For over 20 years, RISI (including newsletters formerly owned by Miller Freeman Inc. and Paperloop) has been publishing estimated prices for a wide range of forest products for markets around the world. RISI price estimates have found widespread acceptance among those with an active interest in the pulp and paper industry.

For the European paper and paperboard markets, RISI publishes two separate price estimates. One, which traditionally has been published in Paper Trader Europe and Paper Packaging Monitor Europe, reports a single point estimate for the prices of major grades of paper and paperboard. The other, traditionally published in PPI This Week, which is now called PPI Europe, reports a range estimate (high and low, which are occasionally the same) within which the large majority of transactions are believed to have occurred. This document describes the methodology used for these price estimates—herein referred to as the Point Estimate (PE) and the Range Estimate (RE).

The PE and RE surveys were developed independently when the respective publications were parts of different companies. Efforts are now aimed at basing the two types of estimates on a common set of information. The RE survey is conducted by news editors associated with PPI Europe. The PE is set by economists associated with Paper Trader Europe and Paper Packaging Monitor Europe, based on the information collected as part of the RE survey, plus additional information that may be available to the economists.

Determination of Point Estimates and Range Estimates

All price discovery methods, no matter how statistically rigorous they claim to be, run the risk of being "gamed" or undermined by survey responders, through means such as selective reporting of transactions or misreporting of prices. Even a process that is based on a weighted average of actual invoices can be manipulated if respondents report transactions selectively (that is, non-randomly).

RISI's price estimation methodology addresses this problem in two ways. First, prices are collected from both buyers and sellers in an attempt to balance out potential bias from respondents. Second, our methodology allows the news editor or economist who is doing the survey (hereafter, "the surveyor") a small degree of latitude to supplement the survey results with other information in order to arrive at the price that best represents market conditions. The surveyor, for example, can use his or her best judgment in assigning more weight to responses from those survey participants who have been the most reliable sources for pricing in the past. That the surveyor is allowed judgmental latitude in estimating prices is an especially important point to note for the PE survey—point estimates are not arrived at using a fixed calculation or weighting scheme. (Larger transactions are given more weight than are smaller ones, however, which is consistent with the concept of a weighted average.) Application of expert judgment based on years of reporting on and studying these markets has been one of the keys to achieving the quality and acceptance of RISI's price estimates.

Where survey information is limited due to the small size of the market, or when there are substantial conflicts in the information provided by survey respondents, the surveyor may factor non-survey information into the estimate. Such information can include current supply and demand fundamentals, historical relationships between product prices over time, and information as reported by companies to the media or in financial reports.

Revisions to the prices are made infrequently, in the event of new information becoming available or when there is an ex-post revision or adjustment to prices by the parties. Retroactive rebates or the invocation of "baisse" clauses in contracts, for example, may trigger a price revision. The window for price revisions is one month, apart from in exceptional circumstances.

Survey Procedure

Upon joining the survey pool, a respondent is asked to disclose the specification of the products that they actively buy or sell, the average monthly volumes involved, and the nature of the transactions that they engage in (spot or contract, indexed or open market). This information is used by the surveyor to put the respondent's monthly responses into perspective, and is updated periodically.

Most contacts with survey respondents are made by phone. Some are made by email. Participants in the survey include both buyers and sellers of paper and paperboard. Agents and brokers are included, in most cases as sellers.

The amount and type of information that a respondent provides each month varies across individuals and companies. In the ideal case, the respondent would provide a number of prices for various transactions that occurred during the month, along with the volumes involved in each and any special terms. Most respondents, however, report a single average number or a price range for the month for each grade of paper that they buy or sell. A small minority will report only changes in price levels from the past month's values. All of these responses will be taken into consideration by the surveyor.

The mix of buyers and sellers varies by product, but an effort is made adequately to cover both sides of the market. The number of respondents varies by product but is always sufficient to determine a representative price for the month.

