Paper & Packaging Monitor

Transcription

1 1 Paper & Packaging Monitor (Inventory & Equipment) 1

2 Trend 1 Tracker Paper Packaging Paper / Printing / Bindery NOLVs Sales Trends Gross Margin Inventory Market Prices Three Months Year Used Pricing Used Trade Movement OEM Pricing Technology Advancement Auction Activity Paper Packaging Pulp NOLVs: Paper NOLVs have slightly increased as companies have better aligned on-hand inventory levels with customer demand. Packaging NOLVs have remained consistent as a result of a lack of major industry changes in recent months. Sales Trends: Paper sales trends are mixed as demand in the paper industry remains measured from end-users, with companies consolidating to spur demand. Packaging sales trends have increased as demand increased for boxboard, particularly in December Contract packaging continues to see an increase in demand due to growth in the food service and construction sectors. Gross Margin: Paper gross margins have remained consistent as producers continue to maintain lean operations and reduce operating costs as much as possible. Packaging gross margins have also remained consistent for boxboard producers due to stable market prices. Used Pricing: Overall prices have generally remained consistent, as the market for higher-quality sheet-fed equipment has maintained demand despite the onset of digital media. However, electronic information delivery has caused demand for lower-end web press and bindery equipment to decrease. Used Trade Movement: In line with falling demand, equipment in the print and bindery sectors has seen decreased movement, particularly for older equipment. OEM Pricing: Pricing on new machines has been consistent. Potential remains for OEMs to lower prices in order to attract endusers away from the used equipment market and into the market for new equipment. Technology Advancement: Technological advancement has remained consistent, with little to no technological advancement announced publicly. Auction Activity: The advent of digital delivery systems has led to business failures that have resulted in increased auction activity in the second half of Inventory: Mill inventories are mixed as levels of newsprint declined in late 2014 but remained well above levels a year ago; however, mills are seeing relatively flat to slight decreases in printing and writing paper inventories. Overall box inventory levels have increased at box plants, particularly during December Pricing: Pricing is consistent for both uncoated and coated printing and writing papers, as most grades have remained flat since mid Packaging pricing is also consistent, as boxboard suppliers have held prices flat since April Pricing for both softwood pulp and hardwood pulp decreased due to a pullback in demand from offshore markets, which resulted in a supply glut and a cut to domestic pricing levels. 1

3 Overview 2 The paper and packaging industry experienced both ups and downs over the past several months. The growing economy boosted demand for the boxes used to ship myriad goods across the country, although a slowdown at West Coast ports due to a labor dispute slightly dampened the economic growth. Newspapers continued to be shunned in favor of online news content, which caused newsprint demand to fall further. Printing and writing paper demand, meanwhile, has been largely consistent, as it is more resistant than newsprint to digital competition. Some domestic office-paper industry players are suffering from the impacts of overseas competition. A group of the domestic players accuse foreign governments of unfairly protecting their paper producers, allowing them to undercut U.S. paper suppliers. Pulp, meanwhile, the key ingredient for an assortment of paper and packaging products, took a hit due to decreased demand from China, resulting in a supply glut in the U.S. Even for products that have experienced increased demand, producers have largely been reluctant to raise prices. This is due to the fear of a pushback by buyers because of reduced energy costs as a result of a decrease in oil prices and a strong dollar. The strong dollar has made buying products from the U.S. more expensive, particularly for foreign buyers. In one notable consolidation, Verso Paper Corp. ( Verso ) in February announced the completion of its acquisition of its larger rival NewPage Holdings ( NewPage ) in a $1.4 billion deal. Verso cited increased competition from electronic substitution and overseas competition as reasons driving its acquisition. In the retail arena, Staples, Inc. ( Staples ) recently announced plans to acquire its chief rival Office Depot, Inc. ( Office Depot ). Staples first proposed the move in 1997, which was rejected by the U.S. Federal Trade Commission ( FTC ). Today, however, with competition from internet retailers, most notably Amazon.com, Inc. ( Amazon ), some analysts predict the deal will be approved this time around. Consolidation continued to be a major tool companies used to thrive in an uncertain environment. However, consolidation also resulted in uncertainty among smaller players, who postponed major pricing increases and other announcements as they apparently waited for the industry s economic landscape to become clearer. 2

