Demandless Recovery: As the broader economy appears to be making a jobless recovery, the paper and forest products industry is attempting a "demandless recovery," according to Mark Wilde, senior analyst with Deutsche Bank. Throughout 2009, the industry has done a remarkable job of limiting price erosion despite sharply lower shipment volumes and falling input costs, Wilde notes, adding that "looking at the past, we would have expected prices to collapse in the face of 2009's market conditions. It has not happened. The key has been supply discipline. The industry has responded to sharply reduced demand by taking massive amounts of market downtime, as well as some permanent capacity closures. In many cases, the industry has reduced supply even more than demand, managing to drive down inventories despite weak demand.

During 2H09, Wilde says, some broad economic measures such as GDP growth and the ISM manufacturing index have shown noticeable improvement. However, demand for most paper grades has failed to see any meaningful pick-up. Instead, demand appears to have stabilized at a lower level. "However, the downward pricing pressure that we saw in the first half of the year has largely dissipated. To the contrary, prices are starting to go higher in various grades, and the questions involve price hike initiatives—what grades, how much, how soon. These hikes have been driven by rising input costs (at least relative to the very low levels in the first half of the year), tight inventories, and improving trade flows resulting from a weak US dollar. Even so, it has been remarkable given the continuing demand weakness. Perhaps, something really is different this time," he explained.