Global Graphic Paper OutlookObstacles and Opportunities for the Latin American Market
Derek MahlburgSenior Economist, Graphic Paper
Sao Paolo, RISI Latin American ConferenceAugust 17, 2016
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• Has covered graphic paper markets with RISI since 2008
• Co‐author of the monthly Paper Trader and North American graphic paper forecasts
• Special studies include single‐client projects and Global Woodfree Risk of Closure Study, North American Containerboard Conversion Study, and Global Outlook for Cut Size Uncoated Freesheet Markets
Senior Economist, Graphic PapersDerek Mahlburg
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44
Global P&W Demand Declining Steadily with the Largest Hit in the Mechanical Grades
Percentage Change in Global Demand by Grade
2011 2012 2013 2014 Prelim. 2015 Average
Coated Freesheet -0.3% -0.7% -1.1% -1.6% -3.6% -1.5%
Coated Mechanical -3.8% -3.2% -6.1% -3.5% -5.7% -4.4%
Uncoated Freesheet +1.0% -0.2% +0.1% -0.7% -0.7% -0.1%
Uncoated Mechanical -3.9% -7.4% -0.7% -3.9% -5.9% -4.4%
Printing & Writing -0.7% -1.7% -1.1% -1.7% -2.7% -1.6%
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55
P&W Paper Demand for 2016 and 2017 Shows Slow Decline, but Varies by RegionThousand Tonnes, Percent per Year 2015‐2017
Global ‐2,582 (‐1.3%)
51 (1.2%)
‐1,222 (‐3.0%)
‐141 (‐0.2%)
52 (1.2%)
62 (0.5%)
‐39 (‐1.5%)
‐1,142 (‐3.1%)
‐154 (‐1.4%)
2‐year total growth in tonnes(2‐year average % change)
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World Uncoated Freesheet DemandMillion Tonnes, Percent Change
2013 2014 2015 2016 2017 2018
North America 8.8 8.4 8.3 8.1 7.8 7.7% Change ‐0% ‐5% ‐0% ‐3% ‐3% ‐2%
Western Europe 7.2 7.1 7.0 6.9 6.7 6.6% Change ‐3% ‐1% ‐2% ‐2% ‐2% ‐2%
Eastern Europe 3.1 3.1 3.1 3.1 3.1 3.1% Change 1% 0% 1% ‐1% 1% 1%
Far East 27.7 27.7 27.8 28.1 28.3 28.6% Change 1% 0% 0% 1% 1% 1%
Latin America 3.6 3.7 3.5 3.4 3.4 3.4% Change 0% 2% ‐6% ‐3% 0% 1%
Middle East, Africa, Oceania 3.2 3.3 3.1 3.2 3.2 3.3% Change ‐4% 2% ‐5% 1% 1% 2%
Total 53.7 53.3 52.9 52.7 52.6 52.8% Change 0% ‐1% ‐1% ‐0% ‐0% 0%
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77
Decline of Global Newsprint Demand Causing Heavy Export CompetitionThousand Tonnes, Percent per Year 2015‐2017
Global: ‐2,184 (‐4.6%)
‐8 (‐1.5%)
‐732 (‐6.6%)
‐582 (‐2.8%)
‐34 (‐3.0%)
‐120 (‐3.9%)
‐37 (‐4.2%)
‐582 (‐8.3%)
‐89 (‐3.5%)
2‐year total growth in tonnes(2‐year average % change)
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99
US P&W Demand Declined 5.2% in 2015 and Will Fall 4.1% in 2016US Apparent Consumption, Thousand Tonnes, Seasonally Adjusted
Coated Freesheet
CoatedMechanical
UncoatedFreesheet
Uncoated Mechanical
2015 3,395 2,617 7,568 3,069
% Change -3.4% -11.5% -0.1% -12.5%
2016: 6 months 1,692 1,200 3,629 1,439
% Change -4.0% -7.7% -3.5% -3.8%
RISI Forecast for 2016 -1.8% -9.7% -2.8% -5.0%
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1010
North American Demand ForecastPercentage Change by Grade
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
CFS Cme UFS Ume
20142015201620172018
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North American UFS Demand by Grade Million Tonnes, Percentage Change
2014 2015 2016 2017 2018 Offset & Opaque 1.53 1.57 1.56 1.48 1.42
% Change ‐9% 2% ‐0% ‐5% ‐4%Business (Cut Size) 4.01 3.95 3.78 3.71 3.69
% Change ‐2% ‐1% ‐5% ‐2% ‐1%Envelope 0.77 0.80 0.81 0.78 0.75
% Change ‐5% 4% 2% ‐4% ‐3%Cover & Text 0.18 0.17 0.15 0.14 0.13
% Change 10% ‐7% ‐12% ‐4% ‐4%Formbond 0.50 0.55 0.54 0.50 0.48
% Change ‐9% 10% ‐2% ‐7% ‐4%Carbonless 0.18 0.17 0.15 0.15 0.14
% Change ‐16% ‐8% ‐8% ‐5% ‐5%All Other * 1.20 1.15 1.12 1.08 1.05
% Change ‐8% ‐4% ‐3% ‐3% ‐3%Total 8.36 8.34 8.10 7.84 7.67% Change ‐5% ‐0% ‐3% ‐3% ‐2%
* Includes cotton and bristol.
