<PAGE>  1
==============================================================================



                                UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-Q

[ X ]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended June 30, 1998

[   ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

              For the transition period from       to
                                             -----    -----

                        Commission File No.: 000-09409

                          MERCER INTERNATIONAL INC.
            (Exact name of Registrant as specified in its charter)


               Washington                            91-6087550
     (State or other jurisdiction                 (I.R.S. Employer
   of incorporation or organization)              Identification No.)

   Burglistrasse 6, Zurich, Switzerland                CH 8002
  (Address of principal executive offices)            (Zip Code)

                                41(1) 201 7710
              (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
Registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.  YES   X    NO
                                                    -----     -----

The Registrant had 15,398,722 shares of beneficial interest outstanding as at 
August 11, 1998.



==============================================================================


<PAGE>  2


FORWARD-LOOKING STATEMENTS

Statements in this report, to the extent they are not based on historical 
events, constitute forward-looking statements.  Forward-looking statements 
include, without limitation, statements regarding the outlook for future 
operations, forecasts of future costs and expenditures, the evaluation of 
market conditions, the outcome of legal proceedings, the adequacy of reserves, 
or other business plans.  Investors are cautioned that forward-looking 
statements are subject to an inherent risk that actual results may vary 
materially from those described herein.  Factors that may result in such 
variance, in addition to those accompanying the forward-looking statements, 
include changes in interest rates, commodity prices, and other economic 
conditions; actions by competitors; changing weather conditions and other 
natural phenomena; actions by government authorities; uncertainties associated 
with legal proceedings; technological development; future decisions by 
management in response to changing conditions; and misjudgments in the course 
of preparing forward-looking statements.

                        PART I.  FINANCIAL INFORMATION
                                 ---------------------

ITEM 1.  FINANCIAL STATEMENTS




                          MERCER INTERNATIONAL INC.

                      CONSOLIDATED FINANCIAL STATEMENTS

                    FOR THE SIX MONTHS ENDED JUNE 30, 1998

                                 (Unaudited)


FORM 10-Q
QUARTERLY REPORT - PAGE 2


<PAGE>  3

                          MERCER INTERNATIONAL INC.

                         CONSOLIDATED BALANCE SHEETS
                   As at June 30, 1998 and December 31, 1997
                                 (Unaudited)
                           (dollars in thousands)

<TABLE>
<CAPTION>

                                                  June 30,      December 31,
                                                    1998            1997
                                                ------------    ------------
<S>                                             <C>             <C>
                                    ASSETS

Current Assets
   Cash and cash equivalents                    $      4,044    $      4,414
   Investments                                        37,054          56,285
   Receivables                                        35,136          22,329
   Inventories                                        17,106          15,799
   Other                                               2,753           1,557
                                                ------------    ------------
      Total current assets                            96,093         100,384

Long-Term Assets
   Properties                                         95,669          87,806
   Investments                                        17,029           4,118
   Notes receivable                                   13,876           7,000
   Deferred income tax assets                         10,961          10,986
                                                ------------    ------------
                                                     137,535         109,910
                                                ------------    ------------
                                                $    233,628    $    210,294
                                                ============    ============

                                 LIABILITIES

Current Liabilities
   Accounts payable and accrued expenses        $     51,719    $     50,172
   Notes payable                                       2,348           3,252
   Debt                                                3,588           4,329
                                                ------------    ------------
      Total current liabilities                       57,655          57,753

Long-Term Liabilities
   Debt                                               30,192          15,039
   Other                                               1,850           2,027
                                                ------------    ------------
                                                      32,042          17,066
                                                ------------    ------------
      Total liabilities                               89,697          74,819

                             SHAREHOLDERS' EQUITY

Shares of beneficial interest                         90,649          88,603
Cumulative translation adjustment                    (40,082)        (41,376)
Net unrealized loss on investments valuation          (6,588)         (1,517)
Retained earnings                                     99,952          89,765
                                                ------------    ------------
                                                     143,931         135,475
                                                ------------    ------------
                                                $    233,628    $    210,294
                                                ============    ============
</TABLE>

  The accompanying notes are an integral part of these financial statements.


FORM 10-Q
QUARTERLY REPORT - PAGE 3


<PAGE>  4

                          MERCER INTERNATIONAL INC.

           CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
                 For Six Months Ended June 30, 1998 and 1997
                                 (Unaudited)
            (dollars in thousands, except for earnings per share)

<TABLE>
<CAPTION>
                                                    1998            1997
                                                ------------    ------------
<S>                                             <C>             <C>

Revenues
   Sales                                        $     95,982    $     84,719
   Investments                                         4,822           5,375
                                                ------------    ------------
                                                     100,804          90,094

Expenses
   Cost of sales                                      76,170          69,259
   General and administrative                         12,021          12,109
   Interest expense                                    1,773           1,403
                                                ------------    ------------
                                                      89,964          82,771
                                                ------------    ------------

Income from operations before income taxes            10,840           7,323
Income taxes                                              43              28
                                                ------------    ------------

Net income                                            10,797           7,295

Retained earnings, beginning of period                89,765         122,838
Dividend                                                (610)           (450)
                                                ------------    ------------

Retained earnings, end of period                $     99,952    $    129,683
                                                ============    ============

Earnings per share
   Basic                                        $       0.71    $       0.49
                                                ============    ============
   Diluted                                      $       0.71    $       0.49
                                                ============    ============
</TABLE>

  The accompanying notes are an integral part of these financial statements.


FORM 10-Q
QUARTERLY REPORT - PAGE 4


<PAGE>  5

                          MERCER INTERNATIONAL INC.

           CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
                For Three Months Ended June 30, 1998 and 1997
                                 (Unaudited)
            (dollars in thousands, except for earnings per share)

<TABLE>
<CAPTION>

                                                    1998            1997
                                                ------------    ------------
<S>                                             <C>             <C>

Revenues
   Sales                                        $     46,889    $     42,587
   Investments                                         1,406           3,153
                                                ------------    ------------
                                                      48,295          45,740

Expenses
   Cost of sales                                      36,590          34,791
   General and administrative                          6,147           6,305
   Interest expense                                      980             519
                                                ------------    ------------
                                                      43,717          41,615
                                                ------------    ------------

Income from operations before income taxes             4,578           4,125
Income taxes                                              43              14
                                                ------------    ------------

Net income                                             4,535           4,111

Retained earnings, beginning of period                96,027         126,022
Dividend                                                (610)           (450)
                                                ------------    ------------

Retained earnings, end of period                $     99,952    $    129,683
                                                ============    ============

Earnings per share
   Basic                                        $       0.30    $       0.27
                                                ============    ============
   Diluted                                      $       0.30    $       0.27
                                                ============    ============
</TABLE>

  The accompanying notes are an integral part of these financial statements.


FORM 10-Q
QUARTERLY REPORT - PAGE 5


<PAGE>  6

                           MERCER INTERNATIONAL INC.

                      STATEMENT OF COMPREHENSIVE INCOME
                 For Six Months Ended June 30, 1998 and 1997
                                 (Unaudited)
                           (dollars in thousands)

<TABLE>
<CAPTION>

                                                    1998            1997
                                                ------------    ------------
<S>                                             <C>             <C>
Net income                                      $     10,797    $      7,295

Other comprehensive income (loss):
   Foreign currency translation adjustments            1,294         (23,690)
   Unrealised (loss) gain on securities               (5,071)            540
                                                ------------    ------------

   Other comprehensive loss                           (3,777)        (23,150)
                                                ------------    ------------

Total comprehensive income (loss)               $      7,020    $    (15,855)
                                                ============    ============
</TABLE>

  The accompanying notes are an integral part of these financial statements.


FORM 10-Q
QUARTERLY REPORT - PAGE 6


<PAGE>  7

                          MERCER INTERNATIONAL INC.

                     STATEMENT OF COMPREHENSIVE INCOME
                For Three Months Ended June 30, 1998 and 1997
                                 (Unaudited)
                            (dollars in thousands)

<TABLE>
<CAPTION>

                                                    1998            1997
                                                ------------    ------------
<S>                                             <C>             <C>
Net income                                      $      4,535    $      4,111

Other comprehensive income (loss):
   Foreign currency translation adjustments            3,472          (8,024)
   Unrealised (loss) gain on securities               (5,676)            128
                                                ------------    ------------

   Other comprehensive loss                           (2,204)         (7,896)
                                                ------------    ------------

Total comprehensive income (loss)               $      2,331    $     (3,785)
                                                ============    ============
</TABLE>

  The accompanying notes are an integral part of these financial statements.


FORM 10-Q
QUARTERLY REPORT - PAGE 7


<PAGE>  8

                          MERCER INTERNATIONAL INC.

