North American Pulp and Paper Outlook · Global economy growing moderately, risks heightened 2019 | Fastmarkets | Macroeconomic Outlook 1.6 % 2.3 % 2.9 % 2.6 % 1.1 % 1.8 % 2016 2017

North American Pulp and Paper Outlook

2019 | Fastmarkets | RISI Outlook Presentation 1

SEPTEMBER 2019ROD YOUNGChief Economist

Global economy growing moderately, risks heightened

2019 | Fastmarkets | Macroeconomic Outlook

1.6 %2.3 %

2.9 % 2.6 %

1.1 %1.8 %

2016 2017 2018 2019 2020 2021

USA1.9 %

2.5 %

1.8 %

1.1 % 0.9 %1.4 %

2016 2017 2018 2019 2020 2021

Europe

6.7 %6.9 %

6.6 %

6.2 %6.0 % 6.1 %

2016 2017 2018 2019 2020 2021

China

-0.9 %

1.1 % 0.9 % 0.8 %1.7 %

2.8 %

2016 2017 2018 2019 2020 2021

Latin America

Annual real GDP growth

2

US job growth continues

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

Employment change Six-mo. mov. avg. (employment change) 24-mo. mov. avg. (employment change)

2019 | Fastmarkets | Macroeconomic Outlook 3

Monthly employment change, total non-farm, thousands; six-month moving average; 24-month moving average

Dollar regained strength in 2018, remains strong

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95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

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Trade weighted US dollar index: broad, goods, 1997=100


Chinese GDP trending lower, 2019 a slowdown

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Real GDP growth, annual percentage change


Global P&W demand dropped 2.5% in 2018

2.5Million tonnes of demand decline in 2018

2019 | Fastmarkets | RISI Outlook Presentation

-12%

-10%

-8%

-6%

-4%

-2%

0%

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4%

6%

8%

70,000

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110,000

120,000

130,000

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Thou

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World P&W demand %ch

12%Smaller global market in 2018 versus 2010

1.6Millions tonnes of average demand declines in 2011-2017 and 2012-2014

Is global graphic paper demand accelerating down?TONNAGE DECLINES STILL NOT SHRINKING DESPITE GREATLY DIMINISHED MARKETS


40%

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Printing & writing

Tonnage decline % of 2010 demand level40%

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Newsprint

Tonnage decline % of 2010 demand level

P&W Demand Growth in 2019-2021


Thousand Tonnes, Percentage Per Year

-6.58Million Tonnes

-2.3%Average Percent Change

Three-Year Total Global Growth

-7.2%

-1.8% -3.6% -4.0%-6.9%

17 18 19 20 21

NORTH AMERICA

0.1%-0.6%

0.5% 0.9%

-1.0%

17 18 19 20 21

LATIN AMERICA

-5.3%-4.6% -4.8% -4.6% -4.7%

17 18 19 20 21

OCEANIA

1.6%

-1.8%-0.6% -0.5%

-1.5%

17 18 19 20 21

ASIA

0.2% 0.4%0.9% 0.9%

0.6%

17 18 19 20 21

AFRICA

3.2%

-7.4%-1.2% 0.5% 0.3%

17 18 19 20 21

MIDDLE EAST

-1.6%-4.5% -4.0% -3.4%

-5.4%

17 18 19 20 21

EUROPE

Global ADD/CVD duties on cut size copy paper


ADD DATES

Australia

Austria 21.6% 2018

Finland 16.9% 2018

Russia 4.2% 2018

Slovakia 17.4% 2018

South Korea 34.2% 2018

China 3.1% to 34.4% 2017

Indonesia 12.6% to 45.1% 2017

Brazil 2.9% 2017

Thailand 13.4% to 23.2% 2017

Pakistan

Japan 39.1% 2018

Brazil 35.9% 2018

China 21.9% 2018

Thailand 2% 2018

Indonesia 10.62% to 20.66% 2018

ADD CVD DATES

USA

Australia Paper 222% 2015

Suzano 17% 2015

Navigator (1) 1.75% 2015

APRIL Indonesia (2) 2% 4% 2015

APP Indonesia 17% 109% 2015

Asia Symbol 84% 7% 2015

APP China 149% 7% 2015

UPM China 149% 177% 2015

Sun Paper China 149% 177% 2015

India

Indonesia $855/tonneminimum price 2018

Thailand $855/tonneminimum price 2018

Singapore $855/tonneminimum price 2018

Mexico

Brazil 38% 2013

1) Navigator tariff changed from 8% to 37%, then back down to 1.75% in October 2018.

