outlook for the world paper grade pulp market...bhk consumption growth (at the expense of local...

Outlook for the World Paper Grade Pulp Market

European Conference March 2016

Kurt SchaeferVice President, Fiber

© Copyright 2016 RISI, Inc. | Proprietary Information

The BSK‐BHK Price Spread in China pReversed in 2015

5001 000

400450500

800900

1,000Price Gap (RIGHT)

China BEK Net

250300350

500600700 China NBSK Net

150200250

300400500

050100

0100200

‐500

‐1000

000

001

002

003

004

005

006

007

008

009

010

011

012

013

014

015

016

2© Copyright 2016 RISI, Inc. | Proprietary Information

20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Source: RISI

BHK Prices in China Have Dropped ppSharply in Recent Months

850

900BEK Net Price China

NBHK Spot Price US

750

800NBHK Spot Price US

BEK Spot Price Europe

650

700

600

650

500

550

10 11 12 13 14 15 16


10 11 12 13 14 15 16

We Had Been Expecting a Drop in BEK p g pPrices in 2H15, and It (Finally) H dHappened• Supply‐side issues at BHK mills in 2015 helpedSupply side issues at BHK mills in 2015 helped sustain prices at higher‐than‐expected levels Asia Symbol (RGE/APRIL) Rizhao mill: Was down due to Asia Symbol (RGE/APRIL) Rizhao mill: Was down due to drought in Shandong Province, China (Summer 2015)

Cenibra (Brazil): Was down in part of November due to aCenibra (Brazil): Was down in part of November due to a dam break

Reduced operating rates at two other mills (in Indonesia p g (and Brazil) due to drought

• All issues were resolved by the end of 2015y


BHK Delivered Cash Cost Curve to Shanghai, Fourth Quarter 2015


In China, the DP‐BEK Price Spread Has , pMoved Up to Almost $300

2 500

3,000China Import Price DP 2 500

3,000DP/BEK Price Spread

200

2,000

2,500 China Import Price BEK

2,000

2,500 200

1,500 1,500

500

1,000

500

1,000

0

500

0

500


08 09 10 11 12 13 14 15 08 09 10 11 12 13 14 15

BSK: US Spot Prices Are Down by p yAlmost $250/Tonne Since Early 2014

950

1,000Net Price ChinaSpot Price US

800

850

900pSpot Price Europe

700

750

800

600

650

500

550

10 11 12 13 14 15 16


10 11 12 13 14 15 16

BSK: Downward Pricing Pressure Was gUnexpectedly Persistent• US P&W demand and shipments in 2015 falling about 2x expectationsfalling about 2x expectations. 2.2% drop expected, 4.8% actualP i fl t t d th th i i Prices flat to down rather than rising

Mechanical paper demand in the USA was down by about 11% rather than the expected 3% coming into the year11%, rather than the expected 3%, coming into the year. Demand for mechanical P&W paper in the USA is falling by more than newsprint demand.p


BSK Delivered Cash Cost Curve to Shanghai, Fourth Quarter 2015


Cost Curve Comparisons: BHK (Left), p ( ),BSK (Right)


Near‐Term Indicators: BHK Producer Inventories Are Above Average65

55

60

65BHKAVG BHK (37.7)BSK

45

50

55 BSKAVG BSK (28.8)

35

40

25

30

15

20

04 05 06 07 08 09 10 11 12 13 14 15 16

Source: PPPC, RISI


04 05 06 07 08 09 10 11 12 13 14 15 16

The High Season for Woodfree Paper g pDemand in W. Europe Is Almost HereSeasonal adjustment factors for W. European P&W1.15

1 05

1.10

Stronger than Normal Demand

1.00

1.05

0.90

0.95

0.85

Mechanical Papers

Woodfree Papers Weaker than Normal Demand


0.80Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec.

2016 Forecast Drivers2016 Forecast Drivers


FX: Strong Dollar Continues in 2016g

$1.60

$1.40

$EUR/USDCAD/USDBRL/USD

$1.00

$1.20

$0.80

$1.00

$0.40

$0.60

$0.20

$0.40

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19


00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

World Production of Paper and Board:pAccelerating SlowlyG hi P k i d S i lt d Ti P t ChGraphic, Packaging and Specialty and Tissue; Percent Change

6.6%8%

3.7% 3.3%2 7%

5.7%

4.0%3.0%4%

6%

2.7%2.1%

1.0%0.2%

0.8% 1.0%0.3%

1.2%

0%

2%

‐2.0%

‐0.6%‐2%

0%

‐5.4%‐6%

‐4%


2000 2002 2004 2006 2008 2010 2012 2014 2016

Most of the Growth in the Industry Is yin Packaging—Modest Effect on M k P lMarket Pulp300

Packaging/Specialty180

Tissue +

200

250

Packaging/SpecialtyP&WTissueNews

120140160

Tissue + P&W

150

200

80100120

50

100

204060

0

50

00 02 04 06 08 10 12 14 16

020

2000

2002

2004

2006

2008

2010

2012

2014

2016


200

200

200

200

200

201

201

201

201 2 2 2 2 2 2 2 2 2

World Production of P&W Paper: pRelative Stability in 2016?

