Comparison of RISI's price reports

RISI is the leader in pulp and paper price collection and reporting. We track more than 500 prices of pulp and paper grades/regions around the world and are the only source of price information that gives comprehensive grade coverage in all of the principal global markets.

RISI reports pulp prices in two sources:

Source Description PPI Markets & Prices (includes PPI Pulp & Paper Week, PPI Asia, PPI Europe, PPI Latin America) Weekly news, market reports and prices. Produced by RISI's editorial team. World Pulp Monthly Monthly analysis and near-term market forecast. Produced by RISI's pulp economists.

While these two sources report prices in slightly different ways and on different schedules, the editors and economists work together in a single price discovery process. That means, for instance, that the prices reported in World Pulp Monthly are based on not just the market contacts of our economists, but also of our editors. All of the prices we report are determined in a collaborative process between editors and economists.

Point vs. range price

PPI Markets & Prices reports prices as a range - two prices between which the bulk of transactions occur. World Pulp Monthly reports prices as a single price point.

Reporting schedule

Source Spot prices Contract prices - effective list PPI Markets & Prices        North America (PPI Pulp & Paper Week) Every other week (reported online only) 2nd week of each month    Europe Every other week Every other week    Asia Every other week Every other week    Latin America   3rd week of each month World Pulp Monthly   2nd-to-last business day of each month

What do RISI's prices represent?

• For pulp, RISI reports:
  • Effective list prices for contract transactions
  • Spot prices

RISI uses the following definitions:

What is the nature of the transaction?

Contract	Most pulp is transacted between long standing suppliers and buyers who have a written contract or an ongoing unwritten relationship that involves regular transactions over time.
Spot	From time to time producers will have excess inventory, and buyers will have exceptional needs for product which cannot be satisfied from their usual supplier. In these circumstances, for individual one-time lots, buyers and sellers may agree to a purchase at a spot price, a level from which no further discounts, allowances or performance rebates are given.

What is being measured by the price?

List Price	In a contract transaction, the list price is the producer's initial asking price, as announced publicly or communicated to the buyer as the starting point for negotiations. RISI's PPI News Service reports list prices as they are announced by producers or as they are initially communicated to buyers.
Effective List Price	In a contract transaction, buyers and sellers must agree to a price each month and then apply a discount that has been agreed upon earlier. The "effective list price for contract transactions" is the price on which buyers and sellers agree to be the baseline price off of which pre-agreed discounts are taken. The effective list price is net of: competitive allowances any other temporary market-wide discounts that are not captured in the standard contract discount that was previously agreed to between the buyer and the seller. The effective list price is sometimes simply referred to as the "contract price." Rising prices: If producers announce an increase in list price, the effective list price goes up only to the extent that the increase is accepted by buyers, given the standard discount levels that were agreed upon earlier. Temporary market allowances are netted out of the calculation of the effective list price. Falling prices: In weakening markets, producers often do not announce price decreases as quickly as market prices actually fall. Instead, they will often introduce "competitive allowances" (or "market allowances") that are temporary and additional to the previously agreed-upon standard discounts. The effective list price published by RISI nets out those competitive allowances, so it captures the weakening of markets from month to month. As such, producers may not prevent a decline in the effective list price by leaving announced list prices level but granting competitive (or market) allowances.
Peformance Rebate	A rebate that a seller gives a buyer each quarter or year in return for the buyer meeting a pre-agreed upon volume of purchases in that period of time. Performance rebates are by definition customer-specific and so do not enter into the calculation of the effective list price.
Net Price	In a contract transaction, the net price is the price to the buyer after monthly discounts and allowances are taken, but before quarterly or annual performance rebates are given. In a spot transaction, spot price and net price are the same because they are spot prices stated net of discounts, allowances, and performance rebates.

Specifications

Point in supply chain - who is the buyer and who is the seller? The seller is a pulp producer or a producer's agent. The buyer is a paper producer, except in China where the buyer is often a China-based trading company that will in turn sell the pulp to domestic Chinese paper producers. Delivery North America: Prices are for pulp delivered to the customer's receiving dock (within a standard delivery zone). Europe, Latin America and Asia: Prices are for pulp delivered (CIF) to main ports, with the customer then responsible for the cost of shipment to customer facilities. Exceptions to these rules are noted in price tables. Arms-length transactions Only transactions between unaffiliated parties are included in the survey, unless a transaction is conducted at "arms length", meaning that a normal process of negotiating occurs between the buyer and seller. RISI prices exclude internal transfer prices between related companies, because in these cases the tonnage does not truly enter the market. Transfer prices can be based on various non-market factors such as a markup over production cost. First-quality tonnage Prices are for all first quality tonnage sold. No distressed transactions Distressed or unusual transactions are not included in the prices. Non-traditional suppliers included in spot prices By definition, non-traditional suppliers are not included in contract prices, but are included in spot 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. Normal terms of payment Price estimates assume normal and customary payment terms. Indexed tonnage excluded Transactions whose price is indexed to RISI reported pulp prices are excluded from our price survey. (See more below under "Price collection methodology".) Wet-lap excluded Wet-lap pulp is excluded, except for DIP.

Price collection methodology

RISI makes estimates of effective list prices and spot prices based on systematically surveying active market participants to find out prices being paid..

RISI identifies and invites a cross-section of active market participants - including both buyers and sellers - to join its survey pool as respondents and then contacts those respondents regularly to obtain volume and price information relating to transactions in which they have been engaged

The amount and type of information that a respondent provides each month varies across individuals and companies, but all the data collected is taken into consideration by the surveyor. Larger transactions are given more weight than smaller ones.

Our reported prices reflect only actual, settled prices, not on speculation of where the market is going.

How we address challenges to finding the "true" price

There are a number of challenges to finding the true market price, but RISI employs specific techniques to address those challenges.

Bias and gaming

All price discovery methods, no matter how statistically rigorous they claim to be, confront the reality of bias and the risk of being "gamed" or undermined by survey respondents. Every market participant is likely to have an interest in either over- or understating prices. This bias can show through even though participants are trying to be objective.

Gaming can occur 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). In addition, invoices may not capture all price terms if, for example, related services or allowances are billed/credited separately or are applied by the purchaser at time of payment.

How RISI addresses: We survey a roughly equal share of buyers and sellers, including distributors, to ensure that any buyer bias is negated by an equivalent seller bias.

In addition, RISI allows a small but crucial amount of judgment to be exercised by the editor or economist who is doing the survey in order to arrive at the price that best represents market conditions. For instance, the surveyor may assign more weight to responses from those survey participants who have been the most reliable sources for pricing in the past. 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.

Circularity

In some cases, transaction prices are indexed to the reported price that is being measured. Including such prices in the price survey creates "circularity", which means that survey results become disconnected from market reality.

How RISI addresses: Transactions whose price is indexed to the prices we report are excluded from our price survey. Also excluded are transactions priced with a "baisse" clause, or retroactive rebate.

Other safeguards and provisions

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

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 to neither 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.

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@risi.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.