Transaction Specifications

The price estimates reflect "business to business" transactions, not final retail sales of converted paper or paperboard products to small consumers. The smallest transaction size that would be considered might be as low as one truckload in some grades, but not lower, with some minor exceptions. Prices are those paid by the consumer of the paper, such as a printer, publisher, or converter, and in some cases, the end-user. The seller may be a mill or a merchant, agent, or broker. Prices are quoted before customer-specific discounts. Prices quoted are net of market-wide competitive allowances or reductions from announced list prices.

Other Transaction Specifications

• Arms-length transactions: Only transactions between unaffiliated parties are included in the survey, unless a transaction is conducted at "arms length".

• First-quality tonnage: Prices are for all first quality tonnage sold.

• Distressed transactions: Distressed or unusual transaction are not included in the prices.

• Prices for orders in current month: Price estimates for a given month reflect orders placed in that month. Shipment may occur in a future month. Thus, for a given month, price estimates reflect the orders placed in that month, not necessarily the shipments in that month.

• Terms of payment: Price estimates assume normal and customary payment terms.

• Delivery: Most prices are "free delivered" prices within a standard delivery zone. The seller pays for cost of delivery and assumes responsibility for shipments up to the point in time when the buyer signs for the goods at its depot. An exception to this rule is unbleached kraftliner prices for delivery to the UK, which are quoted on a CIF basis.

• Physical specifications: See Appendix

Circularity

RISI price estimates are used within the industry for many purposes, including setting prices for contract transactions in which both parties choose to tie the transaction to an index. RISI is aware that a fraction of transactions in the market may be tied directly to its price estimates. In theory, this raises concerns about the circularity of the survey process.

For this reason, RISI's policy is to survey only for transactions that are conducted in the open market; i.e., that are not tied to the price index itself. Some respondents may be involved in both open market and "indexed" transactions. In these cases, information is collected only for the open market transactions.

Auditing

Because they involve confidential sources and require the application of the judgment of the surveyor, the surveys are not audited by an outside party. RISI has instituted internal management controls to check on survey methodology and accuracy.

Non-Disclosure of Information

All RISI price surveys are confidential. Names of individuals and companies participating in the survey are never disclosed to the public or to other survey participants. RISI's policy is neither to confirm nor deny either directly or indirectly the participation of any individual or company at any time. Confidential or proprietary information that is collected as part of the survey process, including prices reported by individual survey participants, is not shared with the public or with other survey participants.

Absence of Financial Interest

RISI recognizes that in the normal conduct of their jobs, its employees may have access to confidential or proprietary information regarding companies or markets. RISI prohibits its employees who conduct price surveys from having a financial interest in companies whose values are directly and substantially affected by prices they report. Excluded from this prohibition are holdings in mutual funds or other diversified portfolios that might include financial assets related to such companies. For example, if an employee is involved in a price survey for newsprint, he or she may not directly hold financial instruments issued by newsprint producers or newspapers, because the price of newsprint substantially affects the values of both the producing and the consuming companies. The employee could however invest in mutual funds or other diversified financial instruments that include some of the above-described companies. Also prohibited is a financial interest in any financial instrument that derives its value substantially from the reported prices of products included in the survey.

Commercial Usage

RISI price estimates are copyrighted information. Any commercial use, including hedging or settling of contracts or trades, requires a subscription. For more information, please contact: info@risiinfo.com.

Disclaimer of Warranty

Although RISI collects information from sources who are believed to be reliable, RISI does not warrant or guarantee the accuracy or completeness of its price estimates. Actual transaction prices will often vary from the estimated level.

Contact Information

For further information about this methodology, or if you would like to participate in the price survey, please email Joanne Potter and/or Michael Dixon.

To learn more about how RISI's wide range of pulp and paper content can benefit your organization, contact us to speak to an account manager.

