<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 September 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 15,395,722 shares of beneficial interest outstanding as at 
November 10, 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 NINE MONTHS ENDED SEPTEMBER 30, 1998

                                 (Unaudited)


FORM 10-Q
QUARTERLY REPORT - PAGE 2


<PAGE>  3


                          MERCER INTERNATIONAL INC.

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

<TABLE>
<CAPTION>
                                                 September 30,   December 31,
                                                     1998            1997
                                                 -------------   ------------
<S>                                              <C>             <C>
                                    ASSETS
Current Assets
   Cash and cash equivalents                      $    39,682     $     4,414
   Investments                                         15,447          56,285
   Receivables                                         41,293          22,329
   Inventories                                         22,559          15,799
   Other                                                2,084           1,557
                                                  -----------     -----------
      Total current assets                            121,065         100,384

Long-Term Assets
   Properties                                         136,120          87,806
   Investments                                         11,646           4,118
   Notes receivable                                    10,150           7,000
   Deferred income tax assets                          11,759          10,986
                                                  -----------     -----------
                                                      169,675         109,910
                                                  -----------     -----------
                                                  $   290,740     $   210,294
                                                  ===========     ===========

                                 LIABILITIES

Current Liabilities
   Accounts payable and accrued expenses          $    54,870     $    50,172
   Notes payable                                        1,568           3,252
   Debt                                                 2,064           4,329
                                                  -----------     -----------
      Total current liabilities                        58,502          57,753

Long-Term Liabilities
   Debt                                                73,988          15,039
   Other                                                1,998           2,027
                                                  -----------     -----------
                                                       75,986          17,066
                                                  -----------     -----------
      Total liabilities                               134,488          74,819

                             SHAREHOLDERS' EQUITY

Shares of beneficial interest                          91,648          88,603
Cumulative translation adjustment                     (29,241)        (41,376)
Net unrealized loss on investments valuation          (10,346)         (1,517)
Retained earnings                                     104,191          89,765
                                                  -----------     -----------
                                                      156,252         135,475
                                                  -----------     -----------
                                                  $   290,740     $   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 Nine Months Ended September 30, 1998 and 1997
                                 (Unaudited)
            (dollars in thousands, except for earnings per share)

<TABLE>
<CAPTION>
                                                      1998            1997
                                                  ------------    ------------
<S>                                               <C>             <C>
Revenues
   Sales                                          $   132,036     $   130,234
   Investments                                          8,470           8,166
                                                  -----------     -----------
                                                      140,506         138,400

Expenses
   Cost of sales                                      105,141         106,587
   General and administrative                          17,532          17,574
   Interest expense                                     2,720           2,149
                                                  -----------     -----------
                                                      125,393         126,310
                                                  -----------     -----------

Income from operations before income taxes             15,113          12,090
Income taxes                                               77              41
                                                  -----------     -----------

Net income                                             15,036          12,049

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

Retained earnings, end of period                  $   104,191     $   134,437
                                                  ===========     ===========

Earnings per share
   Basic                                          $      0.98     $      0.80
                                                  ===========     ===========
   Diluted                                        $      0.98     $      0.80
                                                  ===========     ===========
</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 September 30, 1998 and 1997
                                 (Unaudited)
             (dollars in thousands, except for earnings per share)

<TABLE>
<CAPTION>
                                                      1998            1997
                                                  ------------    ------------
<S>                                               <C>             <C>
Revenues
   Sales                                          $    36,054     $    45,515
   Investments                                          3,648           2,791
                                                  -----------     -----------
                                                       39,702          48,306
Expenses
   Cost of sales                                       28,971          37,328
   General and administrative                           5,511           5,465
   Interest expense                                       947             746
                                                  -----------     -----------
                                                       35,429          43,539
                                                  -----------     -----------

Income from operations before income taxes              4,273           4,767
Income taxes                                               34              13
                                                  -----------     -----------