4 Overview 3 The performance of printing and writing papers has varied by grade over the past several months, while the bad news continues for newsprint. The market for coated mechanical ( CM ) papers, which have a glossy look and are often used for magazines and catalogs, has been relatively robust, despite a decrease in magazine sales in the second half of The market for coated freesheet ( CFS ) paper, meanwhile, has been weaker. CFS papers are considered to be the highest quality printing papers available. They are very smooth and can produce very high resolution prints. CFS papers are commonly utilized for illustrated books, demand for which has been declining due largely to the popularity of tablet computers such as Apple, Inc. s ipad. According to information from the American Forest & Paper Association ( AF&PA ), total U.S. printingwriting paper shipments decreased year-over-year from August through December 2014, indicating market weakness. In addition, some industry sources reported shipping delays due to rail car shortages. However, the industry s performance was not identical by grade. CM papers, in particular, had a strong showing, while other grades lagged. From August through December, uncoated freesheet ( UFS ) shipments decreased every month, including significant decreases of 11% in August and 12% in October, while CFS shipments decreased every month except for December, when the grade increased 1%. For the mechanical grades, uncoated mechanical ( UM ) shipments increased from August to October but decreased in November and December, while CM shipments registered increases in August and December and decreases in September and November. CM demand was flat in October. Early indicators from AF&PA also indicate a sluggish showing for paper grades in January As a result of the difficult UFS market, some domestic paper producers, including Domtar Corporation ( Domtar ), were prompted to seek redress for unfair competition. The domestic companies recently accused office-paper producers in five countries Australia, Brazil, China/Hong Kong, Indonesia, and Portugal of violating trade agreements, according to industry research firm RISI, Inc. ( RISI ). The U.S. producers are asking the U.S. government to implement antidumping duties, or tariffs, in order to protect the domestic paper industry. The foreign competitors are being subsidized by their respective governments, the U.S. companies say, which gives them an unfair advantage over U.S. paper producers, particularly when it comes to cutsize office and copy paper. The U.S. International Trade Commission ( ITC ) is expected to issue a preliminary decision in the spring of The paper in question, UFS, is used for a variety of items, such as office paper, books, and envelopes. The U.S. market for the type of uncoated paper involved in the complaint is estimated at $4.5 billion a year, according to Domtar. In the first nine months of 2014, imports of such paper from the accused countries were up 40% versus a year earlier despite declining demand in the U.S., according to RISI. In defense of the accusations levied by the U.S. producers, Michael Shor of industry giant Asia Pulp & Paper said at a February ITC hearing, If your business strategy is continually to reduce capacity and production to improve profitability in the face of a secular decline in demand, you cannot point to the decline in production and shipments as an indicator of injury. These declines are deliberate and planned. When it comes to newsprint, demand has declined in recent months not simply because of falling newspaper readership, but also because of a strong U.S. dollar, oversupply, particularly in the western U.S., and excess inventory taken by some publishers in the fall of 2014, according to RISI. The downturn in newsprint continued into January and February. 3

5 Overview 4 But even if domestic newsprint demand improves in the short-term and consumers clamor for news from trusted, established journalism sources over the long term, there is little doubt that the trend for domestic newsprint is downward. For instance, according to the World Trends Survey, published by the World Association of Newspapers and News Publishers, print circulation in the U.S. dropped 10.3% over the last five years as consumers migrated to digital devices to read the news. Even newspaper companies are trying to move away from physical copies of their content and establish a profitable online presence. In contrast, newsprint demand continues to rise in developing countries with a growing middle class, such as China and India, where tablet computers and e-readers, such as Amazon s Kindle, are not yet common. Nonetheless, the developing offshore market has recently taken a hit due to oversupply issues and a strengthening U.S. dollar, which has resulted in steep declines recently in North America s newsprint exports. For instance, North American newsprint exports declined a significant 18.4% in January 2015 versus January The paper industry over the past several months has been marked by capacity closures as a result of a decline in demand, increased efficiency, productivity, and operational improvements due to consolidation efforts, such as Staples proposed purchase of Office Depot and Verso s acquisition of NewPage. This has resulted in a smaller industry that is regularly producing decent profit margins, PPI Pulp & Paper Week reported. As stated by David Paterson, Verso s president and chief executive officer: We continue to face increased competition from electronic substitution for print and international producers, but as a larger, more efficient organization with a sustainable capital structure, we will be better positioned to compete effectively and deliver solid results despite the industry s continuing challenges. Printing-Writing Paper Shipments (Metric Tons in 000s) February 2014 Through January ,550 1,500 1,450 1,400 1,350 1,300 4