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For Six Months Ended June 30, 1998 and 1997
                                 (Unaudited)
                            (dollars in thousands)

<TABLE>
<CAPTION>

                                                    1998            1997
                                                ------------    ------------
<S>                                             <C>             <C>
Cash Flows from Operating Activities:
  Net income from continuing operations         $     10,797    $      7,295
  Adjustments to reconcile net income from
    operations to cash from operating activities
    Depreciation and amortization                      6,611           5,999
    Non-cash asset acquisitions                       (5,042)        (10,014)
                                                ------------    ------------
                                                      12,366           3,280

  Changes in current assets and liabilities
    Investments                                         (956)          8,568
    Inventories                                       (1,341)          3,968
    Receivables                                      (10,104)         (1,497)
    Accounts payable and accrued expenses              4,173          (5,030)
    Other                                               (538)            170
                                                ------------    ------------
      Net cash provided by operating activities        3,600           9,459

Cash Flows from Investing Activities:
  Purchase of fixed assets, net of investment grants (11,457)         (6,036)
  Increase in notes receivable                       (11,358)              -
  Other                                                   15              16
                                                ------------    ------------
      Net cash used in investing activities          (22,800)         (6,020)

Cash Flows from Financing Activities:
  Increase in indebtedness                            20,041           1,782
  Decrease in indebtedness                            (2,599)         (8,975)
  Net proceeds on issuance of shares of
    beneficial interest                                2,046             487
  Payment of dividend                                   (610)           (450)
  Other                                                 (172)              -
                                                ------------    ------------
      Net cash provided by (used in) financing
        activities                                    18,706          (7,156)

Effect of exchange rate changes on cash and
  cash equivalents                                       124            (541)
                                                ------------    ------------

Net decrease in cash and cash equivalents               (370)         (4,258)

Cash and cash equivalents, beginning of period         4,414           9,967
                                                ------------    ------------
Cash and cash equivalents, end of period        $      4,044    $      5,709
                                                ============    ============
</TABLE>

  The accompanying notes are an integral part of these financial statements.


FORM 10-Q
QUARTERLY REPORT - PAGE 8


<PAGE>  9

                          MERCER INTERNATIONAL INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      FOR SIX MONTHS ENDED JUNE 30, 1998

                                 (Unaudited)

NOTE 1.  BASIS OF PRESENTATION

The interim period consolidated financial statements contained herein include 
the accounts of Mercer International Inc. and its subsidiaries (the 
"Company").

The interim period consolidated financial statements have been prepared by the 
Company pursuant to the rules and regulations of the U.S. Securities and 
Exchange Commission (the "SEC").  Certain information and footnote disclosure 
normally included in financial statements prepared in accordance with 
generally accepted accounting principles have been condensed or omitted 
pursuant to such SEC rules and regulations.  The interim period consolidated 
financial statements should be read together with the audited consolidated 
financial statements and accompanying notes included in the Company's latest 
annual report on Form 10-K for the fiscal year ended December 31, 1997. In the 
opinion of the Company, the unaudited consolidated financial statements 
contained herein contain all adjustments necessary to present a fair statement 
of the results of the interim periods presented.

NOTE 2.  EARNINGS PER SHARE

Earnings per share is computed on the basis of the weighted average number of 
shares outstanding during a period after considering convertible securities, 
warrants and options.  The weighted average number of shares outstanding for 
the purposes of calculating diluted earnings per share was 15,292,315 and 
14,978,804 for the six months ended June 30, 1998 and 1997, respectively, and 
15,341,796 and 15,008,798 for the three months ended June 30, 1998 and 1997, 
respectively.


FORM 10-Q
QUARTERLY REPORT - PAGE 9


<PAGE>  10


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS 

Mercer International Inc. is a pulp and paper company headquartered in Zurich, 
Switzerland and its operations are primarily located in Germany.  In this 
document: (i) unless the context otherwise requires, the "Company" refers to 
Mercer International Inc. and its subsidiaries; and (ii) a "tonne" is one 
metric ton or 2,204.6 pounds.

The following discussion and analysis of the results of operations and 
financial condition of the Company for the six months and three months ended 
June 30, 1998, respectively, should be read in conjunction with the 
consolidated financial statements and related notes included elsewhere herein.