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1212
US Monthly Demand for Cut Size PaperThousand Tonnes
0%
5%
10%
15%
20%
25%
0
50
100
150
200
250
300
350
400
450
500
2012 2013 2014 2015 2016
Offshore ImportsDomesticImport Share (R)
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1414
Tariffs on Major Offshore Suppliers of Cut Size Copy Paper to the USAHigh US prices and the resulting flood of imports led to anti‐dumping and countervailing duties against offshore suppliers
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Final ADD
Final CVD Combined
Australia Paper 222% 222%
Suzano 22% 22%
Portucel 8% 8%
April Indonesia 2% 21% 23%
APP Indonesia 17% 109% 126%
Asia Symbol (China) 84% 7% 91%
APP China 149% 7% 156%
UPM China 149% 177% 326%
Sun Paper China 149% 177% 326%
• Prohibitively high tariffs for Australia, China and APP
• Two suppliers remained active in the market throughout the process, while a third supplier returned to the market in January 2016 after lower final rates announced
• Some Asian suppliers have developed new, lower brightness cut size products that have led US producers to petition for further action on these grades
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Effect of Tariffs on US Cut Size ImportsUS imports from target countries down 470,000 tonnes from 2014 levels, offset by increase of 90,000 tonnes from non‐target countries
0%
5%
10%
15%
20%
25%
0
100
200
300
400
500
600
700
800
900
Impo
rt S
hare
of D
eman
d
Impo
rts,
Tho
usan
d To
nnes
Portugal IndonesiaChina/HK BrazilAustralia Five-Country Import Share
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
0
20
40
60
80
100
120
140
Impo
rt S
hare
of D
eman
d
Impo
rts,
Tho
usan
d To
nnes
All Others Israel Germany
Finland Thailand France
Import Share
Imports from Tariff-Target Countries Imports from Non-Target Countries
*Four‐month estimate
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Effect of Cut Size Tariffs on US Import Levels• Low tariff amount for Portugal, while exchange rate offsets some of tariffs for Brazil Portucel, Brazilian producers and April (Indonesia) remain active in US market
APP, other Chinese and Indonesian producers and Australian paper shut out of US market
Stora Enso, Double A and others increase exports to USA, but not enough to fully offset declines
• On net, tariffs divert about 350,000 tonnes of cut size imports to the USA
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Brazilian Uncoated Woodfree Exports by DestinationCurrency fluctuations allow market share gains in Latin America, offsetting decline to North America; total exports in 2016 on pace to rise 14% compared to 2014
0
200
400
600
800
1,000
1,200
2010 2011 2012 2013 2014 2015 2016*
Thou
sand
Ton
nes
North America Europe Latin America Asia Middle East Africa Oceania
*Six‐month estimate
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1818
Cut Size Exports by Region for China and IndonesiaChinese and Indonesian cut size paper exports to Europe increase, but not quite enough to offset decrease to North America
0
20
40
60
80
100
120
140
160
180
2014 2015 2016
Three Mon
th Rollin
g Av
erage,
Thou
sand
Ton
nes
Africa Asia Far EastLatin America Middle EastNorth America OceaniaEastern Europe Western Europe
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2020
Latin American Demand: Struggles Continue in 2016, Will Demand Stabilize in 2017?
