paper price increase
DESCRIPTION
Reasons for the Paper Price Increase in 2010TRANSCRIPT
Cut Sheet Market Update
Current Supply Situation
2
Contents
Dynamics affecting paper supply & pricing Economic Downturn Exchange Rate Raw Materials
Manufacturing base overview Consolidation Mill Closures
Outlook Short to medium term prognosis
Economic DownturnEuropean Paper Market
4
-15%
-12%
-24%
-2%
-11%
-15%-10%
-14%-9%-12%
-23%
-14%
-15%-11%
-6%
-18%
-17%
-12%
-12%
-19%
Significant year on year decline in volumes in all European countries – But growth in other areas
Source: Eugropa - Merchant total sales volumes YTD Nov ’09 vs. PY
Unprecedented market conditions
5
Paper Production Decreased
Economic downturn and associated paper volume decline. Massive over capacity in the Market Mills opt for machine closures
A large number of paper mills have ceased production removing 2,441,000 tonnes from the supply chain
Country Mill Group Capacity Country Mill Group CapacityFrance IP, Marasquel 85,000 France Paperteries de Chatelles 40,000Sweden Klippan, Molndal 20,000 UK Garnett, Otley 15,000Sweden Klippan, Molndal 30,000 UK Sappi, Nash Mill 36,000UK Thompson, Sunderland 30,000 UK Smith Anderson, Leslie 50,000UK Arjo Wiggins, Fort William 75,000 UK Townsend Kappa, Snodland 55,000UK Inveresk, Carrongrove 40,000 Germany Cordier, Salach 80,000Finland UPM, Voikkaa 410,000 Germany Scheufelen, Oberleggenen 15,000Finland UPM, Kymmene 150,000 Netherlands Favinni, Meerssen 10,000Finland UPM, Jamsankoski 120,000 Sweden Klippan, Klippan 60,000Finland StoraEnso, Varkaus 95,000 Netherlands StoraEnso, Bergheizer 235,000Norway CPG, Hunsfos 10,000 UK M_real, Sittingbourne 210,000France Paperteries de Cran 45,000 Germany M_real, Gohrsmuhle 100,000France StoraEnso, Corbehem 250,000 Sweden M_real, Wifsta 175,000
2,441,000Estimated European Capacity Reduction
Financial DynamicsExchange Rate Effect
7
1
1.1
1.2
1.3
1.4
1.5
1.6
Jan-
07
Feb
-07
Ma
r-07
Ap
r-07
Ma
y-07
Jun-
07
Jul-
07
Aug
-07
Sep
-07
Oc
t-07
No
v-07
De
c-0
7
Jan-
08
Feb
-08
Ma
r-08
Ap
r-08
Ma
y-08
Jun-
08
Jul-
08
Aug
-08
Sep
-08
Oc
t-08
No
v-08
De
c-0
8
Jan-
09
Feb
-09
Ma
r-09
Ap
r-09
Ma
y-09
Jun-
09
Jul-
09
Aug
-09
Sep
-09
Oc
t-09
No
v-09
De
c-0
9
Jan-
10
Feb
-10
Ma
r-10
Ap
r-10
Euro
s to
GBP
Exchange Rates
We are all aware of how the £GBP has weakened against the €uro. There are no manufacturers of Copier Paper in the UK today – all
product is imported.
