global graphic paper outlook - forest products industry events · the industry since 2009 •...

Global Graphic Paper OutlookWinners and losers of our de‐globalizing world

Alejandro MataSenior Economist, European Forest Products

RISI European ConferenceAmsterdam – March 2017

© Copyright 2017 RISI, Inc. | Proprietary Information

Alejandro Mata

• Bachelor’s degree in Engineering, MBA degree earned in 2007

• Worked in business and market intelligence functions for one of Europe’s leading paper producers

• Has been analyzing and forecasting the industry since 2009

• Author of the Paper Trader Europe, Paper Packaging Monitor Europe, the European Graphic 5‐Year and 15‐Year Forecasts and the Packaging Paper 5‐Year and 15‐Year Forecasts

Economist, European Forest Products

[email protected]

© Copyright 2017 RISI, Inc. | Proprietary Information 2

3© Copyright 2017 RISI, Inc. | Proprietary Information

De‐globalization

Change merely for the sake of change is not wise…

But is needed in order to progress

“It is not the strongest of the species that survive, nor the most intelligent,

but the one most responsive to change.” ‐ Darwin

Protectionism Uncertainty

How is the graphics industry impacted?

Who are the winners and losers?

How will things will continue to change?


Newsprint24

Printing & Writing102

Tissue35

Cartonboard / Other92

Containerboard 156

Global Paper and Board Demand409 Million Tonnes

Forecast Change2016-2018

Newsprint -4.0%

Printing & Writing -1.2%

Tissue +3.5%

Containerboard +3.0%

Cartonboard +2.0%

5

Graphic Paper Demand Forecast for 2016‐18 Shows Slow Decline, but Varies by RegionThousand Tonnes, Percent per Year

Global ‐6,420 (‐1.7%)

67 (0.9%)

‐3,035 (‐4.0%)

‐679 (‐0.4%)

23 (0.3%)

2 (0.0%)

‐88 (‐1.7%)

‐2,435 (‐3.8%)

‐275 (‐1.3%)

Three‐year total growth in tonnes(Three‐year average % change)


6

Newsprint and Coated Grades Will Be the Most Impacted Globally

24

660

1,457

1,480

2,798

0 2,000

UWF

Umec

Cmec

CWF

Newsprint-4.0%

-4.0%

-2.0%

-1.9%

0.0%0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2010 2011 2012 2013 2014 2015 2016 2017* 2018*

Newsprint DemandNorth America Europe Asia Latin America RoW

-3.5%**

-2.5%***-5.7%**

-5.0%***-7.4%**

-6.9%***

* Forecast ** CAGR 10-16 *** CAGR 16-18


7

24

660

1,457

1,480

2,798

0 2,000

UWF

Umec

Cmec

CWF

Newsprint-4.0%

-4.0%

-2.0%

-1.9%

0.0%0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2010 2011 2012 2013 2014 2015 2016 2017* 2018*

Coated Woodfree DemandNorth America Europe Asia Latin America RoW


-0.2%**-1.2%***

-3.0%**-3.6%***

-2.6%**

-2.3%***


Global Coated Woodfree Trade Flows Are Changing

8

Coated Mechanical Demand Concentrated on Mature Markets

24

660

1,457

1,480

2,798

0 2,000

UWF

Umec

Cmec

CWF

Newsprint-4.0%

-4.0%

-2.0%

-1.9%

0.0%0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2010 2011 2012 2013 2014 2015 2016 2017* 2018*

Coated Mechanical DemandNorth America Europe Asia Latin America RoW


-2.8%**-3.6%***

-5.1%**

-4.4%***

-7.7%**

-6.3%***


Global P&W Demand Posted Unusually Large Declines in 2015 and 2016

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

Glo

bal P

&W

Dem

and

Gro

wth

Cha

nge

in G

loba

l Dem

and

(Tho

usan

d To

nnes

)

Thousand Tonnes Percent


Capacity Is Shrinking, but Not Fast EnoughOperating rates of 88% indicate weak global market

83%

84%

85%

86%

87%

88%

89%

90%

91%

92%

93%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Glo

bal P

&W

Ope

ratin

g R

ate

(%)

Cha

nge

in G

loba

l Cap

acity

(%)

Change in Capacity Operating Rate (%)