APPENDIX

Physical specifications of paper and paperboard grades covered:

GRAPHIC PAPER

Grade: Standard newsprint Basis weight: 40-48.8 g/m²
Reels/Sheets: Reels
Fiber: 70-100% mechanical pulp and/or deinked pulp, 0-25% chemical pulp and maximum 8% filler

Grade: Improved newsprint Basis weight: 55 g
Reels/Sheets: Reels
Fiber: 70-100% mechanical pulp and/or deinked pulp, 0-25% chemical pulp and maximum 8% filler

Grade: SC-A offset Basis weight: 52-60 g/m²
Reels/Sheets: Reels
Fiber: 50-75% mechanical pulp, 5-25% chemical pulp and 10-35% filler

Grade: SC-A rotogravure Basis weight: 52-60 g/m²
Reels/Sheets: Reels
Fiber: 50-75% mechanical pulp, 5-25% chemical pulp and 10-35% filler

Grade: LWC offset Basis weight: 54-60 g/m²
Reels/Sheets: Reels
Fiber: 40-75% mechanical pulp and 25-55% chemical pulp

Grade: LWC rotogravure Basis weight: 54-60 g/m²
Reels/Sheets: Reels
Fiber: 40-75% mechanical pulp and 25-55% chemical pulp

Grade: Coated mechanical rotogravure Basis weight: 80 g/m²
Reels/Sheets: Reels
Fiber: 40-75% mechanical pulp and 25-55% chemical pulp

Grade: Coated mechanical offset Basis weight: 70-80 g/m²
Reels/Sheets: Reels
Fiber: 40-75% mechanical pulp and 25-55% chemical pulp

Grade: A4 copy paper (B grade) Basis weight: 80 g/m²
Reels/Sheets: Sheets
Fiber: Bleached chemical pulp and up to 10% mechanical pulp

Grade: A4 copy paper (C grade) Basis weight: 80 g/m²
Reels/Sheets: Sheets
Fiber: Bleached chemical pulp and up to 10% mechanical pulp

Grade: Uncoated woodfree offset reels Basis weight: 70-80 g/m²
Reels/Sheets: Reels
Fiber: Bleached chemical pulp and up to 10% mechanical pulp

Grade: Uncoated woodfree offset sheets Basis weight: 70-80 g/m²
Reels/Sheets: Sheets
Fiber: Bleached chemical pulp and up to 10% mechanical pulp

Grade: Coated woodfree reels Basis weight: 80-100 g/m²
Reels/Sheets: Reels
Fiber: Bleached chemical pulp and up to 10% mechanical pulp

Grade: Coated woodfree sheets Basis weight: 90-115 g/m²
Reels/Sheets: Sheets
Fiber: Bleached chemical pulp and up to 10% mechanical pulp

PACKAGING P&B

Grade: Unbleached kraftliner Basis weight: 125-175 g/m²
Reels/Sheets: Reels
Fiber: Unbleached softwood kraft pulp (can include some recovered paper)

Grade: White-top kraftliner Basis weight: 140 g/m²
Reels/Sheets: Reels
Fiber: Unbleached softwood kraft pulp bottom layers and bleached kraft pulp top layer (can include some recovered paper in bottom layers)

Grade: Semi-chemical fluting Basis weight: 127 g/m²
Reels/Sheets: Reels
Fiber: Neutral sulfite semi-chemical (NSSC) pulp/60-70% NSSC and 30-40% recovered paper

Grade: Testliner 2 Basis weight: 140 g/m²
Reels/Sheets: Reels
Fiber: Recovered paper

Grade: Testliner 3 Basis weight: 125-140 g/m² Reels/Sheets: Reels Fiber: Recovered paper

Grade: Recycled fluting (wellenstoff) Basis weight: 90-127 g/m²
Reels/Sheets: Reels
Fiber: Recovered paper

Grade: Schrenz (chipboard) Basis weight: 100 g/m²
Reels/Sheets: Reels
Fiber: Recovered paper

Grade: Sack kraft (bleached and unbleached) Basis weight: 80 g/m²
Reels/Sheets: Reels
Fiber: Bleached and unbleached softwood kraft pulp (can also include some hardwood pulp and recovered paper)

Grade: GC2 Basis weight: 270 g/m²
Reels/Sheets: Sheets
Fiber: Mechanical pulp inner layer/s and chemical pulp top and bottom layer

Grade: GD2 Basis weight: 300 g/m²
Reels/Sheets: Sheets
Fiber: Recovered paper and 5-10% mechanical pulp

Grade: GD3 Basis weight: 320 g/m²
Reels/Sheets: Sheets
Fiber: Recovered paper