6 Overview 5 Corrugated and solid fiber boxes are the shipping containers utilized to ship a variety of goods due to their affordability, lightness, and the protection they offer. As a result, U.S. box shipments tend to rise in line with the growth of the gross domestic product ( GDP ), the value of all goods and services in the country. According to the U.S. Commerce Department, the U.S. GDP increased at a 5% seasonally adjusted annual rate in the third quarter of 2014, its strongest increase since The increase was partly due to rising consumer spending as a result of improving incomes and falling gasoline prices. The growth was primarily boosted by consumer spending on health care and restaurant meals, business investment in equipment and new software, as well as a rise in exports, according to the Wall Street Journal. The GDP did slip a bit during the fourth quarter of 2014, partly due to the rising dollar. Nonetheless, the GDP still registered an increase of 2.2%, which is a vast improvement over the way the year started, with a negative rate of growth in the first quarter. The fourth quarter s GDP was negatively impacted somewhat by the labor dispute at West Coast ports, with some analysts saying the dispute may have decreased the GDP s rate of growth in the fourth quarter by 1%. The dispute resulted in cargo ships waiting at West Coast U.S. ports long beyond their delivery and pickup schedule. An agreement was reached in late February, which resulted in the cargo traffic flowing smoothly once again. According to the National Retail Federation ( NRF ), 2014 s total holiday retail sales, which include November and December sales, increased 4% to $616.1 billion. Although slightly below forecasts, holiday retail sales reached their highest level since 2011, the NRF noted. As a result of the growing economy, U.S. box shipments also showed strength for a third consecutive month in October, according to the Fibre Box Association ( FBA ). In addition, box shipments were up 3.6% on an average-week basis in November 2014 versus the prior year. In December, FBA data showed that U.S. box shipments were 5.1% higher versus the same month in On the production side, containerboard creation lagged in August and September but picked up from October to January. December s production was particularly strong, likely due to a robust holiday selling season, with containerboard production 5.3% higher than November s figure and 6.9% higher than December of Containerboard is a type of paperboard used in the production of corrugated board, which is used to make boxes. The term encompasses both linerboard and corrugating medium, also called fluting, which are the two types of paper that make up corrugated board. Total boxboard production has been mixed over the past several months. Boxboard refers to a thick foldable paperboard that is typically used as packaging for other consumer products, such as cereal boxes, shoe boxes, paper towel rolls, toilet paper rolls, 12-pack beverage containers, toothpaste boxes, and other items. For instance, production increased on a month-over-month basis and yearover-year basis in August and November, but decreased on a month-over-month basis and yearover-year basis in October and November. 5

