global graphic paper outlook...* annual growth rate 2016‐2018 • ufs largest and healthiest, but...

Global Graphic Paper OutlookObstacles and Opportunities for the Latin American Market

Derek MahlburgSenior Economist, Graphic Paper

Sao Paolo, RISI Latin American ConferenceAugust 17, 2016

© Copyright 2016 RISI, Inc. | Proprietary Information

• 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

[email protected]

© Copyright 2016 RISI, Inc. | Proprietary Information 2

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%


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)


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%


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)


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%


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


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.


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)


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

© Copyright 2016 RISI, Inc. | Proprietary Information

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


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


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


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


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


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%


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)


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


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


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


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)


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)


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


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


*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


*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


Cash Costs for Uncoated Woodfree Xerographic Delivered to NYC, 1Q16Brazil very competitive shipping paper to US markets

China and Indonesia

EuropeBrazil USA


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)


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


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


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


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


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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global graphic paper outlook...* annual growth rate 2016‐2018 • ufs largest and healthiest, but...

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