dissolving pulp- the great comeback - tappi pulp: the great comeback “it’s all about cotton!”...
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Dissolving Pulp: The Great Comeback“It’s All About Cotton!”
TAPPI PEERS Dissolving Pulp Forum2-3 October, 2011
Gordon Floe, Pöyry Management Consulting
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PRESENTATION CONTENTS
• How it all Got Started
• Background
• History and Turnaround
• Textile Fiber Consumption
• Price Correlations
• Conclusions: How Will it all End?
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PÖYRY INTRODUCTION
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GLOBAL EXPERTS IN CONSULTING AND ENGINEERING
• Pöyry is a global consulting andengineering company dedicated tobalanced sustainability and responsiblebusiness
• 7 000 experts in about 50 countries
• Project experience in over 100 countries
• 15 000 projects annually
• Net sales in 2010 EUR 682 million
• Listed on the NASDAQ OMX Helsinki
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WIDE RANGE OF DEEP EXPERTISE
URBAN & MOBILITY• Urban planning• Real estate development• Transport planning• Rail infrastructure• Road infrastructure• Construction
management• Building design
WATER & ENVIRONMENT• Water• Wastewater• Waste• Environment
INDUSTRY• Pulp and paper• Chemicals• Minerals processing
ENERGY• Hydropower• Thermal power• Bio-renewables• Oil and gas• Nuclear energy• Transmission and distribution
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DISSOLVING PULP
Market history, development and characteristics
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HOW IT ALL STARTED
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1884
Hilaire de Chardonnet, later Comte deChardonnet, invented a fabric he calledartificial silk.
Early 1890’s
Three British scientists, Beadle, Bevanand Cross, found that cellulose could bedissolved as xanthate after treating it withalkali and carbon disulphide.
1904
The sale of the patent rights to a Frenchtextile company Courtauld -beginning oflarge-scale industrial production ofdissolving pulps.
1924
The word rayon was taken into use. Theintroduction of staple fiber came shortlythereafter.
1930’s-1950’s
Sales of viscose fibers grew very rapidlywith the rayon process the clear winneramong the different productiontechniques. Viscose peaks in early 70’s
1970’s- early 2000’s
In early 1970’s, inexpensive syntheticfibers (polyester), started to driveviscose fibers into a long-lasting decline.
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BACKGROUND
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Dissolving pulp is a family of pulps with high alpha-content, which are used in a multitude of end-uses, as illustrated below. The key focus of this discussion is viscose pulp used in the textile industry.
Viscose
Acetate
Cotton linters pulp
Low-alpha pulps
3.3 million tons
High-alpha/high grade pulps
1.6 million tons
Lyocell
Total 4.9 million tons (incl. cotton linters pulp)
Substituting products
Common end uses
Viscose:
• Cigarette tows• Films• High quality plastics• Acetate yarn, fibers
Acetates:
• Textile industry• Non-wovens• Cord and industrial
yarn• Cellophane• Sausage skin• Sponges
Ethers/Others:
• Explosives• Food industry• Pharmaceutical• Cosmetics• Special paints• Binders and glues• Artificial leather• Etc.
• Paper, cotton, synthetic fiber
• Synthetic films• Plastic• Natural silk, cotton
• Highly miscellaneous• Cotton linters pulp• Synthetic fibers, etc.• BHKP paper pulp (vs.
low alpha CMC)
• Cotton, wool • Synthetic fibers, fluff
pulp• Steel and polyester• Polyethylene,
polypropylene• Natural, collagen
and plastic casings
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BACKGROUND- DEMAND BY END-USE
Viscose69%
Acetate15%
Ethers12%
Nitrates3%
Others1%
Demand by End-use in 2010 End-use Future trend
Viscose products
‒ Rayon staple ++
‒ Rayon filament +/-
‒ Rayon cord +/-
‒ Cellophane & others +/-
Total +/-
Acetate products
• Filament -
• Cigarette filter tow ++
• Other acetates +
Total +
Nitrates +/-
Ethers (CMC etc.) ++
Others +
Grand Total +
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High-grade products such as acetates, especially cigarette filter tow, are expected to grow fast. Viscose products have declined in the past, but are now expected to increase fast due to rapid growth in Asia and reduced supply of cotton.