7 Overview 6 Box Shipments (Tons in 000s) February 2014 Through January

8 Recent 7 Appraisal Trends Overall paper recovery values have increased since the publication of the prior Paper & Packaging Monitor in August The increase is attributed to companies better managing their on-hand inventories in order to correspond with current customer demand. High levels of supply beyond current customer demand typically result in discounts in order to sell through the extra inventory within the term of a liquidation sale. Consolidation efforts continue to take place, such as Verso s acquisition of NewPage and Staples proposed acquisition of Office Depot. Consolidation allows companies to survive shrinking gross margins by increasing their sales volume. Consistent with the previous edition of the Paper & Packaging Monitor, declining demand at home for certain paper grades, particularly newsprint, has U.S. producers searching for additional demand in overseas markets. However, newsprint shipments overseas have been relatively limited in recent months due to oversupply issues, a strong dollar, and the nowresolved West Coast port dispute, which contributed to an inventory glut. GA s experience indicates that more generic paper categories typically achieve higher recovery values on a cost basis, while paper categories that consist of uncommon colors or grades, or are customized in some way, recover less unless they are tied to a purchase order or customer contract. Demand for such customized goods is generally extremely limited beyond their intended customers due to these goods specialized nature. Recovery values for pulp generally declined in the months since August 2014 due to decreasing market prices. However, market prices for a few grades improved slightly in early 2015, while others decreased. Pulp is a commodity product that is used to produce wood-based goods, primarily paper and paperboard, which maintain a variety of uses. As a result, appraisals for pulp largely depend on market prices. The consumption of wood pulp correlates with overall economic trends, as consumers purchase more packaged goods when the economy is growing. Pulp consumption can also be affected by technology, as the proliferation of digital devices consumers use to obtain media content can reduce demand for paper and, by extension, pulp. Approximately 50% of all produced paper is utilized for packaging, followed by printing, and writing. In appraisals involving pulp, the inventory at cost is compared to spot or contract market prices as well as competitors inventory at cost. Recovery values for pulp take into consideration discounts applied based on demand, availability, the types and size of customers, as well as spot and market prices. Recovery values for chips and wood have remained consistent since August 2014 as a result of stable market prices. Like pulp, chips and wood are commodity in nature and subject to market price fluctuations. Woodchips are often used as a biomass solid fuel and are raw materials for producing wood pulp. These goods are available via numerous local, regional, and national vendors in North America. Because of their wide availability, chips and wood generally achieve lower recovery values, with discounts necessary to encourage large purchases. Recovery values for packaging have been consistent since August High supplies and increased demand due to the growing economy offset each other and resulted in stable industry conditions. In GA s experience, custom packaging products generally experience lower recovery values unless they are tied to contracts that obligate customers to purchase their related custom goods, as such items maintain limited distribution channels outside of their intended customers due to their specialized nature. GA considers various other factors when developing recovery values for custom items, including contract terms, stocking agreements, lead times for customers to secure an alternative supplier, and whether the company is the sole supplier of inventory to its customers. 7

9 Pricing 8 Trends Pricing for both softwood pulp and hardwood pulp largely decreased in the summer and fall of 2014 as a result of a reduction in demand from offshore markets, most notably China. This decline in offshore demand resulted in a supply glut and a reduction in domestic pulp prices. The pace of price declines intensified for northern bleached softwood kraft ( NBSK ) and southern bleached softwood kraft ( SBSK ) from December 2014 to January 2015, while other grades began to recover. American buyers, aware of the impact of the strong dollar, rising pulp inventories, and the fact that pulp list prices are moving slowly, showed further resistance to price increases in February, RISI noted. According to PPI Pulp & Paper Week, the disparity between contract pulp prices and spot prices resulted in many U.S. buyers taking only their minimum contract pulp allocations and filling the gap with less expensive pulp via the spot market. For instance, U.S. NBSK spot prices were $650 to $690 per metric ton in January, which was approximately 34% lower than contract tonnage prices, according to information from PPI Pulp & Paper Week. This trend has increasingly resulted in buyers looking for the best deal from non-contract pulp suppliers. A similar situation has taken place for SBSK pulp, which took a double hit from additional supply and slower demand from China. According to RISI, some SBSK producers believe the price difference between NBSK and SBSK could lead more U.S. buyers to purchase SBSK instead of NBSK. Some of industry insiders pointed out that U.S. SBSK spot prices were $40 lower than NBSK and the effective list price difference was $50. RISI noted that market pulp conditions further eroded at the beginning of 2015 due to mills running full bore despite uneven demand, which resulted in further downward pressure on prices for some pulp grades. After largely decreasing over the past several months, northern bleached hardwood kraft increased slightly from January to February. Another pricing bright spot for pulp came via bleached eucalyptus kraft, which increased from September 2014 to February However, some RISI contacts reported significant pushback against the increase from U.S. buyers in January. $1,050 Pulp Average List Price Per Metric Ton March 2014 Through February 2015 $1,000 $950 $900 $850 $800 8