Mills attempting to recover pro-
longed loss making period
8
Net Mill Selling Prices
Average selling prices into main paper markets - indexed
UK 7.79
France 8.04
US 8.50
Italy 7.87
Germany 8.30
Brazil 9.30
Spain 8.10
Raw MaterialsPulp Pricing
10
Impact of Pulp Price Increase on Paper
Production Cost vs. Paper Price Development
-50
0
50
100
150
200
Oct Nov Dec Jan Feb Mar Apr May Jun Jul
Impact of pulp price on paper production cost per ton Change in paper price
Projection according to RISI’s forecast
Projection according to
announced increases
Change vs. October, €/tn
11
Pulp Price - Benchmarking
300
400
500
600
700
800
900
1000
1100
18/0
7/20
0622
/08/
2006
26/0
9/20
0631
/10/
2006
05/1
2/20
0609
/01/
2007
13/0
2/20
0720
/03/
2007
24/0
4/20
0729
/05/
2007
03/0
7/20
0709
/08/
2007
11/0
9/20
0716
/10/
2007
20/1
1/20
0727
/12/
2007
29/0
1/20
0804
/03/
2008
08/0
4/20
0813
/05/
2008
17/0
6/20
0822
/07/
2008
26/0
8/20
0830
/09/
2008
04/1
1/20
0809
/12/
2008
13/0
1/20
0817
/02/
2009
24/0
3/20
0928
/04/
2009
02/0
6/20
0907
/07/
2009
11/0
8/20
0915
/09/
2008
20/1
0/20
0924
/11/
2009
29/1
2/20
0902
/02/
2010
09/0
3/20
1013
/04/
2010
18/0
5/20
1022
/06/
2010
$USD
/Mt
Softwood Softwood (RISI forecast)Hardwood Hardwood (RISI forecast)
• Pulp price currently comprises 60% of variable manufacturing cost of standard WFU paper
12
Global Shortage
8% of global pulp supply became to halt for an indefinite period
immediate
shortage of pulp
Manufacturing BaseHow are the Mills handling the economic
downturn and declining returns ?
14
Production Consolidation
10 Years Ago
10 Manufacturers
70% of Supply
Today
6 Manufacturers
88% of Supply
•UPM•Stora•MReal
•GPS•Mondi•IP
15
Industry Order Flow v Production
Capacity Cumulative WFU order inflow in 2010 is 17% higher than production capacity
125,000
150,000
175,000
200,000
225,000
1 2 3 4 5 6 7 8 9 10
practical production capacity
16
Capacity v Demand
85%86%
88%
91%90%
92%93%
94% 94%
97%
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Mill
Util
isa
tion
%
-1,000
1,000
3,000
5,000
7,000
9,000
11,000
13,000
Vo
lum
e 0
00's
to
nn
es
Utilisation
Demand
Capacity
Continued growth in demand for printing and writing papers combined with the increased utilisation rates by the mills (due to excess capacity being taken out of the market) is demonstrated by the shrinking gap between the demand and capacity lines.
17
Paper Production Decreased
Economic downturn and associated paper volume decline. Massive over capacity in the Market Mills opt for machine closures
A large number of paper mills have ceased production removing 2,441,000 tonnes from the supply chain
Country Mill Group Capacity Country Mill Group CapacityFrance IP, Marasquel 85,000 France Paperteries de Chatelles 40,000Sweden Klippan, Molndal 20,000 UK Garnett, Otley 15,000Sweden Klippan, Molndal 30,000 UK Sappi, Nash Mill 36,000UK Thompson, Sunderland 30,000 UK Smith Anderson, Leslie 50,000UK Arjo Wiggins, Fort William 75,000 UK Townsend Kappa, Snodland 55,000UK Inveresk, Carrongrove 40,000 Germany Cordier, Salach 80,000Finland UPM, Voikkaa 410,000 Germany Scheufelen, Oberleggenen 15,000Finland UPM, Kymmene 150,000 Netherlands Favinni, Meerssen 10,000Finland UPM, Jamsankoski 120,000 Sweden Klippan, Klippan 60,000Finland StoraEnso, Varkaus 95,000 Netherlands StoraEnso, Bergheizer 235,000Norway CPG, Hunsfos 10,000 UK M_real, Sittingbourne 210,000France Paperteries de Cran 45,000 Germany M_real, Gohrsmuhle 100,000France StoraEnso, Corbehem 250,000 Sweden M_real, Wifsta 175,000
2,441,000Estimated European Capacity Reduction
Outlook
19
Outlook
Unless Ex Mill market pricing reaches sustainable levels supply into the UK will continue to be restricted. Exchange rate – 2 year 27% differential Capacity Price Inflation - Pulp Mills currently actively switching production from Cut Sheet to
other products that give better return e.g. Envelope Base Further price increases notified from May/June
MReal UPM Stora IP Mondi Steinbeis – April, May & September
Mills already talking about September