© Copyright 2017 RISI, Inc. | Proprietary Information 10


0 2,000 4,000 6,000 8,000

Cmec

Newsprint

Umec

CWF

UWF

2016 Demand

The Trump Effect

Declining demand and oversupply prompting producers to export more

The USA is an obvious target Strong dollar leads to high prices Large, well‐defined and open market

(before tariffs) Mill closures

The Trump effect His presidency might result in more

trade barriers


Current Import Tariffs into the USA

Coated sheets from China and Indonesia since 2010 CVD tariffs on China of 19% to 203% and on Indonesia of 18% ADD duties at 8% to 136% for major China producers and 20% for

Indonesia

Canadian SC producers paying 18‐20% tariff since mid‐2015

Tariffs have been revised down in the meantime

Tariffs now in place for copy paper imports from all current major offshore suppliers

13

How Much Is at Stake in the USA?

0 2,000 4,000 6,000 8,000

Newsprint

Umec

Cmec

UWF

CWF

US Demand per Grade, 2016

Production Net Imports

UWF is the largest segment for the United States, which is why trade barriers have been rising

ADD CVD

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%

If the USA becomes more protected, who is exposed

to this market?


US Imports of Cut Size Copy Paper from Five Tariff Target Countries

0%

5%

10%

15%

20%

25%

0

100

200

300

400

500

600

700

800

900

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20167mo

Impo

rt Sha

re of D

eman

d

Impo

rts, Tho

usan

d Tonn

es

PortugalIndonesiaChina/HKBrazilAustraliaFive‐Country Import Share


2016 annualized estimate from seven months of data

14

US Imports of Cut Size Copy Paper from Non‐Tariff Target Countries

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

0

20

40

60

80

100

120

140

160

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20167mo

Impo

rt Sha

re of D

eman

d

Impo

rts, Tho

usan

d Tonn

es

All Others Israel GermanyFinland Thailand FranceImport Share


2016 annualized estimate from seven months of data

15

16

Who Is Exposed to the USA?

66%

19%

10%

4%

Graphic Paper Exports to the USA by Region

Canada Europe Asia Latin America Other


Umec

New

sprin

t

CWF

UWF

CWF

UWF

Cmec

Umec

17

Where Are Opportunities Rising?

Umec &Newsprint

UWF &Newsprint

Coated & UWF

US Share of Global Exports

Umec 9%Newsprint 7%Cmec 13%UWF 13%CWF 13%

Areas and segments in which the USA might export less in the future due to tighter local markets, a strong US dollar and possible capacity closures


19

Rising Costs for End‐Users, Better Operating Conditions for Producers

0 200 400 600 800 1,000 1,200

Newsprint

Umec

Cmec

UWF

CWF

UK Demand per Grade, 2016

Production Net Imports

UK relies on imports

Suppliers to the UK affected by weak pound, which means they will do better selling somewhere else

Given currency effects and possible post‐Brexit tariffs, production costs for end‐users might rise, triggering faster demand reductions in the UK

Higher prices and tighter markets will keep remaining production in the UK safer than before


20

Is There Any Exposure Outside the UK?

87%

4%

4%3%

Share of Exports to the UK by Region

EuropeCanadaAsiaLatin AmericaUnited StatesOther

Currency fluctuations are currently making the UK a less attractive market for exporters

The highest risk still held by the UK

0 500 1,000

Umec

Newsprint

Cmec

UWF

CWF


21

Newsprint7

Printing & Writing27

Tissue9

Cartonboard / Other22

Containerboard33

European Paper and Board Demand101 Million Tonnes

Forecast Change2016-2018

Newsprint -5.5%

Printing & Writing -2.4%

Tissue +2.5%

Containerboard +2.4%

Cartonboard +0.8%


22

Implications for Europe? Weak euro most likely to persist

for longer than previously thought

More exports

More imports also possible due to trade barriers in USA

Weak demand globally will keep opportunities small

It all depends on European cost competitiveness


23

0

0.1

0.2

0.3

0.4

0.5

0.6

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Eur

opea

n S

hare

of W

orld

Exp

orts

European Share of World Capacity

European Global Share of Exports and Capacity

What Is the Potential Gain in Europe?