Net income                                              4,239           4,754

Retained earnings, beginning of period                 99,952         129,683
                                                  -----------     -----------

Retained earnings, end of period                  $   104,191     $   134,437
                                                  ===========     ===========

Earnings per share
   Basic                                          $      0.28     $      0.32
                                                  ===========     ===========
   Diluted                                        $      0.28     $      0.31
                                                  ===========     ===========
</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 Nine Months Ended September 30, 1998 and 1997
                                 (Unaudited)
                            (dollars in thousands)

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

Net income                                        $    15,036     $    12,049

Other comprehensive income (loss):
   Foreign currency translation adjustments            12,135         (26,206)
   Unrealised (loss) gain on securities                (8,829)            732
                                                  -----------     -----------

   Other comprehensive income (loss)                    3,306         (25,474)
                                                  -----------     -----------

Total comprehensive income (loss)                 $    18,342     $   (13,425)
                                                  ===========     ===========
</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 September 30, 1998 and 1997
                                (Unaudited)
                            (dollars in thousands)

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

Net income                                        $     4,239     $     4,754

Other comprehensive income (loss):
   Foreign currency translation adjustments            10,841          (2,516)
   Unrealised (loss) gain on securities                (3,758)            192
                                                  -----------     -----------

   Other comprehensive income (loss)                    7,083          (2,324)
                                                  -----------     -----------

Total comprehensive income                        $    11,322     $     2,430
                                                  ===========     ===========
</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 Nine Months Ended September 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           $    15,036     $    12,049
  Adjustments to reconcile net income from
    continuing operations to cash 
    Depreciation and amortization                      10,054           8,880
    Non-cash asset acquisitions                        (7,634)        (11,670)
                                                  -----------     -----------
                                                       17,456           9,259
  Changes in current assets and liabilities
    Investments                                        23,091           2,672
    Inventories                                        (5,162)          3,118
    Receivables                                       (19,153)         (2,319)
    Accounts payable and accrued expenses              10,407          (6,314)
    Other                                                  49             112
                                                  -----------     -----------
      Net cash provided by operating activities        26,688           6,528

Cash Flows from Investing Activities:
  Increase in notes receivable, net                    (4,233)              -
  Purchase of fixed assets                            (40,973)         (8,496)
  Other                                                     6              26
                                                  -----------     -----------
      Net cash used in investing activities           (45,200)         (8,470)

Cash Flows from Financing Activities:
  Increase in bank indebtedness                        55,554           6,471
  Decrease in bank indebtedness                        (5,771)         (8,854)
  Net proceeds on issuance of shares
    of beneficial interest                              3,045             487
  Payment of dividend                                    (610)           (450)
  Other                                                  (172)              -
                                                  -----------     -----------
      Net cash provided by (used in)
      financing activities                             52,046          (2,346)

Effect of exchange rate changes on cash and
  cash equivalents                                      1,734            (570)
                                                  -----------     -----------

Net increase (decrease) in cash and
  cash equivalents                                     35,268          (4,858)

Cash and cash equivalents, beginning of period          4,414           9,967
                                                  -----------     -----------
Cash and cash equivalents, end of period          $    39,682     $     5,109
                                                  ===========     ===========
</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 NINE MONTHS ENDED SEPTEMBER 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 15,338,801 and 
15,086,761 for the nine months ended September 30, 1998 and 1997, 
respectively, and 15,352,602 and 15,111,084 for the three months ended 
September 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 nine months and three months ended 
September 30, 1998, respectively, should be read in conjunction with the 
consolidated financial statements and related notes included elsewhere herein.

RESULTS OF OPERATIONS - Nine Months Ended September 30, 1998
------------------------------------------------------------

In the nine months ended September 30, 1998, revenues increased to $140.5 
million from $138.4 million in the same period in 1997, as higher product 
prices offset a decrease in sales volumes. As the Company's products are 
principally sold in deutschmarks, the depreciation of the deutschmark against 
the U.S. dollar by approximately 3.7% in the nine months ended September 30, 
1998, compared to the same period in 1997, resulted in lower prices in U.S. 
dollar terms for the Company's products.