2) APRIL Indonesia ADD revised up from 2% in March 2019.

Despite tariffs, cut size imports back near peak market share in USA

22.5%Offshore share of US cut size in 2014


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2012 2013 2014 2015 2016 2017 2018 2019

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US cut size demand by source

Domestic supply Offshore imports Offshore import share (R.)

12.9%Offshore share of US cut size in 2018

Effect of tariffs on US cut size imports

IMPORTS FROM NON-TARIFF COUNTRIES


IMPORTS FROM FIVE TARIFF TARGET COUNTRIES

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Portugal IndonesiaChina/Hong Kong BrazilAustralia Five-country import share

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Israel South Korea FinlandThailand Colombia All othersImport share

2019 estimated based on 5 months of US customs data.

Indonesia shifting US exports to rolls after tariff hike

50%Share for rolls for Indonesian exports to USA in 2019


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Cut size Offset rolls Other (rolls or sheets) Rolls share of total (R.)

2019 estimated based on 5 months of US customs data.

Global coated paper machine shuts/conversions, 2019-2020

COMPANY MILL COUNTRY CAPACITY (TONNES/YR)

DATE COMMENTS

Arctic Paper Grycksbo Sweden -45,000 CFS Q1 2019 Shut PM7

Feldmuehle Uetersen Germany -80,000 CFS Q1 2019 Shut PM2

Lecta Condat France -230,000 CFS 2019 Convert a PM to specialty

Stora Enso Oulu Finland -1,080,000 CFS End of 2020 Shut PM6, convert PM7 to kraftliner

Arjowiggins Bourray, Besse-sur-Braye France -348,000 CFS 2019 Q1 Mill closure

UPM Plattling Germany -155,000 CME 2019 Q3 Shut PM10

ND Paper Biron USA -103,000 CME Q3 2019 Shift PM25 to packaging

New-Indy Catawba USA -310,000 CME n/a Potential conversion to packaging

Verso Luke USA -408,000 CFS 2019 Q3 Shut by June 30th

Nippon Paper Ind. Fuji Japan -33,000 CME 2019 Shut PM11

APP Tijwi Kimia Indonesia -245,000 CFS 2019 Convert to packaging

Hokuetsu Niigata Japan -161,000 CFS 2019 Close by end of June

Nippon Paper Ind. Yufutsu Japan -88,000 CFS 2020 Mill shut

Daio Paper Mishima Japan -150,000 CFS 2019 Conversion to kraft papers and paperboard

Global totals -601,000 CME-2,835,000 CFS-3,436,000 total


Note: There are currently no major coated paper capacity expansions occurring globally.

13

Global uncoated woodfree prices

HOW LARGE OF A GLOBAL PREMIUM CAN THE USAMAINTAIN?• Brazilian prices can jump above US

levels due to currency swings, premium versus offshore imports.

• US and European prices have historically been close, but wide gap has re-opened due to tighter US market.

• Asian gap with US prices at all-time peak of more than $300/tonne in early 2019.

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USD

/tonn

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US 20 lb copy paper W. Europe A4-B

Brazil domestic cut size Southeast Asia 70 gsm UWF


2-5%Mexican USD P&W prices down 2-5% y-o-y in 3Q19


Signs that printing & writing profitability has peakedMARKETS HAVE ALREADY STARTED TO WEAKEN• Weak demand, more capacity startups and falling costs for fiber in Asia

• US producers forced to roll back some of 2019 UWF price hike despite G-P closure

AFTER SPIKING, MILL COST INFLATION IS ABATING• Pulp prices in decline

• Energy down sharply, albeit starting to recover

RISE IN IMPORTS• Global oversupply will increase competition

• Stronger US dollar and some tariff reductions

REDUCED CONVERSION OPPORTUNITY• Less room for new containerboard machines, global economic risks

5-15%Brazilian P&W prices down 5-15% in first half of 2019

Next moves for US printing & writing prices will be down

US PRICES 5-12% ABOVE YEAR-AGO LEVELS IN EARLY 2019• No room for any further gains even

with major capacity closures.

• Prices for most grades have already begun to erode.

• Any potential recession likely to trigger larger demand declines and result in price drops.

