hawkins wright market pulp outlook, and impact of india utipulp meeting barcelona, 18 th september...
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HAWKINS WRIGHT
Market pulp Outlook, and impact of IndiaUtipulp meetingBarcelona, 18th September 2014
HAWKINS WRIGHT
Pulp prices versus other commodities
0
50
100
150
200
250
Ind
ex
, 20
05
=1
00
BEKP and NBSK price indices against other commodity indices (2005=100)
Economist commodity-price index
IMF commodity priceindex
NBSK price (CIFEurope) index
BEKP price (CIFEurope) index
HAWKINS WRIGHT
-50
0
50
100
150
200
250
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
US
$/t
NBSK v BHKP list price differentialEuropean PIX
Source: FOEX, Hawkins Wright
HAWKINS WRIGHT
Current problem is demand, rather than supply
-100 -50 0 50 100 150 200 250
China
East Europe
Japan
Oceania
Africa
Latin America
Other Asia
West Europe
North America
TOTAL
(thousand tonnes)
+0.4%
-0.7%
+0.9%
-1.4%
+14.2%
+3.9%
-0..3%
-0.5%
World-20 BCP Shipments, by region, 7 months 2014 v 2013thousand tonnes and %
includes India, Thailand, Indonesia, Vietnam. Also Korea, Taiwan. And Turkey
Demand averages 1.2 million tpa over past ten years, but has slowed over past 2 years
HAWKINS WRIGHT
Chinese monthly import
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
mill
ion
tonn
es
July 2014
+5% v 2013= 0.4Mt in 7 monthsRussia +38%Indonesia +7%Brazil +33%
Indian imports
HAWKINS WRIGHT
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
000'
s t
Forecast
Over-supply
Under-supply
• Net capacity additions average 1.4 million tpa for next five years. Mostly BHKP• Recent closures of Huelva and Old Town reduce the surplus for 2014 and 2015, but
further closures will be necessary to restore balance
Capacity surplus based on current plans:
Where? When? Who?
HAWKINS WRIGHT
Impact of exchange rates - softwood
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
0
200
400
600
800
1000
1200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
euro/dollar exchange rate
NB
SK
pric
es (
US
$/t)
NBSK price ($)
€/$ exchange rate
HAWKINS WRIGHT
Impact of exchange rates - hardwood
0.0
0.1
0.2
0.3
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0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
0
200
400
600
800
1000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
euro/dollar exchange rate
BH
KP
pric
es (
US
$/t)
BHKP price ($)
€/$ exchange rate
HAWKINS WRIGHT
Impact of exchange rates
• Since January, NBSK PIX has risen by $24 but €55• European dollar denominated costs are falling with weaker euro…
200
250
300
350
400
450
500
550
600
650
700
750
800
850
900
Eur
o/t
onn
e c
if N
W E
uro
pe
BHKP €/tonne
NBSK €/tonne
PIX indices for NBSK and BHKP, in €
Source: FOEX, HAwkins Wright
HAWKINS WRIGHT
Defining the Indian market for Pulp & Paper
DEFINING THE INDIAN MARKET FOR PULP, PAPER & BOARD
July 2013
• Hawkins Wright published mullti-client report on India in 2008 and 2013 Similar approach to China
research…
• Market remains relatively small in absolute terms, but has been developing steadily
• Furthermore, analysis is useful in understanding the drivers of China and other emerging markets
HAWKINS WRIGHT
Comparisons with China…population
0
200
400
600
800
1,000
1,200
1,400
1,600
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
F20
1620
18
China
India
India v China population, 1990-2019(f)
• Indian population is only 31% urbanised compared to 45% in China, 44% Indonesia, 78% in Mexico, 87% in Brazil.
• Urbanisation should further boost economic growth, but lack of investment in infrastructure such as transport, housing, and basic sanitation is a major problem.
• Of the 1 billion people in the world who have no toilet, India accounts for nearly 600m.
• Problem is partly economic, partly cultural.
HAWKINS WRIGHT
Comparisons with China…GDP
0
2000
4000
6000
8000
10000
12000
14000
16000
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
F
Mill
ion
US$
(PPP
)
China
India
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
F
perc
ent c
hang
e
China
India
India v China GDP growth, 1990-2014(f) India v China GDP, 1990-2012
HAWKINS WRIGHT
0
5,000
10,000
15,000
20,000
Brazil Canada China Germany India Japan USA
$ tr
illio
n
Other
Household final consumption
Other components of GDP include investment, government spending, net trade, inventory +/-
India is world’s 3rd largest economy by PPP(10th in absolute dollar terms)
GDP compared, 2012 (PPP basis):
In 2013, IMF estimates China $13.4 trillion and India $5.1 trillion
HAWKINS WRIGHT
So, why is paper production lagging??
0
10
20
30
40
50
60
70
80
India China
mil
lio
n t
on
ne
s
Mixed furnish
International standard
0
10
20
30
40
50
60
70
80
India China
mil
lio
n t
on
ne
s
Other
Tissue
Cartonboard
Containerboard
Printing & Writing
Newsprint
Indian tissue demand <150,000tpa compared to 6 million t in China
Paper production, 2013
HAWKINS WRIGHT
Importance of China’s export sector
• India runs a current account deficit of -1.99 per cent of GDP in 2013, whilst China has a surplus of +2.06 per cent.