Expenses decreased to $125.4 million in the nine months ended September 30, 
1998, compared to $126.3 million in the same period of 1997, primarily as a 
result of a decrease in sales volumes for the Company's products in the 
current period.  General and administrative expenses were $17.5 million in the 
nine months ended September 30, 1998, compared to $17.6 million in the 
comparative period of 1997.  Interest expense increased to $2.7 million in the 
nine months ended September 30, 1998 from $2.1 million in the nine months 
ended September 30, 1997, as a result of increased indebtedness during the
current period.

In the nine months ended September 30, 1998, net income was $15.0 million or 
$0.98 per share, compared to $12.0 million or $0.80 per share for the nine 
months ended September 30, 1997.

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

<TABLE>
<CAPTION>
                                              Nine Months Ended September 30,
                                              -------------------------------
                                                   1998             1997
                                              --------------   --------------
<S>                                           <C>              <C>
                                                   (dollars in thousands)
Sales by Product Class
----------------------
Packaging papers(1)                            $     20,339     $     22,483
Specialty papers                                     23,573           21,419
Printing papers                                      31,440           26,744
Pulp                                                 54,177           56,706
Other                                                 2,507            2,882
                                               ------------     ------------
Total(2)                                       $    132,036     $    130,234
                                               ============     ============
</TABLE>


FORM 10-Q
QUARTERLY REPORT - PAGE 10


<PAGE>  11


<TABLE>
<CAPTION>
                                              Nine Months Ended September 30,
                                              -------------------------------
                                                   1998             1997
                                              --------------   --------------
<S>                                           <C>              <C>
                                                   (dollars in thousands)
Sales by Geographic Area
------------------------
Germany                                        $     71,973     $     71,125
European Union(3)                                    51,321           46,933
Other                                                 8,742           12,176
                                               ------------     ------------
Total                                          $    132,036     $    130,234
                                               ============     ============

                                                          (tonnes)
Sales by Volume
---------------
Packaging papers(1)                                  75,309           84,099
Specialty papers                                     28,300           27,092
Printing papers                                      43,482           40,647
Pulp                                                108,975          125,571
                                               ------------     ------------
Total                                               256,066          277,409
                                               ============     ============
-------------------------
(1)  The Company sold its packaging paper mill in Greitz during the nine
     months ended September 30, 1998.  Paper sales from the Greitz paper mill
     for the third quarter of 1998 were not included in the Company's results
     of operations for the nine months ended September 30, 1998.  The Greitz
     paper mill sold 6,568 tonnes of packaging paper for $1.9 million in
     revenues in the third quarter of 1998.
(2)  Excluding intercompany sales.
(3)  Not including Germany.
</TABLE>

Pulp and paper markets were generally stable in the current period with 
overall product prices 10.2% higher than in the comparative period of 1997.  
Sales volumes were 7.7% lower in the first nine months of 1998, compared to 
the same period in 1997. 

In the nine months ended September 30, 1998, pulp prices, on average, were up 
approximately 10.1% compared to the same period of 1997, as European pulp 
inventories were reduced.  Pulp sales decreased by 4.5% to $54.2 million in 
the nine months ended September 30, 1998 from $56.7 million in the comparative 
period of 1997, primarily as a result of a sales volume decrease of 13.2%. 

Paper prices, on average, were up approximately 10.1% in the nine months ended 
September 30, 1998, compared to the same period of 1997, primarily as a result 
of increased demand for specialty and printing papers. Paper sales in the nine 
months ended September 30, 1998 increased by 6.7% to $75.4 million from $70.6 
million in the nine months ended September 30, 1997, on a volume decrease of 
3.1% and an average price increase of 10.1%.  In the nine months ended 
September 30, 1998, sales volumes for packaging papers decreased by 10.5% and 
sales volumes for specialty and printing papers increased by 4.5% and 7.0%, 
respectively, compared to the nine months ended September 30, 1997.

