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‘‘—Markets’’ for a further discussion of the cyclical nature of the pulp and paper industry and movements<br />
in market prices. In addition, the purchase prices of many of the raw materials we use generally fluctuate<br />
in correlation with global commodity cycles. Other input costs, such as energy and fuel costs, vary<br />
depending on various factors, including local and global demand and seasonality. Worldwide economic<br />
conditions experienced a significant downturn during fiscal 2009 and into fiscal 2010, resulting in<br />
significant recessionary pressures and lower business and consumer confidence. As worldwide<br />
economic conditions improved throughout 2010, demand for our products improved, and market prices<br />
increased in our major markets. Market prices for pulp increased significantly in fiscal 2010 due to higher<br />
operating rates of paper manufacturers and a major earthquake in February which disrupted market<br />
pulp supply from Chile.<br />
Sensitivity to Currency Movements<br />
The principal currencies in which our subsidiaries conduct business are the US dollar (US$), euro<br />
(e) and South African Rand (ZAR). See ‘‘—Currency Fluctuations’’.<br />
Sensitivity to Inflation Rates<br />
Movements in inflation rates in the various regions in which we operate can affect our results. See<br />
‘‘—Inflation and Interest Rates’’.<br />
Markets<br />
The markets for pulp and paper products are cyclical, with sales prices significantly affected by<br />
factors such as changes in industry capacity and output levels, customer inventory levels and changes<br />
in the world economy. The pulp and paper industry has often been characterized by periods of<br />
imbalances between supply and demand, causing prices to be volatile. Prices also vary significantly by<br />
geographic region and product. Coated woodfree paper, our core product used for many types of<br />
publications, is susceptible to the highly cyclical advertising market, a major driver in our business.<br />
Coated Woodfree Paper<br />
Coated woodfree paper demand increased from fiscal 2006 to fiscal 2008 due to the upswing in<br />
world economic growth and resultant increase in advertising activities. The increase in coated woodfree<br />
paper demand continued during the first half of fiscal 2008, but global demand started to decline during<br />
the remainder of fiscal 2008, throughout fiscal 2009 and into fiscal 2010 due to a slowdown in the global<br />
economy. As certain world economies stabilized and returned to growth, so did demand for coated<br />
woodfree paper. In fiscal 2010, demand for coated woodfree paper was greater than in fiscal 2009, but<br />
still below fiscal 2008 levels.<br />
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