RESULTS OF OPERATIONS - Six Months Ended June 30, 1998
------------------------------------------------------

In the six months ended June 30, 1998, revenues increased to $100.8 million 
from $90.1 million in the same period in 1997, primarily as a result of 
improved demand for pulp and paper products. However, as the Company's 
products are principally sold in deutschmarks, the depreciation of the 
deutschmark against the U.S. dollar by approximately 7.3% in the six months 
ended June 30, 1998, compared to the same period in 1997, resulted in lower 
prices in U.S. dollar terms for the Company's products.

Expenses increased to $90.0 million in the six months ended June 30, 1998, 
compared to $82.8 million in the same period of 1997, primarily as a result of 
increased sales volumes and fibre costs.  General and administrative expenses 
were $12.0 million in the six months ended June 30, 1998, compared to $12.1 
million in the comparative period of 1997.  Interest expense increased to $1.8 
million in the six months ended June 30, 1998 from $1.4 million in the six 
months ended June 30, 1997, as a result of increased indebtedness.

In the six months ended June 30, 1998, net income was $10.8 million or $0.71 
per share, compared to $7.3 million or $0.49 per share for the six months 
ended June 30, 1997.

Selected sales data for the Company for the six months ended June 30, 1998 and 
1997, respectively, is as follows: 

<TABLE>
<CAPTION>
                                              Six Months Ended June 30,
                                            -----------------------------
                                                1998             1997
                                            ------------     ------------
<S>                                         <C>              <C>
                                                   (in thousands)
Sales by Product Class
----------------------
Packaging papers                            $     15,847     $     15,014
Specialty papers                                  16,145           14,330
Printing papers                                   20,946           17,867
Pulp                                              40,383           35,782
Other                                              2,661            1,726
                                            ------------     ------------
Total(1)                                    $     95,982     $     84,719
                                            ============     ============
</TABLE>


FORM 10-Q
QUARTERLY REPORT - PAGE 10


<PAGE>  11


<TABLE>
<CAPTION>
                                              Six Months Ended June 30,
                                            -----------------------------
                                                1998             1997
                                            ------------     ------------
<S>                                         <C>              <C>
                                               (dollars in thousands)
Sales by Geographic Area
------------------------
Germany                                     $     52,273     $     48,061
European Union(2)                                 38,566           30,133
Other                                              5,143            6,525
                                            ------------     ------------
Total                                       $     95,982     $     84,719
                                            ============     ============

Sales by Volume                                        (tonnes)
---------------
Packaging papers                                  58,960           55,600
Specialty papers                                  19,576           17,732
Printing papers                                   29,062           26,548
Pulp                                              81,984           81,968
                                            ------------     ------------
Total                                            189,582          181,848
                                            ============     ============
--------------------
(1)   Excluding intercompany sales.
(2)   Not including Germany.
</TABLE>

Pulp and paper markets were generally stable in the current period with 
overall product prices slightly higher than in the comparative period of 1997. 
Sales volumes were 4.3% higher in the six months ended June 30, 1998, compared 
to the same period in 1997. 

In the six months ended June 30, 1998, pulp prices increased, on average, by 
approximately 12.8% compared to the six months ended June 30, 1997 as excess 
European pulp inventories were reduced.  However, weak Asian markets did not 
allow for a significant price increase.  The Company's pulp sales increased by 
12.9% to $40.4 million in the six months ended June 30, 1998 from $35.8 
million in the comparative period of 1997.

Overall paper prices also increased in the six months ended June 30, 1998,
compared to the same period of 1997, primarily as a result of increased
demand during the period for all paper grades.  In addition, particularly
strong demand for light weight coated papers resulted in product substitution
by certain end users, which led to increased demand for other printing and
writing grades.  Paper sales in the six months ended June 30, 1998 increased
by 12.1% to $52.9 million from $47.2 million in the six months ended June 30, 
1997 on a volume increase of 7.7% and an average price increase of 4.1%.
Sales volumes for packaging, specialty and printing papers increased in the
six months ended June 30, 1998 by 6.0%, 10.4% and 9.5%, respectively,
compared to the six months ended June 30, 1997.

Increased pulp and paper prices in the six months ended June 30, 1998 were 
partially offset during the period by increased fibre costs for wood chips and 
pulp wood used to produce pulp and increased prices for pulp used to produce 
paper, as compared to the same period in 1997.  On average, the Company's 
fibre costs for pulp production were up approximately 13.6% in the six months 
ended June 30, 1998, compared to the same period in 1997, but remained among 
the lowest in Europe.


