projected: -1.1%

– Actual: -0.9%

• Results for 2004:

– Projected: -0.7%

– Actual: +0.3%