May 06, 2005. /Lesprom Network/. Beleaguered paper distributor PaperlinX Ltd (ASX:PPX), battered after a 20% profit downgrade last week, released further background to the change in forecast. The reduction in earnings is equally split between its Australian paper and merchanting business, the world's largest paper distributor said. Forecast sales of fine paper in the Australian market have been reduced due to lower domestic demand and the impact of the exchange rate on paper selling prices and domestic volumes. This results in another 20,000 tonnes being channelled from domestic to the less profitable export market, and machine downtime at a cost of A$3 million (US$2.33 million). Export revenue is further reduced due to changed currency assumptions, and the combinations of these effects has reduced profit before interest and tax (PBIT) expectations by around $10 million. Other influences, including higher commodity input costs, higher production costs on the packaging papers machines, partially offset by lower imported pulp costs due to changed exchange rates, have reduced PBIT expectations by another $6 million. On the merchanting side of the business, paper demand in Australia and New Zealand is forecast to be 1.5% lower than previously expected, and prices are expected to fall by a similar amount, cutting around $4 million from PBIT forecasts. In Europe, softer demand has resulted in volume expectations down one% , while average paper selling prices are forecast to be two% lower than previous expectations. But operating costs are expected to be down on a year ago and better than previously forecast due to improvements through synergies and tight cost management. The net PBIT effect is estimated to be around $12 million. PaperlinX shares were hammered last week after the company said it expected its net profit in 2004/05 to be around 20% lower than last year. In 2003/04 PaperlinX, whose flagship brand is Reflex, reported an 18% fall in net profit to $108.5 million. PaperlinX shares were six cents stronger at $2.85 by 1537 AEST.