FORM 10-Q
QUARTERLY REPORT - PAGE 11


<PAGE>  12

Recycled fibre costs were down approximately 5.9% in the six months ended June 
30, 1998, compared to the same period in 1997, and were down approximately 
7.0% from December 1997. 

RESULTS OF OPERATIONS - Three Months Ended June 30, 1998
--------------------------------------------------------

In the three months ended June 30, 1998, revenues increased to $48.3 million 
from $45.7 million in the same period in 1997, primarily as a result of higher 
prices.  However, as the Company's products are principally sold in 
deutschmarks, the depreciation of the deutschmark against the U.S. dollar by 
approximately 4.7% in the three months ended June 30, 1998, compared to the 
same period in 1997, resulted in lower prices in U.S. dollar terms for the 
Company's products.  The increase in revenues in the current period was 
partially offset by a decrease in investment revenue to $1.4 million in the 
second quarter of 1998 from $3.2 million in the comparative period of 1997.

Expenses increased to $43.7 million in the three months ended June 30, 1998, 
compared to $41.6 million in the same period of 1997, primarily as a result of 
an increase in the cost of sales due to higher fibre costs.  General and 
administrative expenses were $6.1 million in the three months ended June 30, 
1998, compared to $6.3 million in the comparative period of 1997.  Interest 
expense increased to $1.0 million in the three months ended June 30, 1998 from 
$0.5 million in the three months ended June 30, 1997, as a result of increased 
indebtedness.

In the three months ended June 30, 1998, net income was $4.5 million or $0.30 
per share, compared to $4.1 million or $0.27 per share for the three months 
ended June 30, 1997.

Selected sales data for the Company for the three months ended June 30, 1998 
and 1997, respectively, is as follows:

<TABLE>
<CAPTION>
                                                Quarter Ended June 30,
                                            -----------------------------
                                                1998             1997
                                            ------------     ------------
                                                   (in thousands)
<S>                                         <C>              <C>
Sales by Product Class
----------------------
Packaging papers                            $      7,416     $      8,003
Specialty papers                                   7,517            7,414
Printing papers                                   10,274            8,966
Pulp                                              19,790           17,381
Other                                              1,892              823
                                            ------------     ------------
Total(1)                                    $     46,889     $     42,587
                                            ============     ============

Sales by Geographic Area
------------------------
Germany                                     $     24,954     $     22,796
European Union(2)                                 19,955           17,353
Other                                              1,980            2,438
                                            ------------     ------------
Total                                       $     46,889     $     42,587
                                            ============     ============
</TABLE>


FORM 10-Q
QUARTERLY REPORT - PAGE 12


<PAGE>  13

<TABLE>
<CAPTION>
                                                Quarter Ended June 30,
                                            -----------------------------
                                                1998             1997
                                            ------------     ------------
                                                       (tonnes)
<S>                                         <C>              <C>
Sales by Volume
---------------
Packaging papers                                  27,067           29,011
Specialty papers                                   9,033            9,273
Printing papers                                   14,158           13,697
Pulp                                              39,695           40,523
                                            ------------     ------------
Total                                             89,953           92,504
                                            ============     ============
--------------------
(1)   Excluding intercompany sales.
(2)   Not including Germany.
</TABLE>

Pulp and paper markets were generally stable in the second quarter of 1998 
with overall product price increases in the three months ended June 30, 1998, 
compared to the same period of 1997.  Sales volumes were 2.8% lower in the 
three months ended June 30, 1998 compared to the same period in 1997. 

In the three months ended June 30, 1998, pulp prices increased, on average, by 
approximately 16.2% compared to the three months ended June 30, 1997 as excess 
European pulp inventories were reduced.  However, weak Asian markets did not 
allow for a significant price increase.  The Company's pulp sales increased by 
13.9% to $19.8 million in the three months ended June 30, 1998 from $17.4 
million in the comparative period of 1997 on a volume decrease of 2.0% and an 
average price increase of 16.2%.  

Overall paper prices also increased in the three months ended June 30, 1998,
compared to the same period of 1997. In addition, particularly strong demand
for light weight coated papers resulted in product substitution by certain
end users, which led to increased prices for other printing and writing
grades.  Paper sales in the three months ended June 30, 1998 increased by
3.4% to $25.2 million from $24.4 million in the three months ended June 30,
1997 on a volume decrease of 3.3% and an average price increase of 6.9%.
Sales volume for packaging and specialty papers decreased in the three months
ended June 30, 1998 by 6.7% and 2.6%, respectively, and sales volume for
printing papers increased by 3.4%, compared to the three months ended June
30, 1997.