* Annual growth rate 2016‐2018
• UFS largest and healthiest, but still sank 6% in 2015
• Graphic demand drop of 8% in 2015 is fourth straight year of loss
• RISI predicts another 3% decline in 2016
• Optimistically expecting flat performance in 2017 and mild growth in 2018
• Newsprint and Ume (directory) in long‐term retreat
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
00 02 04 06 08 10 12 14 16 18
Thou
sand
Ton
nes
News -2.7% *UFS -0.6%CFS -0.5%Cme 0.2%Ume -1.9%
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2121
Net Import Share of Latin American Demand for Graphic Paper Domestic production steady as imports bear almost all of the decline in demand
0%5%10%15%20%25%30%35%40%45%
0.01.02.03.04.05.06.07.08.09.0
Impo
rt S
hare
of D
eman
d,
Perc
ent
Dem
and,
Mill
ion
Tonn
es
Net ImportsProductionNet Import Share of Demand (R)
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Printing & Writing Demand Growth Slows Compared to GDPRatio of Printing & Writing Demand (Thousand Tonnes) to GDP (Billions of US Dollars)
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
ArgentinaTotal Latin AmericaBrazilMexico
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Latin American Printing & Writing Demand by CountryExcluding Brazil, Ecuador and Venezuela, printing & writing demand is still growing modestly
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Thou
sand
Ton
nes
Argentina Chile Mexico Colombia Peru Bolivia Other Brazil Venezuela Ecuador
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2424
Central American P&W Demand on an Upward Trend
0
50
100
150
200
250
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Thou
sand
Ton
nes
Costa Rica Guatemala Honduras Panama Nicaragua Belize
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Latin American per Capita Printing & Writing Consumption Still Well Below North American, Western European Levels
0
2
4
6
8
10
12
14
40
50
60
70
80
90
100
110
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Prin
ting
& W
ritin
g D
eman
d/Po
pula
tion,
kg
per
per
son
North AmericaWestern EuropeLatin America (R)Asia (R)
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2626
Main Sources of P&W Demand Growth Over Next Three Years Will Be Peru and Mexico
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
-500
-400
-300
-200
-100
0
100
200
Thou
sand
Ton
nes
Tonnage Change 2012-2015
Tonnage Change 2015-2018
Percentage Change 2015-2018 (R)
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2727
Imports Supply a Growing Share of Mexican Graphic Paper Demand
40%42%44%46%48%50%52%54%56%58%60%
0200400600800
1,0001,2001,4001,6001,8002,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Dem
and,
Tho
usan
d To
nnes
UFS CFS CME Ume New Net Import Share of Total Graphic Demand
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2828
Mexican Imports of Printing & Writing Paper Increasingly Coming from Asia
0
100
200
300
400
500
600
2010 2011 2012 2013 2014 2015 2016*
Mexican
Impo
rts, Tho
usan
d Tonn
es
North America Europe Asia Far East Latin America/Other
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*Four‐month estimateSource: GTA
2929
Mexican Imports from Asia by GradeMain focus is still on coated, despite US uncoated woodfree tariffs
0
10
20
30
40
50
60
70
2010 2011 2012 2013 2014 2015 2016*
Mex
ican
Impo
rts,
Tho
usan
d To
nnes Ume
Cme
UFS
CFS
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*Four‐month estimateSource: GTA
3030
Uncoated Woodfree Operating RatesAsian and Latin American operating rates are historically low, while US operating rates climb thanks to Ashdown conversion
84%
86%
88%
90%
92%
94%
96%
98%
100%Europe Asia Brazil Latin America North America
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Cash Costs for Uncoated Woodfree Xerographic Delivered to NYC, 1Q16Brazil very competitive shipping paper to US markets
China and Indonesia
EuropeBrazil USA
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Prices for 20 lb/75 gsm Copy Paper in the USA and EuropeUS prices are unprecedentedly above Europe due to the strong dollar, limiting opportunity for US price hikes and encouraging imports from Europe
700
800
900
1,000
1,100
1,200
1,300
1,400
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US
Dol
lars
per
Ton
ne, E
uros
pe
r Ton
ne
USAEuropeEurope (in Euros)
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Global UWF Copy Paper PricesDollar‐denominated prices are at a low point in the cycle for most regions
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
2011 2012 2013 2014 2015 2016
US
Dol
lars
per
Ton
ne
USAEuropeChina (100% Virgin)Brazil
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Uncoated Woodfree Offset PricesUnlike with cut size, US prices gained ground in the first half of 2016 despite gap with Europe
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
2011 2012 2013 2014 2015 2016
US
Dol
lars
per
Ton
ne
USA ReelsBrazil Imported SheetsMexico Imported SheetsEurope Reels
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Price to Mill Cash Cost MarginsAverage for all existing mills in North America/Western Europe
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
2011 2012 2013 2014 2015 2016 2017 2018
Price/Mill Cash Co
sts
NA Newsprint NA CME ‐ 40 lbNA CFS ‐ 60 lb. rolls NA Copy PaperNA Ume‐SC WE Copy Paper
Forecast
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Summary• Global demand for all graphic papers declining With the possible exception of uncoated freesheet Latin American graphic paper demand has been declining since 2011
• Better performances outside of Brazil, Ecuador, Venezuela
• Weak demand has kept global operating rates low But exchange rates benefitting net trade Latin American suppliers maintaining or increasing activity in US cut size market
Asian oversupply remains an issue for global market
• Prices high in North America due to strong dollar Global price gap and continuing US imports restrain cut size
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World Graphic Paper 5‐Year Forecastwww.risi.com/worldgraphic
Global Cut Size Uncoated Freesheet Studywww.risi.com/cutsize
China’s Influence on WorldGraphic Paper Markets in theComing Decadewww.risi.com/chinagraphic
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