5%

3.4%

3%

5%%

r 2.0%

0.0%1%

evious Year

‐1.4%‐1.4%

‐1.6%‐1.3% ‐1.5%

2 1%‐1.4%

‐1.6%

‐0.5%‐1%

ge from

Pre

‐4.1%4 6%

‐3.0% ‐2.9%

‐2.1%‐2.6%

‐5%

‐3%

% Cha

ng

‐4.6%‐5.1%

‐5.7%‐5.3%

‐7%

5%

12 13 14 15 16 12 13 14 15 16 12 13 14 15 16 12 13 14 15 16Euro Area United States China World


12 13 14 15 16 12 13 14 15 16 12 13 14 15 16 12 13 14 15 16

P&W Consumption per Capita: Japan and South Korea Have Peaked. Has China?Per Capita GDP vs. P&W Consumption: 1970 to 2014p p

120

140kg/person

100

120Japan

South Korea

60

80South Korea

China

20

40

0

20

0 5000 10000 15000 20000 25000 30000 35000

Per capita real GDP, US$

18© Copyright 2016 RISI, Inc. | Proprietary Information18

In China, P&W Production Is Leveling , gOff, While Tissue Continues to Grow

25

30

P&W

20

25

per Y

ear Tissue

15

Ton

nes p

5

10

Million

0

5


1990 1995 2000 2005 2010 2015

In China, Pulp Imports Posted Double‐, p pDigit Percentage Changes in 2015

700

800BSK Imports

800

900BHK Imports

600

700

600

700

400

500

400

500

200

300

200

300

0

100

0

100


1/06 1/07 1/08 1/09 1/10 1/11 1/12 1/13 1/14 1/15 1/061/071/081/091/101/111/121/131/141/15

What Are the Sources of China’s Incremental Pulp Demand?

i d i i i i b b % 600 000• Tissue production is rising by about 7% or 600,000 tpy Predominantly based on virgin fiber

• Policy closures of “backward” pulp and paper capacity favors BHK consumption growth (at the expense of local fiber, including nonwood)including nonwood)

• Rising demand for higher quality paper also raises BHK demanddemand

• Continuing move toward more BHK, less BSK, as new paper machines are installed

• BSK demand for absorbent applications is growing• Conclusion: Net imports of BHK into China will continue toConclusion: Net imports of BHK into China will continue to

show solid growth21© Copyright 2016 RISI, Inc. | Proprietary Information

Key BHK Capacity Developmentsy p y p

• 2015 Old Town closures, 4Q15: Approximately 180,000 tonnes BHK/BSK

• 2016 Sun Paper Yanzhou switch to BHKSun Paper Yanzhou switch to BHK Klabin Ortigueira, March: 1.1 million tonnes APP OKI 4Q16/1Q17: 2 0‐2 8 million tonnesAPP OKI, 4Q16/1Q17: 2.0 2.8 million tonnes Alizay (France) restart postponed indefinitely

• 2017• 2017 Fibria, 4Q17: 1.85 million tonnes Vietracimex: 400,000 tonnes (Former Tofte mill)


Key BSK Capacity Developmentsy p y p

• 20162016 Klabin Ortigueira, March: 400,000 tonnes fluff/SBSK IP Riegelwood 2Q16: 360 000 tonnes fluff/SBSK IP Riegelwood, 2Q16: 360,000 tonnes fluff/SBSK Domtar Ashdown, 3Q16: >300,000 tonnes fluff/SBSKS d V 4Q16 275 000 t Sodra Varo, 4Q16: 275,000 tonnes

Svetlogorksy BSK/BHK/DP, 2H2016: 400,000 tonnes

• 2017 Metsa Fibre, 3Q17‐4Q17: 700,000 tonnes


2016 Forecast Summaryy• Continuing strong dollar, with upside risk in terms of dollar strength outperforming the US economydollar strength outperforming the US economy

• Modest acceleration in growth of paper and board d d tl b f k idemand, mostly because of packaging

• Supply‐side changes remain more prominent than usual• For BHK, prices in China are already approaching delivered cash costs of Chinese pulp mills, which usually triggers a surge in demand and contraction of supply

• For BSK, second half of 2016 looks weak in terms of ,operating rates, especially for SBSK/fluff; but there is capacity rationalization risk, which is an upside risk for p y , poperating rates


2017 Forecast Summaryy

• Continuing ramp‐up of APP mill, plus VietracimexContinuing ramp up of APP mill, plus Vietracimex and Fibria by the end of the year

• Modest acceleration in growth of paper and board• Modest acceleration in growth of paper and board demand, mostly b/c of packaging, and in pulp demanddemand

• Very weak operating rates for BHK• Weak environment for BSK as well, depending on potential capacity rationalization in the US


Thank you for your attentionFor more information:

World Pulp & Recovered Paper 5‐Year and 15‐Year Forecasts5 Year and 15 Year Forecastswww.risi.com/forecasts

World Pulp Monthly www.risi.com/wpm

© Copyright 2016 RISI, Inc. | Proprietary Information 26

outlook for the world paper grade pulp market...bhk consumption growth (at the expense of local...

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