Portia Zhao, Senior Product Manager, Mill Intelligence

3rd China International Recycled Fiber Conference,

Shanghai, Sep 23, 2014

Analyzing Fiber Structure, Cost

Competiveness and Profitability of

Containerboard Producers

Content

• Overview of global containerboard capacity and

product allocation

• Asset quality, fiber and energy comparison

• Global and China unbleached linerboard cash cost,

impact of varied OCC prices

• Profitability index

• Summary

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Cash Costs – Natural Expense Category

ELECTRICITY

Typical Pulp & Paper Facility

UNITS OF PRODUCTION

MATERIALS • Operating • Maintenance • Repairs

FIBER • Roundwood • Chips • Pulp • Rec. Paper

LABOR • Operating • Maintenance • Supervision

FUELS • Oil • Coal • Gas • Other

CHEMICALS • Pulping • Bleaching • Coating • Water Treatment

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Overview of Global Containerboard Producers

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Globally 170 Million Tonnes in 2013

Source: RISI

World Containerboard Capacity Development China accounts for around 30% of global capacity in 2013

Capacity, Million Tonnes

Source: RISI

6

Containerboard Products Allocation

*LB-White Top includes coated and uncoated, recycled and kraft white top linerbord Source: RISI

Capacity, Million Tonnes/Year

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Containerboard Machine Asset Comparison

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Technical Age* 2014, Years

*Capacity weighted average, Bubble size: benchmarked capacity

Average PM Capacity, 1000

Tonnes/Year

Source: RISI

Speed, m/min

Trim Width, meter

Fiber Structure

Capacity Weighted Average

Source: RISI

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Fiber Integration Level

Capacity Weighted Average

Source: RISI

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Energy Consumption

Source: RISI

Calorific Value, GJ/Tonne

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Carbon Dioxide Emission

Source: RISI

Fossil CO2 Emissions, Kg/Tonne

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Global UB Linerboard Cash Costs, Q1 2014 Sorted by Cash Cost, Indicated by World Region

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Mills: 608 Machines: 810

Source: RISI

Global UB Linerboard Cash Costs, Q1 2014 Grouped and Indicated by World Region

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Asia 406 US$/MT Europe

411 US$/MT

Latin America

380 US$/MT

North America

320 US$/MT

Source: RISI

Oceania

361 US$/MT

Africa

395 US$/MT

Global UB Linerboard Cash Costs, Q1 2014 Indicated by Country and Region

China

USA-Southwest

Indonesia

Australia

Germany Japan

South Korea

Russia

Brazil

USA-West

USA-Midwest

USA-South

USA-Northeast

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Global UB Linerboard Cash Costs, Q1 2014 Indicated by Natural Expense Category

China

USA-Southwest

Indonesia

Australia

Germany Japan

South Korea

Russia

Brazil

USA-West

USA-Midwest

USA-South

USA-Northeast

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Global UB Linerboard Cash Costs, Q1 2014 Indicated by Country and Region, delivery to Shanghai

USA-Southwest USA-South

China USA-Northeast Germany

Japan South Korea

Russia

USA-West

USA-Midwest

Australia Indonesia

Poland Brazil

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Global UB Linerboard Cash Costs, Q1 2014 Grouped by World Region, Indicated by Configuration

Source: RISI

Asia 406 US$/MT Europe

411 US$/MT

Latin America

380 US$/MT

North America

320 US$/MT

Oceania

341 US$/MT

Africa

395 US$/MT

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Global UB Linerboard Cash Costs, Q1 2014 If RCF prices increased by 50%, then…

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Source: RISI

Asia 514 US$/MT Europe

496US$/MT

Latin America

449 US$/MT

North America

345 US$/MT

Oceania

369 US$/MT

Africa

488 US$/MT

Global UB Linerboard Cash Costs, Q1 2014 If RCF prices increased by 50%, then…

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Source: RISI

Asia Avg. up 27%,

China Avg. up 29% Europe

Avg. up 21%

Latin America

Avg. up 18%

North America

Avg. up 8%

COST 461 US$/MT

COST 382 US$/MT

Oceania

Avg. up 2%

Africa

Avg. up 24%

World Avg.

up 21%

Global UB Linerboard Cash Costs, Q1 2014 If RCF prices increased by 50%, then… delivery to Shanghai

USA-Southwest USA-South

China

USA-Northeast

Germany Japan

South Korea Russia

USA-West

USA-Midwest

Australia

Indonesia

Poland Brazil

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0 5 10 15 20 25

0

100

200

300

400

500

600

Cumulative Capacity (Millions of FMT Per Year)

Cash C

ost U

S$/F

MT

LB - Recycled LB - Kraft Top LB - White Top

China Linerboard Cash Costs, Q1 2014 Sorted by Cash Cost and Indicated by Product

22

Source: RISI

COST 414 US$/MT

Mills: 87 Machines: 160

*LB-White Top includes coated and uncoated, recycled and kraft white top linerbord

0 5 10 15 20 25

600

500

400

300

200

100

0

Cas

h C

ost

, USD

/FM

T

Cumulative Capacity (Millions FMT/Y)

LB-Recycled LB- Kraft Top LB- White Top

0 5 10 15 20 25

0

100

200

300

400

500

600

Cumulative Capacity (Millions of FMT Per Year)

Cash C

ost U

S$/F

MT

LB - Recycled LB - Kraft Top LB - White Top

China Linerboard Cash Costs, Q1 2014 Sorted and Indicated by Product

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Source: RISI

LB-Recycled, 392 USD/MT LB-Kraft Top, 440

USD/MT

LB-White Top,

487 USD/MT

600

500

400

300

200

100

0

Cas

h C

ost

, USD

/FM

T

Cumulative Capacity (Millions FMT/Y) 0 5 10 15 20 25

COST 414 US$/MT

LB-Recycled LB- Kraft Top LB- White Top

Cash Costs of Major Recycled Linerboard

Producers in China

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Source: RISI

Cash Cost, USD/Tonne (Capacity Weighted Average)

Profitability Index for Kraft Top Linerboard in

Southern China

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Source: RISI

Profitability Index*, 2007 Q3=100

*Profitability index = average prices/average cash cost, this is for mills located in southern China and the prices are for

export prices with VAT excluded.

Summary

• China is nowadays the largest single containerboard producing country,

accounting for 30% of global capacity. Many new and modern machines put

into operation in the past decades. China’s containerboard capacity had

average 18% of growth rate since 2000s, but the expansion space apparently

slowed down after 2010s.

• Recycled OCC accounts for about 97% of fiber structure in Chinese

containerboard production, the cost competitiveness is heavily dependent on

the price of recycled OCC. Chinese producers take advantage of lower labor

and maintenance costs.

• North America and its integrated mills are far superior with respect to

production due to lower fiber, chemicals and energy costs. Recovered paper

prices are also a key cost driver for Europe and other Asia, and have a

remarkable impact on the cost competitiveness of recycled mills in those

regions.

• Linerboard producers in China seems being in the hard time in periods, the

profitability index indicates the overall downward trend since the 2008 financial

crisis although it fluctuated.

• In the next five years, will mills consider conversions and grade swings

between graphic paper, containerboard and value added specialty paper? Mill

closures? Will mills invest the new environment friendly energy equipment due

to environmental issues?

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