HAWKINS WRIGHT
Market pulp outlook PwC 24th Annual Global Forest & Paper Industry Conference Vancouver, May 2011
HAWKINS WRIGHT
Macro-economic factors have been most influential in past 2 cycles…
0
50
100
150
200
250
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Index 2005=100
Pulp prices versus other commodities
The Economist Industrial Commodity (US$) Price Index
NBSK Market Pulp Price
Source: The Economist, Hawkins Wright
HAWKINS WRIGHT
Prices trending down in most major currencies since July 2010
50
60
70
80
90
100
110
120
130
140
150
160
170
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Index Jan 2006 = 100
Euro zone (€)
US $
Canada (C$)
Brazil (real)
China (yuan)
April 2011
Note: NBSK (PIX) prices converted into other currencies and expressed as an index. The exception is Brazil which is a conversion of the BEKP (PIX) price. Data: FOEX (PIXprices) and OANDA.com (exchange rates).
Pulp prices (PIX) in US dollars and other currencies
HAWKINS WRIGHT
Prices have increased despite apparent over-capacity…
75%
80%
85%
90%
95%
100%
105%
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1000
1200
Shipmenttocapacityratio
AverageNBSKprice,US$/t
AverageNBSKprice Shipment‐ capacityratio
HAWKINS WRIGHT
…because capacity has been under-utilised
2,750
3,000
3,250
3,500
3,750
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
(000s t)
World-20 BCP production and shipments, 3 month moving average
3 month average BCP production
3 month average BCP shipments
Source: PPPC, Hawkins Wright
Market related
Chilean earthquake
Extended maintenance
?
HAWKINS WRIGHT
Pulp mill closures since 2005…
Year Company Mill CountryImpact on mkt pulp Grade
Date of closure
2010 Sappi Usutu Swaziland -190 UKP Q1 20102009 M-Real Alizay France -70 BHKP Q2 2009
Botnia Kaskinen Finland -210 Birch Q1 2009CMPC Laja Chile -110 BSKP Q1 2009Rottneros Miranda Spain -150 BEKP Q1 2009Marathon Pulp Marathon Canada -200 NBSK Q1 2009Boise Inc. St. Helens USA -85 NBSK Q1 2009
2008 Evergreen Pulp Samoa USA -200 NBSK/UKP Q4 2008International Paper Bastrop USA -100 SBSK/fluff Q4 2008Continental Management Baikal Russia -200 NBSK/UKP Q4 2008Smurfit Pontiac Canada -200 NBHK Q4 2008UPM-Kymmene Tervasaari² Finland -210 NBSK Q4 2008Stora Enso Norrsundet Sweden -300 NBSK Q4 2008Catalyst Paper Elk Falls Canada -190 NBSK Q4 2008Kertas Nusantara Mangkajang Indonesia -150 BHKP Q3-2008Stora Enso Kemijärvi Finland -120 NBSK Q2 2008Rottneros Utansjö Sweden -180 BCTMP Q2 2008
2006 West Fraser Hinton Canada -120 NBSK Q4 2006Tembec Smooth Rock FallsCanada -200 NBSK Q3 2006Cascades Fjordcell Canada -15 NBSK Q3 2006Weyerhaeuser Cosmopolis USA -140 Specialty 2H 2006Fraser Papers Berlin USA -135 NMHW Q2 2006Bowater Thunder Bay Canada -210 NBSK/NBHK Q2 2006Korsnas Gavle Sweden -70 NBSK Q2 2006Weyerhaeuser Prince Albert Canada -130 NBSK Q2 2006Western FP Squamish Canada -275 NBSK Q1 2006
2005 Domtar Quevillon Canada -195 NBSK Q4 2005Neenah Paper Terrace Bay Canada -125 NMHW Q2 2005Rottneros Utansjo Sweden -70 BSP Q1 2005
TOTAL 2005-2010 -4,550
• Theescala*oninpulppricesfrom2006‐08wasduetorisingcosts…
• ….4.6milliontonnesofcapacityclosedpermanently
HAWKINS WRIGHT
In spite of closures, net capacity continued to grow…
Since 2007: Mucuri, Fray Bentos, Tres Lagoas, Rizhao, plus brownfield expansions in Iberia, Indonesia, and elsewhere
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Annual change in capacity (thousand tonnes)
Total capacity (thousand tonnes)
Annual change in BCP capacity
BSKP
BHKP
FORECAST
HAWKINS WRIGHT
Re-starting capacity Pulp supply is very price elastic….
