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RISI Outlook for North American Book Paper Markets
John MaineVice PresidentMay 2010
2
John Maine, VP World Graphic Papers, RISI, Inc.
– Co-Founder of Resource Information Systems, Inc.– With RISI More Than 30 Years– Developed RISI P&W Models– Works With Over 200 Graphic Paper
Clients Worldwide– Assisted by 5 Local Economist in
RISI Regional Offices– Directs Numerous Multi and Single-Client
Studies on Graphic Paper
3
US Climbing out of Deep Recession(Real GDP Growth, Annualized Percent Change)
-7%-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%6%7%8%9%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Annual
2009 -2.4%
2010 3.0%
2011 3.2%
4
Key Paper End-Uses Have Collapsed
Newspaper Inserts– Struggling to find alternative distribution outside of collapsing
newspaper market
Magazines– Both circulation and ad pages declining– Further losses coming due to e-readers
Catalogs– Circ will come back from 09, but still down long-term– Page counts falling– Postal costs will rise– Do not mail legislation to come?
5
US Paper Demand in Major Paper End-Uses Collapsed in 2008 and 2009 (two-year loss)
Percent Loss Tonnage Lost (000 tons)
Inserts -26% -895
Magazines -39% -1,365
Catalogs -31% -1,112
Books -23% -380
6
Indexes of Circulation – 2000Q1=1.00
0
0.2
0.4
0.6
0.8
1
1.2
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 0 2 4 6 8 10 12 14
Newspapers Magazines Catalogs
7
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
US Magazine Ad Pages on Long-Term “Stair-Step” Decline(Quarterly PIB Magazine Ad Page Index, 1982=1.0)
8
Total Paper Usage in US Magazines, Catalogs, and Newspaper Inserts Combined (000 tons)
6,000
6,500
7,000
7,500
8,000
8,500
9,000
9,500
10,000
10,500
11,00019
90
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
9
Book Industry Sales Hold Up Well In Recession, Dropping only 2% per Year in 2008 and 2009
$20,500
$21,000
$21,500
$22,000
$22,500
$23,000
$23,500
$24,000
$24,500
$25,000
$25,500
2002 2003 2004 2005 2006 2007 2008 2009
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Million $ %ch (rt scale)
Book Industry Sales in Millions
Souce: Amer. Publishers Assn.
10
Sales of E-Books Exploding (Millions of dollars)
$0
$50
$100
$150
$200
$250
$300
$350
2002 2003 2004 2005 2006 2007 2008 2009Souce: Amer. Publishers Assn.
11
But Sales of E-Books are Still Tiny Relative to Book Market (Millions of dollars)
$0
$5,000
$10,000
$15,000
$20,000
$25,000
2002 2003 2004 2005 2006 2007 2008 2009
E-Books All Books
1.3% of Sales
Souce: Amer. Publishers Assn.
12
US Imports of Printed Books Dropped 21% in 2009 to $2.0 Billion, but are Still up Sharply Compared With $1.4 Bill. in 1996
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
1996
2006
2007
2008
2009
China Hong K. Sing. Other Asia Other Canada
Value of Books Imported into the U.S., Million $ 8.4% of Book Industry Sales
10.6% of Book Industry Sales
13
U.S. Imports of Printed Products from China
$0
$200
$400
$600
$800
$1,000
$1,200
90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9
Books including Children's Greeting Cards all other
Million Real 2009 Dollars
14
Total Paper Usage in US Books (000 tons)
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,9001
99
0
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
15
Paper Use in US Books in 2009 by Type of Paper
Coated Free17%
Coated Mechanical25%
Uncoated Free23%
Uncoated Mechanical35%
16
Paper Demand Surging in 2010, Despite Weak End-uses
All Major Measures of End-Use Activity are Down– Mag ad pages – Mail volumes– Catalog circulation– Commercial print activity
Yet, Paper Demand and Shipments are Recovering– Inventory swing– Gain in market share from imports
17
US Producers Enjoyed a Rebound in Shipments in Late 2009, and Year-Over-Year Numbers Will Continue to Look Good in Early 2010, but Paper Demand is Still Low
1,800
2,000
2,200
2,400
2,600
2,800
3,000
3,200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
NA Coated Paper shipments, 000 tons per quarter
Currently Comparing This
To This
18
North American P&W Demand by GradeMillion Tonnes, % Change
2007 2008 2009 2010 2011
Ctd. Freesheet * 6.1 5.3 4.0 4.1 4.2
%ch -8% -13% -24% 2% 3%
Ctd. Mechanical 6.0 5.1 4.0 4.1 4.1 %ch 3% -15% -21% 2% 1%
Unc. Freesheet * 12.4 11.4 10.0 9.9 9.8 %ch -5% -8% -12% -1% 0%
Unc. Mechanical 6.2 6.0 5.0 5.0 5.1 %ch 2% -4% -17% 0% 3%
Total 30.7 27.7 23.0 23.0 23.3
%ch -3% -10% -17% 0% 1%
*Includes bristols and cotton
19
North American Operating Rates – Coming Off the Lowest Ever Recorded for Coated Paper
70%
75%
80%
85%
90%
95%
100%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Ctd. Paper
Unc. Mech.
20
U.S. Publishing Paper Pricing by Quarter ($/short ton)
$550
$650
$750
$850
$950
$1,050
0 1 2 3 4 5 6 7 8 9 10
Ctd. No. 3 60 lb. Ctd. No. 4 50 lb.
Ctd. No. 5 40 lb. 50 Lb UFS Offset
21
Cost Pressures Come to Bear on Non-Integrated Mills (NBSK Market Pulp Price Delivered to Northern Europe $/tonne)
$400
$500
$600
$700
$800
$900
$1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
22
Price Trends for LWC 40 lb. (60 gsm) ($US/short ton)
$500
$550
$600
$650
$700
$750
$800
$850
$900
$950
$1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Price
European Price
Euro Price in Europe
23
Price as a Percentage of Fully Weighted Costs 1 for Northern Mills Making 34 lb. LWC in Maine, Minnesota, and Wisconsin
80%
85%
90%
95%
100%
105%
110%
115%
120%
125%
130%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
1 Fully weighted costs include delivery, SG&A, Interest, and Depreciation.
Including $100 revenue per ton of paper from black liquor credits