Increased pulp and paper prices in the three months ended June 30, 1998 were 
partially offset during the period by increased fibre costs from prices for 
wood chips and pulp wood used to produce pulp and increased prices for pulp 
used to produce paper, as compared to the same period in 1997.  On average, 
the Company's fibre costs for pulp production were up approximately 12.7% in 
the three months ended June 30, 1998, compared to the same period in 1997, but 
remained among the lowest in Europe.  Recycled fibre costs were down 
approximately 12.4% in the three months ended June 30, 1998, compared to the 
same period in 1997.


FORM 10-Q
QUARTERLY REPORT - PAGE 13


<PAGE>  14

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

The following table is a summary of selected financial information concerning 
the Company for the periods indicated:

<TABLE>
<CAPTION>
                                            As at                As at
                                        June 30, 1998      December 31, 1997
                                        -------------      -----------------
                                                 (in thousands)
<S>                                     <C>                <C>
Financial Position
------------------
Working capital                         $      38,438         $      42,631
Total assets                                  233,628               210,294
Long-term government debt                       6,472                 8,338
Long-term debt - other                         23,720                 6,701
</TABLE>

At June 30, 1998, the Company's cash and cash equivalents totalled $4.0 
million, a net decrease of $0.4 million from $4.4 million at December 31, 
1997.  At June 30, 1998, the Company had short-term trading securities 
totalling $37.1 million, compared to $56.3 million at December 31, 1997.

Operating Activities
--------------------

Cash provided by operating activities was $3.6 million in the six months ended 
June 30, 1998, compared to $9.5 million in the six months ended June 30, 1997. 
An increase in accounts payable and accrued liabilities provided cash of $4.2 
million in the six months ended June 30, 1998, compared to a decrease in same 
using cash of $5.0 million in the six months ended June 30, 1997. An increase 
in investments used cash of $1.0 million in the six months ended June 30, 
1998, compared to a decrease in investments providing cash of $8.6 million in 
the six months ended June 30, 1997.  An increase in inventories used cash of 
$1.3 million in the six months ended June 30, 1998, compared to a decrease in 
inventories providing cash of $4.0 million in the six months ended June 30, 
1997.  An increase in receivables used cash of $10.1 million in the six months 
ended June 30, 1998, compared to $1.5 million in the six months ended June 30, 
1997.  The Company expects to generate sufficient cash flow from operations to 
meet its working capital requirements.

Investing Activities
--------------------

Investing activities in the six months ended June 30, 1998 used cash of $22.8 
million, consisting primarily of capital expenditures for upgrades to the 
Company's manufacturing plants and an increase in notes receivable, compared 
to $6.0 million in the six months ended June 30, 1997.

The Company expects gross capital expenditures in 1998, excluding the
conversion of its pulp mill from sulphite to kraft pulp, to be approximately
$5.5 million, which will be funded from cash, cash flow from operations and
non-refundable government grants.  In the first half of 1998, gross capital
expenditures were $1.5 million, compared to approximately $5.4 million in
the same period of 1997.

The Company commenced the conversion of its pulp mill from the production of 
sulphite pulp to kraft pulp in the second quarter of 1998.  Gross capital
expenditures on the conversion project were


FORM 10-Q
QUARTERLY REPORT - PAGE 14


<PAGE>  15

$11.7 million in the first half of 1998, compared to $0.9 million in the same
period of 1997.  The conversion is, among other things, expected to increase
the capacity of the pulp mill from 160,000 tonnes to 280,000 tonnes per annum 
and reduce the mill's emissions of sulphur dioxides and effluent 
substantially.  The estimated cost for the conversion is approximately $385 
million, which is being financed by a 15 year term loan in the aggregate 
amount of up to approximately $282 million from two merging German banks, non-
refundable governmental grants of up to approximately $97.5 million, 
governmental assistance and guarantees for long-term project financing, and an 
additional equity investment by the Company (the "Financing").  See the 
Company's Form 8-K dated July 6, 1998 for further details with respect to the 
Financing.  The Company estimates that, subject to receipt of all necessary 
permits and consents in the anticipated time frame, capital expenditures in 
respect of the conversion project in 1998 will be approximately $100 million. 
The conversion project is expected to be completed at or about the end of 1999.