$700

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$1,300

2011 2012 2013 2014 2015 2016 2017 2018 2019

US

dolla

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er c

wt

SC-A Ctd. No. 5 40 lb Ctd. No. 3 60 lb. Unc. offset 50 lb. Cut size copy


North American containerboard producers are taking economic downtime to address slower demand growth

2019 | Fastmarkets | Global Containerboard and Boxboard Outlook 17

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

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Demand Demand % change Corrugated boxes % change

Robust capacity expansion will keep North American containerboard operating rates depressed


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Change in demand Change in capacity Change in true demand Operating rates

Slow growth in North American boxboard demand and supply


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Change in demand Change in capacity Operating rates

Snapshot of 2018 Asian containerboard demand and supplyChinese demand fell an estimated 3% in 2018• Deceleration in economic growth• Some substitution from paper to plastics• E-commerce working to reduce its packaging footprint• Significant uncertainty in the level of decline

Rest of Asia saw fairly steady growth at 3.8% in 2018• Compared to average of 4.0% per year in 2016-2017

Chinese output tumbled while net imports soared• Chinese production fell an estimated 5% or 2.5 million tonnes• Net imports jumped almost 1.1 million tonnes• Rest of Asia supplied much of this, with net imports climbing 800,000 tonnes

Entering 2019, demand conditions have been sluggish• Economic weakness and effects of lingering US-China trade war


Chinese RCP policies are changing the way companies are operating

Constrained fiber supplies driving up imports and reducing production• RCP imports fell from 25.7 million tonnes in 2017 to 17.0 million tonnes in 2018.• Expected to fall to 10-12 million tonnes in 2019 and then 5-6 million tonnes in 2020 before

total ban goes into effect in 2021.

Large companies are making investments in light of the new policies• Numerous projects in the works in Vietnam, Malaysia, Laos and India

Previously planned projects apparently being delayed• Due to economic weakness and effects of lingering US-China trade war


The smaller exporters to the world reaped most of the benefits from the shift in Chinese policy(net exports to world)

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Nontraditional containerboard exporters

Japan South Korea Taiwan IndonesiaThailand India Other Asia

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Traditional containerboard exporters

North America Western Europe BrazilSouth Africa Oceania

2019 | Fastmarkets | Global Packaging Outlook 22

China’s containerboard market adjusting to new RCP policiesYear-to-year change


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Production Net imports Demand Operating rate

DEMAND WILL DROP AGAIN IN 2019 AND THEN MOVE UP IN 2020• Weak economy

• Dictated by fiber balance

PRODUCTION WILL FALL AND NET IMPORTS WILL CLIMB• Output constrained by fiber

• Market attractive to other Asian suppliers

• But can imports continue to climb that much?

OPERATING RATES ARE TUMBLING• Level dependent on capacity assumptions

The North American tissue market has been strong recently

• The AfH sector in particular benefitted from the strong economy, low gasoline prices and changing lifestyle of younger generations.

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2019 | Fastmarkets | Global Tissue Market Outlook 24

Average growth accelerated from 1.5% to 1.95% per year

US tissue import growth, 2009-2018

• Canada continues to be the main US import source for tissue, but China has taken second place ahead of Mexico and Indonesia.

• However, imports tariffs will restrict imports from China; the first five months of 2019 show decreases in the volume of Chinese tissue imported by the USA.

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Average growth rate, 2009-2018: 5.4% per year

Canada China Mexico Indonesia Italy South Korea Germany All others


Expected growth in US tissue consumption by business sector

• At-Home retailer labels will show the strongest growth, while At-Home branded volume growth will remain moderate.

• AfH growth will rise above average At-Home growth.

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Market volume

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Growth of 5.9% per year

Growth of 2.3% per year


Minor growth of 0.4% per year

Major tissue capacity changes in North America, 2018-2021

2019 | Fastmarkets | Global Tissue Market Outlook

2018• Georgia-Pacific, Augusta, GA, USA -31,000 t/a• Sofidel America, Circleville, OH, USA (2 x NTT) 140,000 t/a• Kimberly-Clark, Fullerton, CA, USA -60,000 t/a• First Quality Tissue, Anderson, SC, USA (TAD PM) 64,000 t/a

113,000 t/a2019

• Soundview Paper, Elmwood Park, NJ, USA (closure after two fires) -110,000 t/a• Clearwater Paper, Shelby, NC, USA (NTT PM) 64,000 t/a• Irving Consumer Products, Macon, GA, USA (TAD PM) 64,000 t/a• Cascades Tissue Group, Scarborough and Whitby, ON, Canada (mill closures) -61,000 t/a• Soundview Paper, Elmwood Park, NJ, USA (restart of PM11) 60,000 t/a• Georgia-Pacific Corp., Crossett, AR, USA (closure of the oldest PM) -30,000 t/a• Georgia-Pacific Corp., Palatka, FL, USA (TAD PM) 72,000 t/a• Sofidel America, Inola, OK, USA 60,000 t/a

