Global Pulp Market Outlook North American Conference October 2017 Rod Young Chief Economic Advisor
Pulp Market in a Frenzy Sustained momentum in BHK prices; abrupt rebound in BSK prices Major factors Aggressive environmental crackdown in China Moratorium on RCP import licenses in China Synchronized acceleration in world economic activity Unexpected downtime CMPC in particular Slower ramp up of massive OKI mill 2
China (and Global) PMIs Have Been Strong Throughout 2017 3
Chinese Buyers Frantically Turn to Domestic Resale Market for Pulp Pulp prices in the Chinese local market (RMB) 4
Domestic Chinese Recovered Paper Prices Explode 5
BSK Producers Take Advantage of High BHK Prices in China Source: RISI 6
Near Term Conditions and Trends (1) BHK inventories low across the industry Some papermakers are worried about sufficient volumes to maintain production Pulp prices high and paper prices going up Chinese papermakers passing through costs Stronger euro supports higher prices Seasonal STRENGTH in P&W markets European market in particular 7
Near Term Indicator: Producer BHK Inventories Are Very Low Source: PPPC, RISI 8
Seasonality of European P&W Demand 9
Near Term Conditions and Trends (2) Large capacity additions OKI mill in Indonesia slowly ramping up Fibria started new line in Brazil Metsä Botnia started new line in Finland Unexpected downtime helping to offset new capacity And suppliers might take offsetting steps as new capacity ramps up in 2017 and 2018 Fibria confirmed downtime at the Aracruz mill in fourth quarter APP has been deliberate about new OKI tonnage 10
Fibria s 1.95 Million Tonne per Year Line Started in Late August Nominal capacity of 1.95 million tonnes per year equals 6% of world BHK market demand in 2017 11
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Near Term Conditions and Trends (3) Narrow DP/BHK price differential Bringing swing capacity back into paper grade Chinese environmental policy related closures More aggressive than expected China banning unsorted recovered paper RCP prices will rise in China More domestic collection of RCP within China Increasing Chinese imports of paper and board Virgin boxboard production will receive a boost Recycled containerboard producers will try to use more virgin fiber 13
DP/BEK Price Spread in China US Dollars per Tonne $185 Source: RISI 14
2018 Forecast Drivers 15
World Production of Paper and Board: Accelerating, but Very Slowly Graphic, Packaging and Specialty and Tissue; Percentage Change 16
Most of the Growth in the Paper Industry Is in Packaging with a Modest Effect on Market Pulp 17
Relatively Little BHK Capacity Expansion Suzano (Brazil) 180,000 tonnes incremental at two mills net of integration into tissue ENCE, Altri, Navigator (Iberia) 240,000 tonnes in incremental projects net of integration into tissue APRIL Kerinci (Indonesia) Further conversion to DP 150,000 200,000 tonnes in 2018 2019 Asia Symbol, Rizhao (China) Beginning conversion to DP 100,000 tonnes in 2018? 18
BHK Cash Cost Curve, 2Q17 Mill level costs, not including D, I, SG&A or logistics Asia Europe South America North Amer. 19
More BSK Capacity Expansion Clearwater Lewiston (USA) 90,000 tonnes, late 2017 Svetlogorsk (Belarus) 300,000 tonnes, 2018? SCA Ostrand (Sweden) 475,000 tonnes, June 2018 Chenming Huanggong (China) 300,000 tonnes, third quarter 2018 Swing mill with DP 20
BSK Cash Cost Curve, 2Q17 Mill level costs, not including D, I, SG&A or logistics Asia Europe South America North America NZ 21
Forecast Summary Pulp market will loosen in first half of 2018 Chinese recovered paper imports will resume at more normal pace Pulp supply will increase as new lines ramp up and the large CMPC line returns to action Current high pulp prices will be vulnerable Pulp demand will remain strong due largely to tight fiber supplies in China Market conditions will tighten again in the second half of 2018 as capacity expansion slows 22
Thank you! For more information: World Pulp & Recovered Paper 5 Year Forecast www.risi.com/wprp5 World Pulp Monthly www.risi.com/wpm 23