Improved pulp and paper prices in the nine months ended September 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.  As a result, during 
the current period the Company changed its fibre input mix to use more lower-
grade materials, which partially reduced the effect of higher fibre costs.  On 
average, the Company's fibre


FORM 10-Q
QUARTERLY REPORT - PAGE 11


<PAGE>  12

costs for pulp production were up approximately 13.8% in the nine months ended 
September 30, 1998, compared to the same period in 1997, but remained among 
the lowest in Europe.  Recycled fibre costs were down approximately 5.8% in 
the nine months ended September 30, 1998, compared to the same period in 1997. 

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

In the three months ended September 30, 1998, revenues decreased to $39.7 
million from $48.3 million in the same period in 1997, primarily as a result 
of a decrease in sales volumes for the Company's products in the current 
period.  However, as the Company's products are principally sold in 
deutschmarks, the appreciation of the deutschmark against the U.S. dollar by 
approximately 2.6% in the three months ended September 30, 1998, compared to 
the same period in 1997, resulted in higher prices in U.S. dollar terms for 
the Company's products.  

Expenses decreased to $35.4 million in the three months ended September 30, 
1998, compared to $43.5 million in the same period of 1997, primarily as a 
result of lower sales volumes.  General and administrative expenses were $5.5 
million in the three months ended September 30, 1998 and 1997, respectively.  
Interest expense increased to $0.9 million in the three months ended September 
30, 1998 from $0.7 million in the three months ended September 30, 1997, as a 
result of increased indebtedness during the current period.

In the three months ended September 30, 1998, net income was $4.2 million or 
$0.28 per share, compared to $4.8 million or $0.32 per share on a basic 
basis for the three months ended September 30, 1997.

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

<TABLE>
<CAPTION>
                                                  Quarter Ended September 30,
                                                  ---------------------------
                                                      1998           1997
                                                  ------------   ------------
<S>                                               <C>            <C>
                                                    (dollars in thousands)
Sales by Product Class
----------------------
Packaging papers(1)                                $    4,492     $    7,469
Specialty papers                                        7,428          7,089
Printing papers                                        10,494          8,877
Pulp                                                   13,794         20,924
Other                                                    (154)         1,156
                                                   ----------     ----------
Total(2)                                           $   36,054     $   45,515
                                                   ==========     ==========
</TABLE>


FORM 10-Q
QUARTERLY REPORT - PAGE 12


<PAGE>  13


<TABLE>
<CAPTION>
                                                  Quarter Ended September 30,
                                                  ---------------------------
                                                      1998           1997
                                                  ------------   ------------
<S>                                               <C>            <C>
                                                    (dollars in thousands)
Sales by Geographic Area
------------------------
Germany                                            $   19,700     $   23,064
European Union(3)                                      12,755         16,800
Other                                                   3,599          5,651
                                                   ----------     ----------
Total                                              $   36,054     $   45,515
                                                   ==========     ==========

                                                            (tonnes)
Sales by Volume
---------------
Packaging papers(1)                                    16,349         28,499
Specialty papers                                        8,724          9,360
Printing papers                                        14,420         14,099
Pulp                                                   26,991         43,603
                                                   ----------     ----------
Total                                                  66,484         95,561
                                                   ==========     ==========
-------------------------
(1)  The Company sold its packaging paper mill in Greitz during the nine
     months ended September 30, 1998.  Paper sales from the Greitz paper mill
     for the third quarter of 1998 were not included in the Company's results
     of operations for the three months ended September 30, 1998.  The Greitz
     paper mill sold 6,568 tonnes of packaging paper for $1.9 million in
     revenues in the third quarter of 1998.
(2)  Excluding intercompany sales.
(3)  Not including Germany.
</TABLE>

While product prices were higher in the current period compared to the same 
period of 1997, product demand was materially weaker.  As a result, sales 
volumes were 30.4% lower in the three months ended September 30, 1998, compared 
to the same period of 1997. Paper prices remained relatively stable during the 
current period, but the weakness in demand eroded pulp prices towards the end 
of the current period.