As part of the restructuring of the Company's paper operations, the Company 
has completed the sale of its Raschau packaging paper facility and entered 
into an agreement to sell its Greiz paper mill, which is expected to complete 
in the second half of 1998.

Financing Activities
--------------------

Cash provided by financing activities was $18.7 million in the six months 
ended June 30, 1998, compared to cash used by financing activities of $7.2 
million in the six months ended June 30, 1997. A net increase in indebtedness 
provided cash of $17.4 million in the six months ended June 30, 1998, compared 
to a net decrease of $7.2 million in the same period of 1997.  The Company 
issued shares for net proceeds of $2.0 million in the six months ended June 
30, 1998, compared to $0.5 million in the six months ended June 30, 1997.  The 
Company paid a cash dividend of $0.6 million, or $0.04 per share, in the 
current period of 1998.

In the first half of 1998, the Company reported an unrealized foreign exchange 
translation gain of $0.1 million on cash and cash equivalents, which is 
included as shareholders' equity in the Company's balance sheet and does not 
affect the Company's net earnings. 

Other than the Company's plan to convert the production of its pulp mill from 
sulphite to kraft pulp, the Company had no material commitments to acquire 
assets or operating businesses as at June 30, 1998.  The Company anticipates 
that there will be acquisitions of businesses or commitments to projects in 
the future.  To achieve its long-term goals of expanding its asset and 
earnings base through mergers and acquisitions, the Company will require 
substantial capital resources.  The necessary resources will be generated from 
cash flow from operations, cash on hand, borrowing against its assets and/or 
the sale of assets.

FOREIGN CURRENCY
----------------

Substantially all of the Company's operations are conducted in international 
markets and its consolidated financial results are subject to foreign currency 
exchange rate fluctuations, in particular, those in Germany.  The Company's 
pulp and paper products are principally sold in deutschmarks and approximately 
99% of the Company revenues are denominated in deutschmarks.


FORM 10-Q
QUARTERLY REPORT - PAGE 15


<PAGE>  16

The Company translates foreign assets and liabilities into U.S. dollars at the 
rate of exchange on the balance sheet date.  Revenues and expenses are 
translated at the average rate of exchange prevailing during the period.
Unrealized gains or losses from these translations are recorded as
shareholders' equity on the balance sheet and do not affect the net earnings
of the Company.

Since substantially all of the Company's revenues are received in 
deutschmarks, the financial position of the Company for any given period, when 
reported in U.S. dollars, can be significantly affected by the exchange rate 
for deutschmarks prevailing during that period.  In the six months ended June 
30, 1998, the Company reported a net $0.1 million foreign exchange translation 
gain and, as a result, the cumulative foreign exchange translation loss 
decreased to $40.1 million at June 30, 1998 from $41.4 million at December 31, 
1997.

As both the Company's principal sources of revenues and expenses are in 
deutschmarks, the Company does not currently enter into any currency hedging 
arrangements for exchange rate fluctuations.

The average and period end exchange rates for the deutschmark to the U.S. 
dollar for the periods indicated are as follows:
<TABLE>
<CAPTION>

                          Period From                Quarter Ended               Quarter Ended
                  June 30 to August 12, 1998         June 30, 1998               June 30, 1997
                  --------------------------   --------------------------  --------------------------
                  Period End  Period Average   Period End  Period Average  Period End  Period Average
                  ----------  --------------   ----------  --------------  ----------  --------------
<S>               <C>         <C>              <C>         <C>             <C>         <C>
Rate of Exchange
Deutschmark          1.7746       1.7855          1.8032        1.7930        1.7438        1.7079
</TABLE>

Based upon the period average exchange rate in the first half of 1998, the 
U.S. dollar increased by approximately 0.4% in value against the deutschmark 
since December 31, 1997.

YEAR 2000
---------

Many of the world's computer systems currently record years in a two-digit 
format.  These computer systems will be unable to properly interpret dates 
beyond the year 1999, which could lead to business disruptions and is commonly 
referred to as the "Year 2000 issue".  The Company is conducting a 
comprehensive review of all significant applications that may require 
modification to ensure Year 2000 compliance.  The Company is utilizing both 
internal and external resources to make any required modifications and to test 
for Year 2000 compliance.  The modification and testing process of all 
significant applications is expected to be completed in 1999.  In addition, 
the Company has initiated communications with its significant suppliers and 
largest customers to ascertain their Year 2000 readiness and develop 
contingency plans as required.