Company Mill Country Capacity Grade Date of restart
Kertas Nusantara E.Kalimantan Indonesia +250 BHKP Q2-2011Arauco Arauco Chile +500 BSKP Q1-2011APRIL Kerinci iii Indonesia +600 BHKP Q4-2010Buchanan Terrace Bay Canada +350 BSKP Q4-2010Paper Excellence (APP) Mackenzie Canada +230 BSKP Q3-2010Baikalsky Lake Baikal Russia +100 UKP/DP Q3-2010Fortress Papers Thurso Canada +250 BHKP Q2-2010Catalyst Crofton (II) Canada +90 BSKP Q2-2010Stora Enso Sunila Finland +320 BSKP Q1-2010Tembec Chetwynd Canada +220 BCTMP Q1-2010Svilocell Svishtov Bulgaria +150 BHKP Q4-2009Stora Enso Enocell Finland +650 BSKP/BHKP Q4-2009Catalyst Paper Crofton (I) Canada +210 BSKP Q4-2009Nanaimo Forest Products Harmac Canada +110 BSKP Q3-2009
Total +4,030
HAWKINS WRIGHT
- 1,000 2,000 3,000 4,000 5,000 6,000
AracruzWeyerhaeuser
AraucoSodra
APRILTembec
International PaperStora Enso
Canfor*Koch Celulose
Ilim PulpWest Fraser**
Mercer InternationalBowater
Metsa BotniaENCECMPC
CenibraVotorantim
Parson & Whittemore
Capacity '000 t/y
BSKP
BHKP
UKP
Mech
2005
- 1,000 2,000 3,000 4,000 5,000 6,000
FibriaAPRIL
AraucoAPP
Georgia PacificCMPCSodra
Stora EnsoWeyerhaeuser
SuzanoBotnia/M-real
UPM-KymmeneDomtar
IlimMercer
IPENCE
West FraserCanfor Corporation
Cenibra
Capacity '000 t/y
BSKP
BHKP
UKP
BCTMP
2011
HAWKINS WRIGHT
Brazil and Uruguay BEKP, 2013-2015
Fibria (Três Lagoas )
• EldoradoCeluloseePapel:TrêsLagoas,1.5milliont/y,Q42012
• Suzano:Maranhão,+1.3‐1.5milliont/y,Q22013
• MontesDelPlata:1.3milliont/y,Q22013
• CMPC:Guaiba,+1.3‐1.5milliont/y,2014/15
• Suzano:Piauí,+1.3‐1.5milliont/y,2014/15
• Fibria:TrêsLagoasII,VeracelII• Klabin(Paraná)• Cenibra
Eldorado Celulose e Papel (Três Lagoas )
Suzano (Maranhão)
Suzano (Piauí)
CMPC (Guaiba)
Montes del Plata (Colonia)
HAWKINS WRIGHT
China is the only major growth market, accounting for 23% of global demand in 2011
-10
-5
0
5
10
15
0% 20% 40% 60% 80% 100%
% pa demand growth 2005-10
% share of shipments
China
L.America
E.Europe
Western Europe
JapanNorth America
Other Asia
Oceania
HAWKINS WRIGHT
Bleached pulp demand: China, Asia, & rest of world
‐
5
10
15
20
25
30
35
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011(f)
Milliontonnes
China
Restofworld
OtherAsia(ex‐Japan)
HAWKINS WRIGHT
Chinese pulp imports
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1
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6
7
8
9
10
11
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13
1995 1997 1999 2001 2003 2005 2007 2009
milliontonnes
BCTMP
BHKP
BSKP
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200
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1,000
1,200
1,400
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
thousand tonnes
March 2011
HAWKINS WRIGHT
Chinese P&W capacity investments
APPHainan Q2‐2010 1200 CWFOjiNantong Q2‐2010 400 CWFSunPaper Q2‐2010 350 UWFNanping Q2‐2010 200 UWFShandongHuatai Q1‐2011 700 CWFZhumadianBaiyun Q1‐2011 250 UWFShandongChenming Q2‐2011 800 CWFGuangxiJindaxing Q2‐2011 200 UWFNineDragons Q2‐2011 450 DIPSunPaper Q3‐2011 400 CWFZhanjiangChenming Q3‐2011 500 UWFAnqingHuatai Q4‐2011 200 UWFAPRILFinePaper Q4‐2011 450 UWFAPRILFinePaper Q1‐2012 600 CWF
Total 6700
• Alongwithinvestmentsin*ssuecapacity,haveprovidedaboosttopulpconsump*on...
• ...butpaceofgrowthisunsustainable
HAWKINS WRIGHT
China growth
• DriversofChinesepaperproduc*onandimportedfibredemandinclude…> Chinesepaperdemand> Exportsectordemand> ExportsofP&B> Displacementofoldcapacity> Levelofdomes*cpulpproduc*on(dissolvingpulpconversions?)
HAWKINS WRIGHT
Summary
• Pulpwillremainstronglycorrelatedtocommoditycycles
• Costsremainthekeylongtermdriver
• Supply‐sideremainsveryfragmented,andiscon*nuallyundergoingstructuralchange
• IncreasinginfluenceofChina
• Vola*lityisheretostay
HAWKINS WRIGHT
www.hawkinswright.com
• Market intelligence > Pulpwatch
− Published 12 times a year covering developments in international pulp and paper markets > Multiclients
− Outlook for market pulp demand, supply and prices − Defining the China market
> Consulting − Feasibility studies/due diligence/ price forecasting