10 Pricing 9 Trends Pricing has been consistent since August for both uncoated and coated printing and writing papers, with the exception of a few coated grades increasing slightly during January The market for CFS has been weaker than the market for CM, with CFS demand and prices basically flat over the past several months. After remaining relatively stagnant from August through October, CM demand registered price increases later in CM paper prices, in turn, rose slightly from November through February. UFS prices, meanwhile, were unchanged from August through February, with the exception of 50-pound offset rolls, which decreased slightly from December to January. UM prices were largely stable from August through February; however, a couple grades registered slight price increases. RISI s industry sources said there was a desire by some producers to increase prices late in 2014; however, producers remained cautious about raising prices and focused on maintaining market share following Verso s acquisition of NewPage Holdings, Inc. After the acquisition was complete in January, Verso now owns over 50% of North America s CFS capacity and 24% of the region s CM capacity, RISI noted. However, on January, 30, 2015, Verso announced $20- to $40-per-ton price increases on all of its CFS, CM, supercalendered, and economy sheet products, which are expected to embolden competitors to also raise prices. Producers planned price increases of $20 to $60 per ton for CM starting in January have not been applied in some instances due partly to concern about consolidation among major industry players, most notably Catalyst Paper Corporation s ( Catalyst ) purchases of various paper mills, according to RISI. These purchases have resulted in a significant portion of North America s No. 5 CM paper capacity being owned by Catalyst. The already struggling North American newsprint market, meanwhile, experienced even more problems in February, particularly related to supply and demand, according to RISI. Industry insiders said there has been no relief from price erosion triggered in November by market weakness that slowly spread eastwards across the U.S. Some analysts told RISI that there is approximately twice as much newsprint capacity versus demand in the Western U.S. This, coupled with digital substitution among news consumers, has severely impacted the newsprint market. Newsprint is essentially in the midst of a buyer s market, with purchasers utilizing the oversupply issue as leverage over pricing. Buyer and seller sources told RISI that newsprint prices eroded at least $10 per metric ton from January to February, with a $15 decline possible in March. Newsprint prices were unchanged from August to October before taking a dive from November to February. In February, the price for 30-pound newsprint was $526 per ton in the Eastern U.S. and $513 per ton in the Western U.S., while 27.7-pound was $562 per ton in the east and $549 per ton in the west, according to February s PPI Pulp & Paper Week Price Watch survey. The one spike in demand for the newsprint industry over the past year came after a tragedy. The shooting of journalists at the French satirical newspaper Charlie Hebdo in January by religious extremists increased newsprint demand in France temporarily as the public rallied to support the publication. According to PPI Pulp & Paper Week, usually, 60,000 copies of the weekly are printed. However, for an issue following the attacks, the print run was increased several times, to seven million copies. Such a print run requires approximately 500 metric tons of paper. 9

11 Pricing 10 Trends Newsprint Average Market Price Per Ton March 2014 Through February 2015 $600 $580 $560 $540 $520 $500 10

12 Pricing 11 Trends Uncoated Paper Average Spot Market Price Per Ton March 2014 Through February 2015 $1,025 $1,000 $975 $950 $925 $900 $875 Packaging pricing has been consistent as boxboard suppliers have held prices flat since April 2014 with few changes in prices through January However, export prices to Europe for linerboard, the flat outer facing of boxes, have decreased significantly since August, with a slight upward bounce in prices from January to February. The sharp rise in the dollar against the euro has made the southern European market particularly unapprealing for U.S. linerboard exporters, RISI s industry sources said. In addition, increased supplies are coming via kraft linerboard mills in Europe, Brazil, Russia, and Australia. Exporters in these countries have become more competitive in the global marketplace due to the strong U.S. dollar, which makes buying from the U.S. more expensive for consumers in offshore markets. RISI estimates that from October to January, prices for U.S. exporters to southern Europe declined approximately 8%, or $45 per metric ton, due to currency exchange rates. In an attempt to recoup losses, U.S. producers raised prices to Southern Europe in January. In addition, recycled containerboard mills have become more costcompetitive in many foreign countries as a result of favorable exchange rates, as well as lower old corrugated container and energy costs, RISI noted. Overall, box demand, has been strong due to the rising U.S. GDP. In addition, despite all the bad news for exporters, total linerboard exports actually increased 13.4% in January to 394,000 tons, which represented the highest level in over 10 years. Nonetheless, prices have refused to budge for the most part. Adding further pressure to the oversupplied U.S. market has been the $30-per-ton drop in average U.S. prices of old corrugated containers, or recycled cardboard, over the past year, according to RISI. With signs that solid box demand is continuing, North American containerboard producers may propose price increases in the spring, according to RISI. Some producers are expected to announce a $40-per-ton price increase starting in April. The increase, if announced, would be the first in two years, when prices rose $50- per-ton in April 2013, RISI noted. 11