119,000 t/a2020-2021

• First Quality Tissue, Lock Haven, PA, USA 64,000 t/a• Sofidel America, Inola, OK, USA 60,000 t/a• Georgia-Pacific, Naheola, AL, USA (replacement) 8,000 t/a• Kruger Tissue, Brompton, Sherbrook, QC, Canada (TAD PM) 70,000 t/a

202,000 t/a 27

Net capacity change* and tissue operating rate in North America

• The outlook is surprisingly good despite the number of projects, but a lot depends on how much tariffs on imports from China change the net trade balance.

• We assume a conservative decline in net imports in this forecast (trend change).

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Capacity change Capacity utilization


A lot of new capacity coming on stream that will affect 2019-2020; utilization rate will head south but only slightly if no further closures occur

* Based on committed projects only.

Pulp markets recently completed an historical run…

2019 | Fastmarkets | World Pulp Outlook 29

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Consecutive months

Cumulative price change

Mar-16 to Oct-18 Dec-85 to Mar-90

Dec-93 to Nov-95

0.75

0.95

1.15

1.35

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1.95

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igh

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Consecutive months

Net price / high average variable cost

Mar-16 to Oct-18Dec-85 to Mar-90

Producer inventories reach a record high


Source: PPPC, Fastmarkets RISI.

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Produce inventories, days of supply

BHK Average BHK (2004-10 = 36.4, 2011-18 = 42.7) BSK Average BSK (29.7)

Domestic pulp prices in China searching for a bottom


* Reflects net renminbi domestic resale price converted to US dollars, excluding VAT and logistics costs.

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NBSK prices in China, $/tonne

NBSK domestic resale* NBSK net import

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BEK prices in China, $/tonne

BEK domestic resale* BEK net import

BHK cash cost curve from Mill Intelligence

LATIN AMERICAN PRODUCERS DOMINATE THE LOW END OF THE COST CURVE• Latin American producers benefit

from low-cost wood and the exchange rate

• Higher-cost facilities tend to be much smaller and located in Asia and the Northern Hemisphere


■ Africa ■ Asia ■ Europe ■ Latin America ■ North America

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Limited market pulp capacity expansion until 2021

2019 | Fastmarkets | World Pulp Outlook

Pulp market could remain weaker for longer


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Shipment/capacity adj. Shipment/capacity ratio (R)

China and Other Asia: RCP imports Million tonnes

OTHER ASIA CATCHING UP WITH CHINA

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2012 2014 2016 2017 2018

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352019 | Fastmarkets | Outlook for Global RCP Markets

OCC prices in different regions

CHINESE PAPER COMPANIES FACING HIGH RECYCLED FIBER COSTS• Before July 2017, one set of OCC prices

• Now, two sets of prices: Chinese price and prices outside of China

• Sharp drop in US and European OCC prices

• Low OCC import prices in Southeast Asia

• Domestically collected OCC became quite expensive in China due to the overall recycled fiber shortage issue in 2018

• Recent decline in OCC prices globally because of the weak paper packaging markets and reduction in Asian RCP purchases

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US average, USD/tonne (L) German OCC, EUR/tonne (L)Chinese imported #12, USD/tonne (L) Asian imported US OCC, USD/tonne (L)Chinese domestic, RMB/tonne (R)


China’s investments in recycled pulp

ANNOUNCED AND ESTIMATED RECYCLED PULP PROJECTS


• Nine Dragons

• Fairmont, USA: About 220,000 tonnes per year (started up already)

• Biron, USA: 650,000 tonnes per year

• Rumford, USA: About 400,000 tonnes per year

• India: 500,000 tonnes

• Lee & Man

• Myanmar: 680,000 tonnes per year

• Malaysia: 550,000 tonnes per year

• Sun Paper: Laos: 400,000 tonnes per year

• Jingxing Paper: Malaysia: 550,000 tonnes per year

• Shanying

• Wickliffe, USA: 120,000 tonnes per year

• Malaysia: 550,000 tonnes per year

• Other

Documents

North American Pulp and Paper Outlook · Global economy growing moderately, risks heightened 2019 | Fastmarkets | Macroeconomic Outlook 1.6 % 2.3 % 2.9 % 2.6 % 1.1 % 1.8 % 2016 2017