In the three months ended September 30, 1998, pulp prices increased, on 
average, by approximately 6.5% compared to the three months ended September 
30, 1997, as European pulp inventories were reduced.  The Company's pulp sales 
decreased by 34.1% to $13.8 million in the three months ended September 30, 
1998 from $20.9 million in the comparative period of 1997, on a volume 
decrease of 38.1% and an average price increase of 6.5%.  

Paper sales in the three months ended September 30, 1998 decreased by 4.4% to 
$22.4 million from $23.4 million in the three months ended September 30, 1997, 
on a volume decrease of 24.0% and an average price increase of 25.8%.  In the 
three months ended September 30, 1998, sales volume for packaging and 
specialty papers decreased by 42.6% and 6.8%, respectively, and sales volume 
for printing papers increased by 2.3%, compared to the three months ended 
September 30, 1997.

Improvements in prices in the current period were partially offset by 
increased fibre costs, as compared to the same period in 1997.  During the 
current period, the Company changed its fibre input mix to use more lower-
grade materials.  On average, the Company's pulp fibre costs were up 
approximately 14.2% in the three months ended September 30, 1998, compared to 
the same period


FORM 10-Q
QUARTERLY REPORT - PAGE 13


<PAGE>  14


in 1997.  Recycled fibre costs were down approximately 5.5% in the three 
months ended September 30, 1998, compared to the same period in 1997.  

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
                                        September 30, 1998   December 31, 1997
                                        ------------------   -----------------
<S>                                     <C>                  <C>
                                                    (in thousands)
Financial Position
------------------
Working capital                           $        62,563     $        42,631
Total assets                                      290,740             210,294
Long-term government debt                           7,588               8,338
Long-term debt - other                             66,400               6,701
</TABLE>

At September 30, 1998, the Company's cash and cash equivalents totalled $39.7 
million, a net increase of $35.3 million from $4.4 million at December 31, 
1997.  At September 30, 1998, the Company had short-term trading securities 
totalling $15.4 million, compared to $56.3 million at December 31, 1997.

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

Cash provided by operating activities was $26.7 million in the nine months 
ended September 30, 1998, compared to $6.5 million in the nine months ended 
September 30, 1997.  A decrease in investments provided cash of $23.1 million 
in the nine months ended September 30, 1998, compared to $2.7 million in the 
nine months ended September 30, 1997.  An increase in accounts payable and 
accrued liabilities provided cash of $10.4 million in the nine months ended 
September 30, 1998, compared to a decrease in same using cash of $6.3 million 
in the nine months ended September 30, 1997.  An increase in receivables and 
inventories used cash of $19.2 million and $5.2 million, respectively, in the 
current period.  The Company expects to generate sufficient cash flow from 
operations to meet its working capital requirements.

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

Investing activities in the nine months ended September 30, 1998 used cash of 
$45.2 million, consisting primarily of capital expenditures for upgrades to 
the Company's manufacturing plants, compared to $8.5 million in the nine 
months ended September 30, 1997.

The Company expects gross capital expenditures in 1998, excluding the 
conversion of its pulp mill from the production of 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 nine months of 
1998, gross capital expenditures (excluding costs in respect of the pulp mill 
conversion project) were $2.2 million, compared to approximately $8.9 million 
in the same period of 1997. 


FORM 10-Q
QUARTERLY REPORT - PAGE 14


<PAGE>  15


The Company commenced the conversion of its pulp mill from the production of 
sulphite pulp to kraft pulp in the second quarter of 1998.  The Company's 
gross capital expenditures in respect of the conversion project to September 
30, 1998 were $61.1 million.  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 16, 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.

