Australian Newsprint Paper Prices

Market analyst UBS has provided guidance as to Australian newsprint paper prices. The analyst predict that FY08 newsprint prices are likely to be down. The pricing period for FY08 Australian newsprint has started. Recent weakness in the US dollar price and Australian dollar strength could mean that Aussie dollar contracted price actually declines - markedly at odds with our previous assumption of a further 7% hike. The impact is a positive 2-3% on FY 08 EBITDA forecasts for Fairfax, Rural Press (RUP)and WAN and a lesser 1% for the NZ-weighted APN. US newsprint prices have now declined by around US$45 since reaching a high of US$675/tonne in June 2006. Softer demand & inventory trends have combined to see prices falling each month since September. Australian dollar up around 5% on March-May 2006. The translating currency is calculated as the March-April-May average. Compared with last year's 0.743, the current A$/US$ of 0.78 is around 5% higher. Any movement in the Aust contract price, calculated as the combined impact of currency & paper price, is capped at around +/- 7%. Combining the two impacts, we estimate that the domestic publishers could face a 1.7% decline in newsprint prices in FY 08. Along with market multiple and risk free rate assumption adjustments, our FY08 valuations have risen 4% for FXJ (3% due to newsprint), 10% for RUP (+6% newsprint), 3.6% for APN (+1% newsprint) & 2% for WAN (+2% newsprint).