13 Pricing 12 Trends In late February, KapStone Paper and Packaging announced it will increase containerboard prices by $40 per ton, opening up the possibility that other producers will follow suit. However, any proposed increase is expected to be met with resistance due to high supplies, low energy costs as a result of weak oil prices, and a strong U.S. dollar. When it comes to folding cartons, RISI noted that prices for the three different folding carton grades have been flat since April 2014, after bleached board producers unsuccessfully tried to implement price increases in September and October. The softening of folding cartonboard demand from July to October was the main reason the proposed increases failed to materialize. Paperboard and Containerboard - Average Market Price Per Ton March 2014 Through February 2015 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 12

14 Paper 13 and Packaging Equipment As a result of a changing economic landscape, remaining original equipment manufacturers in the pulp and paper segment that have survived in uncertain times are continuing to consolidate and refocus production efforts. Companies are particularly focused on products and grades that support online shopping, Federal Drug Administration-approved food packaging, and writing and specialty paper grades with a lower fiber grade and higher recycled content. During the recent economic downturn, various pulp and paper mills closed their doors, and their equipment was liquidated. In contrast, the paper and pulp mills that remain are the strongest in their industry. As a result, the remaining players tend to have the strength, and often the size, to stay in business and avoid liquidating their machinery. GA s sources note that the market for printing presses that produce newspapers and magazines is slow due to consumers increased use of digital devices to access media content. However, investment is being made in the digital printing sector by manufacturers and users alike. Digital printing presses are widely used in applications such as direct mail and offer high-speed, easily customizable printing capabilities for short-run orders. However, it is important to note that certain digital printing press styles have demonstrated rapid price depreciation due partly to manufacturer-service agreements and licensing. Increased automation in all phases of printing, including computer-to-plate processing and late-model high-speed printing presses in four colors, are more popular in the current market environment. The overall outlook for printing and bindery, meanwhile, remains steady. Currently, there is a lack of quality used equipment available, which has resulted in very high demand in the rare instances when late-model equipment does make its way onto the market. Consistent with the prior edition of the Paper & Packaging Monitor, paper mill equipment that exhibits technological obsolescence or is of a size that is no longer competitive in North America continues to be moved to developing countries such as India, Indonesia, as well as some countries in South America. As mentioned in the prior edition of the Paper & Packaging Monitor, the assets of Harbor Paper, LLC were liquidated in The move to liquidate Harbor Paper came after the company failed to negotiate new prices with pulp and paper brokers in an effort to increase its gross margin. Since that time, many complete mill and surplus asset liquidations have occurred, including both auctions and orderly liquidations. For instance, the complete mill liquidation of Appvion, Inc. also occurred in This liquidation included three paper machines and a de-ink operation, which resulted in component sales and scrap sales. In addition, the liquidation of a paper machine occurred as a result of a facility upgrading to newer technology, with the machine sold for its components. 13

15 Paper 14 and Packaging Equipment When it comes to boxboard equipment, the notable liquidation of Fusion Paperboard, Inc. occurred in October This sale was particularly interesting due to the boxboard machine being offered in bulk for use in a market outside of the Americas, which resulted in no bids. A second bulk offering then occurred, minus the company s in-line coating and scanner equipment, which also resulted in no bids. As a result, the majority of the liquidation s value came via support and stockpreparation equipment. Due to the installation-intensive nature of paper mill equipment, specifically paper machines that require significant capital resources to properly remove, factors related to the removal and reinstallation of the machines can serve as significant barriers to sales. As a result, liquidated paper mill machinery is often sold as scrap. In addition, any liability involving a required environmental site cleanup deters some buyers. GA s industry sources note that occupancy and utility costs tend to be high for paper mill acquisitions. As a result, paper mill liquidations generally take place over a very short period. Overall, paper machines under 300 inches wide, but in increments of 100 inches, have the potential to be sold outside of the U.S., in most instances, to be converted to run packaging grades. As mentioned in the previous Paper & Packaging Monitor, standard equipment in a paper mill such as refiners, screens, and pumps can be easily put to use for another process due to their less-cumbersome nature. These features have resulted in stable liquidation prices for such items. Late-model rewinders, sheeters, and converting equipment, which utilize current technology, are in relatively high demand at paper mill liquidations. As a result, such items maintain buyers in North America. As of late, converting equipment has demonstrated a slight rebound in used equipment values, GA s industry sources note. Machines related to the tissue and packaging sectors continue to perform particularly well. As a result, these goods are not typically subject to a liquidation sale. 14