Based upon its current information, management of the Company has determined 
that the Year 2000 issue will not pose significant operational problems for 
its computers.  The total cost to the Company of Year 2000 compliance 
activities has not been and is not currently anticipated to be material to its 
financial position or results of operations in any given year.  The costs and 
the dates on which the


FORM 10-Q
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<PAGE>  17

Company plans to complete Year 2000 modification and testing are based on 
management's best estimates, which were derived utilizing numerous
assumptions of future events.  However, there can be no assurance that these
estimates will be achieved and actual results could differ materially from
those anticipated.

CYCLICAL NATURE OF BUSINESS; COMPETITIVE POSITION
-------------------------------------------------

The pulp and paper business is cyclical in nature and markets for the 
Company's principal products are characterized by periods of supply and demand 
imbalance, which in turn affects product prices. The markets for pulp and 
paper are highly competitive and sensitive to cyclical changes in industry 
capacity and in the economy, both of which can have a significant influence on 
selling prices and the earnings of the Company.  Demand for pulp and paper 
products has historically been determined by the level of economic growth and 
has been closely tied to overall business activity. The competitive position 
of the Company is influenced by the availability and quality of raw materials 
(fibre) and its experience in relation to other producers with respect to 
inflation, energy, labour costs and productivity.  

                          PART II.  OTHER INFORMATION
                                    -----------------
ITEM 1.  LEGAL PROCEEDINGS

The Company is subject to routine litigation incidental to its business.  The 
Company does not believe that the outcome of such litigation will have a 
material adverse effect on its business or financial condition.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

In May 1998, in reliance on an exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act") and the rules
promulgated thereunder, as a transaction not involving a public offering
under Section 4(2) of the Securities Act, the Company issued, pursuant to an
underwriting agreement with Volendam Securities C.V. (the "Agent"), $12.0
million of 8% subordinated debentures maturing 2003 (as amended) with
non-detachable warrants entitling the holders to subscribe for up to an
aggregate of 2.0 million ordinary shares at, subject to a minimum, the market
price of the shares at the time of exercise.  The Agent received a fee of $0.7
million and reimbursement of certain expenses.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     Exhibit
     Number                        Description
     -------                       -----------

       10          English Translation of a Loan Agreement in the amount of DM
                   508,000,000 between Zellstoff- und Papierfabrik Rosenthal
                   GmbH & Co. KG,


FORM 10-Q
QUARTERLY REPORT - PAGE 17


<PAGE>  18

                   Blankenstein on the one hand and Bayerische Hypotheken-
                   und Wechsel-Bank Aktiengesellschaft, Munich and Bayerische
                   Vereinsbank Aktiengesellschaft, Munich on the other hand
                   dated July 6, 1998. Incorporated by reference from the
                   Company's Form 8-K dated July 6, 1998.

       27          Article 5 - Financial Data Schedule for the 2nd Quarter
                   1998 - Form 10-Q.

(b)  Reports on Form 8-K

     A report on Form 8-K dated July 6, 1998 was filed reporting under:

     Item 5.   Other Events.
     Item 7.   Financial Statements and Exhibits.


FORM 10-Q
QUARTERLY REPORT - PAGE 18


<PAGE>  19


                                  SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the 
Registrant has duly caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized.

                                    MERCER INTERNATIONAL INC.


                                    By:   /s/ Maarten Reidel
                                        ---------------------------------
                                        Maarten Reidel
                                        Secretary and Chief Financial Officer


Date: August 12, 1998


FORM 10-Q
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<PAGE>  20

                                 EXHIBIT INDEX

Exhibit
Number                          Description
-------                         -----------

   10              English Translation of a Loan Agreement in the amount of DM
                   508,000,000 between Zellstoff- und Papierfabrik Rosenthal
                   GmbH & Co. KG, Blankenstein on the one hand and Bayerische
                   Hypotheken- und Wechsel-Bank Aktiengesellschaft, Munich and
                   Bayerische Vereinsbank Aktiengesellschaft, Munich on the
                   other hand dated July 6, 1998. Incorporated by reference 
                   from the Company's Form 8-K dated July 6, 1998.

   27              Article 5 - Financial Data Schedule for the 2nd Quarter
                   1998 - Form 10-Q.