UWF

Newsprint

CWF

Umec

Cmec


400

450

500

550

‐

10,000

20,000

Latin America Europe Asia Oceania Africa North America

450

500

550

600

‐ 2,000 4,000 6,000 8,000

Oceania Asia Europe Latin America North America Africa

380

430

480

‐

2,000

4,000

Europe Asia North America Africa Latin America Oceania

300

350

400

450

‐

5,000

10,000

Africa Latin America Europe North America Oceania Asia

24

New

sprin

tUmec

Cmec

UWF



European Consumption Still Declining

6,301

4,717

4,624

9,505

5,643

6,632

4,785

4,804

9,632

5,828

6,996

4,867

5,090

9,849

6,074

0 2,000 4,000 6,000 8,000 10,000 12,000

NEWSPRINT

UMEC

CMEC

UWF

CWF

2016 2017 2018

-3.9%

-4.9%

-1.0%

-4.8%

-2.1%


Capacity Is Also Coming Down

‐1012

‐149

‐754

‐612

‐707

‐1109

‐839

‐910

‐623

‐235

NEWSPRINT UMEC CMEC UWF CWF

Percentage Change, 2016‐2018

Demand Capacity

Walsum


European Graphics Operating Rates

0.75

0.80

0.85

0.90

0.95

1.00

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Newsprint Umec Cmec UWF CWF

Generally, operating rates are expected to keep rising thanks to capacity rationalization

28

N Performing Better Than Before

Demand better than expected thanks to grade shifting (cost driven) and greater interest in trusted news sources

Trade is stable; fewer imports (mainly Russia) offsetting lower exports to Turkey

Europeans might benefit from challenging conditions for US producers, namely strong US dollar and poor cost competitiveness

400

450

500

550

600

650

700

750

Mar‐07

Mar‐08

Mar‐09

Mar‐10

Mar‐11

Mar‐12

Mar‐13

Mar‐14

Mar‐15

Mar‐16

Newsprint 45 gsm SC Gravure 60 gsm LWC Gravure 60 gsm

0% 50% 100%

+65

50‐64

30‐49

18‐29

PEW Research

A great deal some


29

UM Interesting Opportunities Abroad

Demand declining less

Exports trending down at the moment due to higher imports from Canada

European producers might benefit from their leading global position in this segment going forward

European market becoming slightly less concentrated as market leaders take most of the capacity out

A42%

B24%

C10%

D7%

Other17% A

30%

B27%

D13%

C8%

Other22%

2006

2016

Kvarnsveden PM8 in European Cash Cost Curve


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2010 2011 2012 2013 2014 2015 2016 2017* 2018*

Global Coated Mechanical DemandNorth America Europe Asia Latin America RoW

30

CM Strong Link To Global Demand

Demand declining faster due to paper downgrading, digitization and effects of e‐commerce

Net exports down due to weak global demand (Asia and Latin America)

If global consumption declines less, the weak euro might reverse the trend seen in net exports

No further capacity rationalizations announced


31

Are Clicks Crushing Bricks? The increase in popularity of e‐

commerce is also impacting graphics, as many more brick‐and‐mortar stores migrate online

However, in‐store buying remains key (e.g., Amazon opening brick‐and‐mortar bookstores in the USA)

Brick and mortar still accounts for over 90% of all sales

Newsprint

UWF

Umec

Cmec

CWF


32

UWF Small, Non‐Integrated Producers at Risk

Demand dropping more than before; recent data suggest conditions are improving

Net exports down considerably due to US trade tariffs

Almost 1.5 million tonnes of new capacity in Asia will only complicate things more

Closures and/or conversions are highly probable going forward

European Uncoated Woodfree Cash Cost Curve

• Integration into pulp are key• Russia is the area with the lowest cost to produce• Small, non‐integrated producers predominantly

on the fourth quartile of the curve• Cost is only one of the elements to consider


33

CWF Challenging Times Ahead

Demand also dropping more than before

Net exports have fallen considerably; more imports from Asia and fewer exports everywhere else

With operating rates at 85% and exports down, capacity closures and conversions highly likely

Pending decision regarding ADD

400450500550600650

‐

5,000

10,000

15,000

LatinAmerica

Asia Europe NorthAmerica

Oceania Africa

83%

84%

85%

86%

87%

88%

89%

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

2011 2012 2013 2014 2015 2016 2017 2018

Capacity Demand Production OR


European Graphic Paper 5‐Year Forecastwww.risi.com/forecasts

Global Outlook for Cut Size Uncoated Freesheet Paper Marketswww.risi.com/cutsize

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