16 Paper 15 and Packaging Reference Sheet PPI Average Pulp List Prices ($ per Metric Ton) - % change from previous three months and year Three Months Year NBHK Mixed Species - Canada/U.S. Sources, Delivered to U.S. East ($860 to $875/metric ton) 1.2% (2.9%) SBHK Mixed Species - U.S. Sources, Delivered to U.S. East ($860 to $875/metric ton) 1.2% (2.9%) NBSK - Canadian Sources, Delivered to U.S. East ($945 to $1,010/metric ton) (2.9%) (1.5%) SBSK - U.S. Sources, Delivered to U.S. East ($905 to $970/metric ton) (2.6%) (1.5%) Eucalyptus, Delivered to U.S. East ($860 to $880/metric ton) 2.4% (1.1%) PPI Average Uncoated Paper Market Prices ($ per Ton) - % change from previous quarter and year Three Months Year 50lb (70g) Offset Rolls - U.S. East ($870/ton) 0% 6% 20lb (80g) Repro Bond 92 Bright Cutsize Sheets - U.S. East ($1,010 /ton) 0% 0% 24lb White Wove Envelope - 92 Bright - Rolls - U.S. East ($980/ton) 2% 9% PPI Newsprint Paper Market Prices ($ per Ton) - % change from previous quarter and year Three Months Year Newsprint 30lb (48.8g) - U.S. East ($549/ton) (2.7%) 1.7% Newsprint 27.7lb (45g) - U.S. East ($585/ton) (3.3%) (4.0%) Newsprint 27.7lb (45g) - U.S. West ($585/ton) (4.7%) (6.2%) Newsprint 30lb (48.8g) - U.S. West ($549/ton) (5.0%) (6.5%) PPI Average Paperboard and Containerboard Market Prices ($ per Ton) - % change from previous quarter and year Three Months Year Unbleached Kraft Linerboard - 42lb - U.S. East (Transaction Price) ($740/ton) SBS - 16pt Folding Carton - C1S - U.S. East (Transaction Price) ($1,155/ton) Recycled Folding Boxboard - 20pt - CRB - Clay coated news - U.S. East (Transaction Price) ($955/ton) Recycled Folding Boxboard - 20pt - URB - Uncoated Bending Chip - U.S East. 0% 0% (1.3%) 2.2% 0% 0% 0% (1.4%) 15

17 Experience 16 GA was involved in the liquidations of assets for paper and packaging companies, including the following transactions: Printcrafters, Inc.: Formerly a commercial printing company with a large paper inventory in various sizes and styles. Colfax Envelope Corporation: Formerly a manufacturer and distributor of high-quality custom lithographed/offset envelopes for financial services and direct mail companies. Solar Graphics, Inc.: A printer and supplier of graphic signs including banners, window display films, and screen-printed products. WWF Paper: Formerly a manufacturer and distributor of printing and writing papers, with more than 100 U.S. and international paper mills. Tye-Sil: Formerly a leading Canadian provider of gift wrap and accessories. Royal Plastics: A manufacturer of a variety of custom plastic products. Kemco Plastics, Inc.: A manufacturer of custom-molded plastic products, serving the packaging industry in addition to the military, aerospace, consumer goods, medical, furniture, automotive, and industrial sectors. Others including Usdan Paper Company, Pandick Press, Target Graphics, Unicover Corp., Wicklander Printing Corp., Office Max, and MMP Printing Group. In addition, GA has worked with and appraised numerous manufacturers and distributors within the paper and packaging industries. While our clients remain confidential, they range in scale from smaller, more specialized regional businesses to major global and national industry leaders, and include the following sampling of companies: Leading manufacturers and regional distributors of premium, writing, text, cover, and specialty papers in a variety of colors, weights and finishes; durable, saturated, and coated base papers for a variety of applications; pulp; and other wood-based products, including a global forest products company with annual sales over $3 billion. Manufacturers, distributors, and brokers of book publication papers, coated and uncoated freesheet, supercalendared and coated groundwood papers, newsprint, and other fine paper purchased by U.S. book, magazine, and advertising publishers, including companies with more than $400 million in sales. Distributors and printers of sheet-fed paper products such as pressure-sensitive paper and film used in a variety of applications, including inserts, magazines, direct mail, and other print mediums, such as a major North American commercial printer with annual revenues in excess of $3 billion. A leading U.S. manufacturer of printed and unprinted envelopes in various sizes and styles for the merchant/ wholesale market, large envelope consumers, and specialty wholesalers, with annual sales over $500 million. Manufacturers and distributors of corrugated containers, containerboard, retail packaging, and packaging products such as point-of-purchase displays, protective packaging materials, and pressure-sensitive labels for a variety of industries, including a global company with annual sales exceeding $5 billion. Manufacturers of flexible packaging products such as specialty bags, sheets, wraps, wrappers, sleeves, and other packaging products for snack food and candy manufacturers, quick-service restaurants, food-service companies, and grocery stores, including manufacturers with annual sales greater than $300 million. In addition to our vast liquidation and appraisal experience, GA maintains contacts within the paper and packaging industries that we utilize for insight and perspective on recovery values. 16