• China exported $2.2 TRILLION (=$2,200,000 MILLION) in last twelve months…textiles, footwear, furniture, toys, electronics. i.e. Mostly packaged goods. (Spanish GDP is $1.3 trillion. German GDP $3.6trn). China exports ~17 million tonnes of P&B in converted form
• India exported $320 MILLION. Mostly engineering goods, gems and jewellery, chemicals, agricultural products and textiles (9%)….this sector is not a driver of P&B demand
HAWKINS WRIGHT
These differences explain the different scale and structure of the paper industries….e.g. Packaging grades account for two thirds of Chinese consumption, compared to only 40% in India.
Composition of GDP, India Composition of GDP, China
0.0
10.0
20.0
30.0
40.0
50.0
60.0
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
% o
f GD
P
Agriculture
Industry
Services
0.0
10.0
20.0
30.0
40.0
50.0
60.0
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
% o
f GD
P Agriculture
Industry
Services
16
Services account for 56 per cent of the Indian economy (43 per cent in China), whilst industry accounts for just 26 per cent (47 per cent in China).
HAWKINS WRIGHT
0
5,000
10,000
15,000
20,000
Brazil Canada China Germany India Japan USA
$ tr
illio
n
Other
Household final consumption
Other components of GDP include investment, government spending, net trade, inventory +/-
Paper consumption is related to spending(rather than population or GDP)
GDP compared, 2012 (PPP basis):
HAWKINS WRIGHT
Paper consumption is related to spending(rather than population or GDP)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Pape
r dem
and,
mill
ion
tonn
es
Private consumption, $ trillion
Germany
France
Japan
India
Canada
Russia
ItalyUK
Brazil
Spain
Mexico
Indonesia
Turkey
Spend ~$115,000 to generate 1 tonne of paper demand, and the “yield” is falling
HAWKINS WRIGHT
Paper consumption is related to spending(rather than population or GDP)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0
Pape
r dem
and,
mill
ion
tonn
es
Private consumption, $ trillion
Germany
France
Japan
USA
India
Indonesia
Thailand
China, per CPA
HAWKINS WRIGHT
Geography & Industry fragmentation(China development was concentrated in coastal provinces)
• 17 Indian companies have annual capacity >100,000t/y. Combined output is 4.6 million t/y.
• Remaining 6 million tonnes of production is very small scale and impossible to measure output accurately
• Largest paper machines are 200,000t/y or less
• Average order size = 1/3 container • Lack of merchants and intermediaries.
Difficult to build brand• Geographically dispersed across 35
locations (opposite)> Average distance for BILT CWF:
1200km
HAWKINS WRIGHT
Fibre demand, 2013
0
2
4
6
8
10
12
2013
mil
lio
n t
on
ne
s
RCF import
RCF local
Non-wood pulp
Pulp import
Domestic wood & bamboo
• Forestry – Industrial plantations are prohibited. Farm forestry schemes with local farmers.
• Even so, BILT, JK Paper, ITC, Century, West coast have installed 1 million t/y pulp capacity since 2009. Most pursue a strategy of integration
• Fibre deficit…wood chip imports are expected to reach 1 million BDMT in 2014.
• Low wastepaper recovery rate (<30%)
HAWKINS WRIGHT
Pulp imports
• BSKP imported from North America, Nordic, and Chile
• APRIL controls BHKP market. BILT brings in tied volume from Malaysia
• BEKP import ~50,000t/y• Limited opportunity to displace
local non-wood and wood pulp (less than in China)
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
mill
ion
tonn
es
UKP
BCTMP
Other BHKP
Indonesia
BSKP
HAWKINS WRIGHT
Opportunities and challenges
⁺ India’s population is young and growing, and less urbanised⁺ Income per capita remains very low even compared to China, Indonesia⁺ Positive economic outlook
⁻ Investment in infrastructure is crucial. Roads, ports, warehouses. Also power generation and network, drainage & sanitation. Access to capital?
⁻ Restrictive labour laws and bureaucracy discourage industry and labour intensive manufacturing…bold reforms required
⁻ Land reform (plantation ownership)⁻ Fragmentation, opportunities for consolidation are limited
Big things are expected of Mr Modi…GDP has started to rise, rupee has stabilised, and BSE is at record highs.
Can he deliver?
HAWKINS WRIGHT
Outlook
• P&B grew by 7% 2007-2012 = 3.2Mt in 5 years• Pulp imports grew by 0.4Mt
• Assuming Indian paper demand grows by 0.8 million tpa, how is this achieved? > What percentage of P&B growth taken by imports? (over-supply globally)> Of local P&B production, what percentage of fibre is virgin v recycled?> Of virgin fibre, what proportion is imported pulp v local pulp; local plantations v imported
chips and logs?
• Outside of China, India remains an important emerging market for pulp. However, fundamentals of population, geography, culture, and economy suggest a very different path to China. Slow and steady rather than explosive?
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