In the nine months ended September 30, 1998, the conversion project was on 
plan.  The Company received its initial financing advance on time and has 
entered into contracts for the purchase of equipment to be utilized upon the 
conversion.  Currently, the Company has entered into contracts in excess of 
60% of the capital budget for the conversion and the Company does not 
currently anticipate any significant delays or cost overruns with respect to 
the conversion project.  In addition, the Company has commenced preparations 
for the installation of certain vital equipment at the pulp mill relating to 
the conversion.  Much of the basic civil engineering work with respect to the 
conversion, such as the laying of foundations, is expected to be completed by 
the end of November 1998.  It is currently anticipated that the conversion 
will be completed by the third quarter of 1999.

As part of the restructuring of the Company's paper operations, the Company 
completed the sale of its Raschau packaging paper facility during the period 
and completed the sale of its Greitz paper mill in early September 1998.

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

Cash provided by financing activities was $52.0 million in the nine months 
ended September 30, 1998, compared to cash used by financing activities of 
$2.3 million in the nine months ended September 30, 1997.  A net increase in 
bank indebtedness, including the borrowings in connection with the Company's 
pulp mill conversion project, provided cash of $49.8 million in the nine 
months ended September 30, 1998, compared to a net decrease in bank 
indebtedness using cash of $2.4 million in the same period of 1997.  The 
Company issued shares for net proceeds of $3.0 million in the nine months 
ended September 30, 1998, compared to $0.5 million in the nine months ended 
September 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 nine months ended September 30, 1998, the Company reported an 
unrealized foreign exchange translation gain of $1.7 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.


FORM 10-Q
QUARTERLY REPORT - PAGE 15


<PAGE>  16


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 September 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.

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 nine months ended 
September 30, 1998, the Company reported a net $12.1 million foreign exchange 
translation gain and, as a result, the cumulative foreign exchange translation 
loss decreased to $29.2 million at September 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
                 September 30 to November 10, 1998       September 30, 1998           September 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          1.6873           1.6719           1.6698        1.7606         1.7670        1.8059
</TABLE>

Based upon the period average exchange rate in the first nine months of 1998, 
the U.S. dollar decreased by approximately 0.5% in value against the 
deutschmark since December 31, 1997.


FORM 10-Q
QUARTERLY REPORT - PAGE 16


<PAGE>  17


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 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.


FORM 10-Q
QUARTERLY REPORT - PAGE 17


<PAGE>  18


                          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

As reported in the Company's Form 10-Q for the period ended June 30, 1998, in 
May 1998 the Company issued $12.0 million of 8% subordinated debentures 
maturing 2003 with non-detachable warrants entitling the holders to subscribe 
for up to an aggregate of 2.0 million ordinary shares, subject to a minimum, 
at the market price for the shares at the time of exercise.  The debentures 
are convertible at any time prior to maturity into shares of common stock in 
the capital of the Company at a conversion price equal to the greater of:  (i) 
$6.00 per share, or (ii) the average trading closing price of the shares on 
the NASDAQ National Market over the 10 day trading period immediately prior to 
the date of conversion of the debentures.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of shareholders on July 10, 1998.  At the 
meeting, C.S. Moon and Maarten Reidel were re-elected as Class I Trustees of 
the Company, each for a three year term, as follows:

                                                            ABSTENTIONS AND
                         VOTES FOR      VOTES WITHHELD      BROKER NON-VOTES
                         ----------     --------------      ----------------
C.S. Moon                10,546,363         35,063                  -
Maarten Reidel           10,546,363         35,063                  -

Jimmy S.H. Lee and Michel Arnulphy continued their respective terms as 
Trustees of the Company.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

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

        27            Article 5 - Financial Data Schedule for the 3rd Quarter
                                  1998 Form 10-Q.

(b)  Reports on Form 8-K

     None.


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:  November 13, 1998


FORM 10-Q
QUARTERLY REPORT - PAGE 19


<PAGE>  20


                                EXHIBIT INDEX

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

  27             Article 5 - Financial Data Schedule for the 3rd Quarter
                             1998 Form 10-Q.