18 Monitor 17 Information The Paper & Packaging Monitor relates information covering paper and packaging products, including industry trends, market pricing, and their relation to the valuation process. GA provides our customer base with a concise document highlighting the paper and packaging industry. Due to the commodity nature of certain paper and packaging products, timely reporting is necessary to understand an ever-changing marketplace. GA strives to contextualize important indicators in order to provide a more in-depth perspective of the market as a whole. GA internally tracks recovery ranges for pulp, paper, and packaging, but we are mindful to adhere to your request for a simple reference document. GA welcomes the opportunity to make our expertise available to you in every possible way. Should you need any further information or wish to discuss recovery ranges for a particular segment, please feel free to contact your GA Business Development Officer using the contact information shown in this and all Paper & Packaging Monitor issues. GA s Paper & Packaging Monitor provides market value and industry trend information for a variety of paper and packaging products. The information contained herein is based on a composite of GA s industry expertise, contact with industry personnel, liquidation and appraisal experience, and data compiled from a variety of well-respected sources believed to be reliable. We do not guarantee the completeness of such information or make any representation as to its accuracy. 17

19 Appraisal 18 & Valuation Team Mike Marchlik National Sales & Marketing Director (818) Ryan Mulcunry Executive Vice President - Northeast Region, Canada & Europe rmulcunry@greatamerican.com David Seiden Executive Vice President, Southeast Region dseiden@greatamerican.com (770) Bill Soncini Senior Vice President, Midwest Region bsoncini@greatamerican.com (312) Daniel J. Williams Managing Director, New York Region dwilliams@greatamerican.com (646) Ken Bloore Chief Operating Officer kbloore@greatamerican.com Bill O Brien Associate Director bobrien@greatamerican.com (781) Ryan Lutz Senior Project Manager rlutz@greatamerican.com (781) Drew Jakubek Managing Director, Southwest Region djakubek@greatamerican.com (972) Jennie Kim Vice President, Western Region jkim@greatamerican.com (818) Marc Musitano Chief Operating Officer mmusitano@greatamerican.com Michael Petruski Executive Vice President, General Manager mpetruski@greatamerican.com About Great American Group Great American Group is a leading provider of asset disposition solutions and valuation and appraisal services to a wide range of retail, wholesale, and industrial clients, as well as lenders, capital providers, private equity investors, and professional services firms. In addition to the Paper & Packaging Monitor, GA also provides clients with industry expertise in the form of monitors for the chemicals and plastics, food, and building products sectors, among many others. GA also offers various industry monitors via its subsidiary, GA Europe Valuations Limited. For more information, please visit Great American Group, LLC is a wholly owned subsidiary of B. Riley Financial, Inc. (OTCBB: RILY), which provides collaborative financial services and solutions through several subsidiaries, including: B. Riley & Co. LLC, a leading investment bank which provides corporate finance, research, and sales & trading to corporate, institutional and high net worth individual clients; B. Riley Asset Management, LLC, a provider of investment products to institutional and high net worth investors; and MK Capital Advisors, LLC, a multi-family office practice and wealth management firm focused on the needs of ultra-high net worth individuals and families. B. Riley Financial, Inc. is headquartered in Los Angeles with offices in major financial markets throughout the United States and Europe. For more information on B. Riley Financial, Inc., please visit Headquarters Burbank Blvd. Suite 300 South Woodland Hills, CA GREAT 18