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Patrick CavanaghAssociate Economist, Pulp
Boston, MAOctober 2017
Global Fluff Pulp Outlook
© Copyright 2017 RISI, Inc. | Proprietary Information
Market BackgroundFluff Pulp Overview
• What is fluff pulp? Wood pulp produced mainly from softwood fiber Used in the absorbent core of hygiene products E.g., baby diapers, feminine care products, adult incontinence products
Primarily produced in the US South• In 2016, fluff pulp capacity represented nearly 10% of world paper grade market pulp supply
• Demand growth driven by emerging markets• Low market penetration rates• Favorable demographic and economic factors
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Fluff Pulp Demand by End UsePercent of Total, 2016 Estimate
3
Disposable Diapers
38%
Adult Incontinence
26%
Feminine Hygiene
24%
Airlaid/Other12%
© Copyright 2017 RISI, Inc. | Proprietary Information
Demand Overview
• World demand growth continues to be steady 2016 global consumption estimated at 5.9 million tonnes Mild slowdown in demand growth in 2015‐2016 (2.7%) due to a pause in global economic conditions
Demand growth is forecast to average 4.7% annually for the next five years
• Emerging markets will account for majority of growth Disposable absorbent hygiene product use grows with income and population
Nearly 85% of total demand growth between 2016 and 2021 will come from emerging markets
• Mature markets will see some consumption growth driven largely by an aging population
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Mature Market Demand Growth Relatively Flat
5
* Canada, Japan, Oceania, USA, Western Europe
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Thou
sand
Ton
nes
Eastern EuropeAfrica/Middle EastOther AsiaLatin AmericaChinaMature Markets*
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Changing Landscape for DemandShare of Fluff Pulp Demand by Region
6
2002 2016
Africa/Middle East5%
North America
26%
Western Europe
29%
China6%
Latin America
10%
Japan7%
Other Asia9%
Eastern Europe
6%
Oceania2%
Africa/Middle East7%
North America
18%
Western Europe
18%
China18%
Latin America
14%
Japan5%
Other Asia11%
Eastern Europe
7%
Oceania2%
© Copyright 2017 RISI, Inc. | Proprietary Information
Demographics and Income Drive Demand• Potential Absorbent Hygiene Product Users (PAHU) fall into three major categories Children age 0‐2.5 (potential diaper consumer) Women age 12‐51 (potential feminine care consumer) Adults age 65 and older (potential AI product consumer)
• Per capita income drives fluff consumption per PAHU As income levels rise, more can be spent on convenience goods such as disposable absorbent hygiene products
As an economy reaches high levels of income, fluff pulp consumption per user levels off
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Global Fluff Demand Curve2000‐2016 Real Income per Capita vs Kilograms of Fluff Consumed per Potential Absorbent Hygiene User*
8
*Potential absorbent hygiene users (PAHU) include the populations 0‐2.5 years old, females 12‐51 and 65+ years old.
0.01.02.03.04.05.06.07.08.0
0 10,000 20,000 30,000 40,000 50,000
Kilogram
s
Per Capita Income (2005$)Africa Middle East China Other AsiaBrazil Other Latin America Eastern Europe USACanada Western Europe Nordic JapanOceania
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Income Levels on the Rise in Emerging MarketsGDP per Capita, 2005 US Dollars at Purchasing Power Parity
9
0
5,000
10,000
15,000
20,000
25,000
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Eastern Europe China Brazil India Asia ex Japan, China, India
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Large Consumer Base in Emerging Markets2016 Estimate, Millions
10
0-2.5 Years Old
Females 12-51 Years Old
65+ Years Old
China 43.0 403.9 142.1India 59.1 390.3 76.9Other Asia (excl. Japan) 68.7 436.2 89.7Brazil 7.5 64.5 17.1Other Latin America 19.4 130.3 32.9Africa 98.5 344.7 42.7Eastern Europe 13.2 113.1 56.7Middle East 9.9 46.1 6.1Total 319.3 1,929.1 464.2
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Supply• Total fluff pulp capacity in 2016 was estimated to be just over 6.6 million tonnes
• Concentrated industry Top three producers by capacity at year‐end 2016 were
International Paper (IP), Georgia‐Pacific (G‐P) and Domtar These three producers account for nearly 78% of the market
• Recent large increases in capacity Riegelwood, Ashdown, Ortiguiera and Suzano collectively adding
over 1 million tonnes of capacity in one year• Hardwood fluff may prove to be disruptive BEK production costs are significantly lower than SBSK If product performance proves good, this could put pressure on
traditional producers in the future
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IP/Weyco Deal Increases ConsolidationMarket Share of Top Five Producers by Capacity
12
Before 2016 Acquisition After 2016 Acquisition
Georgia-Pacific
31%
Weyerhaeuser22%
International Paper17%
Domtar8%
Resolute Forest
Products4%
All Other18% Georgia-
Pacific31%
International Paper39%
Domtar8%
Resolute Forest
Products4%
All Other14%
Stora Enso4%
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Recent Capacity Expansions
13
Company (Mill) Location Country Market Capacity
Date Grade
Suzano Suzano Brazil 100 2015 4Q Fluff/BHK
Klabin Paraná Brazil 400 2016 Q2 Fluff/BSK
International Paper Riegelwood United States 360 2016 Q2 Fluff/BSK
Domtar Ashdown United States 515 2016 Q3 Fluff/BSK
Stora Enso Skutskär Sweden 160 2018 Q2 Fluff/BSK
Fluff Pulp Capacity Projects, 2015‐2018Thousand Tonnes
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US South Still Dominating SupplyFluff Pulp Capacity by Major Region
14
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Thou
sand
Ton
nes
Rest of WorldWestern EuropeNorth America
© Copyright 2017 RISI, Inc. | Proprietary Information
Fluff Pulp Price• Strong relationship between paper grade and fluff Large portion of fluff producers can swing between BSK and fluff
Producers swing to fluff pulp as relative profitability of the grade rises in relation to paper grade
• Prices are currently at all‐time highs Third‐quarter 2017 list prices reached $1,120/tonne A reflection of booming demand for paper grade, fluff market consolidation and supportive demographic trends
• New supply should be enough to keep operating rates down through 2020
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16
Strong Relationship with Slight LagFluff Pulp and Southern Bleached Softwood Kraft Pulp List Prices
050100150200250300350400450500550600
0100200300400500600700800900
1,0001,1001,200
95 97 99 01 03 05 07 09 11 13 15 17
Fluff‐S
BSK Spread
, US Dollars
Delivered
to USA
, US Dollars per
Tonn
e
FLF‐SBSK (R)Fluff PriceSBSK Price
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