Total market 4.9 million tons*
*Including 1.1 million tons cotton linters for various end-uses, mainly viscose (in China), nitrates and other very high-alpha products
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HISTORY AND TURNAROUND
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World consumption of dissolving wood pulp decreased from 4.9 million tons in 1980 to about 3 million tons in 2001 but has been rising since. In the early 1970’s, inexpensive synthetic fibers, (nylon, polyester, polypropylene), started to drive viscose fibers into a long-lasting decline. End-uses other than textile faced problems as well. Explosives were developed from non-cellulose raw materials and rayon tyre-cord was replaced by a combination of polyester and steel reinforcement fibers in car tires. Demand recovery now back to 1980 levels; estimated at 4.9 million ADt/a in 2010 and could reach 5.2 million in 2011
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1980 1985 1990 1995 2000 2005 2010
Million tons
North America
China
Europe
Rest of the World
Rest of Asia
Japan
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WHAT’S DRIVING THE TURNAROUND?
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More positive DP demand drivers than negative
Population Growth and Demographic Changes
Economic Growth and
Increasing Purchasing
Power
Industrialisation in High Population Areas
Environment / Technology
•Young in developingcountries
•Population growth in general
•High energy price & substitution
•Life-style changes
•Convenience
•Economic growth/ private consumption Growth in the average per capita income, especially in the emerging markets
•Globalisation
•Industrialisation of developing world
•Limitations in the cotton supply
•Competition for land
•New applications and end-uses
•New applications and end-uses
•Substitution of polyprop. in non-wovens
•Tech. dev. in textiles & non-wovens. New applications and end-uses + the technical development (especially viscose use in textile blends )
•New end-uses
•Renewability
•Population decline & aging
•Substitution by even higher value products
•Protectionism •High investment costs
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TEXTILE FIBER CONSUMPTION BY GRADE
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Textiles is a 575 billion USD industry with approximately 3.5 - 4% average annual growth. Viscose fiber is a small part of the total and is most dependant on economic growth fashion trends and cotton availability/pricing. The major change in textile fiber consumption over the past 30-40 years has been the growth in synthetics.
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1970 1980 1990 2000 2010
Mill
ions
of t
ons
Total Word Textile Fiber Consumption, 1970-2011e
Source: Oerlikon textile, Pöyry estimates
Polyester
Cotton
Wool and silk
Cellulosic
Other Synthetic
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TURNAROUND DRIVEN BY TEXTILES
• The low share of viscose fiber of the total fiber volume used in textiles means that if viscose replaces 1% of synthetic fiber, dissolving pulp demand goes up by nearly 11% and if viscose replaces 1% of cotton, nearly 6% more dissolving pulp is needed.
• Substitution has been the most important driver over the past few years. The biggest change has been seen in the interplay between cotton and viscose due to the recent drop and future limitations in cotton supply. The main benefit of viscose versus cotton is better security of supply due to its apparent immunity to seasonal weather conditions and predictable capacity of supply.
‒ Spinning and other techniques needed in textile production have been developed to allow more cotton/viscose blends. Most of the substitution has taken place in these blends through a gradual introduction of higher shares of viscose fibers in those applications where the special features of dissolving pulp based fibers can be utilized.
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Fiber Type Synthetic (oil) Cotton Other Natural Viscose Total
Million tonnes
41 24.5 1.5 3 70
% 59 35 2 4 100
Fiber Consumption in the Textile Industry
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NOMINAL PRICE CORRELATIONS 2000-2010
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Dissolving pulp prices in China vis-à-vis BSKP, cotton and oil prices in 2000-2010. The link between cotton and dissolving pulp prices has strengthened over the last several years. Small changes in cotton supply result in large changes in DP demand.
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600
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1200
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2000 2002 2004 2006 2008 2010
USD/ton
BSKP
Dissolving Pulp CHN
Crude Oil
Cotton
Brent Oil
NSBSKP Western Europe
Cotton Liverpool
Index
Oil USD/barrel Cotton US cents/pound
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COTTON PRODUCTION AND CONSUMPTION
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After several years of consumption exceeding production, stocks were very low, lowest level in 14 years. In 2010/2011 cultivation area estimated up by 9%, production 16% and consumption 4%. Which means a further small decline in stocks.
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30.0
2001-02 2004-05 2007-08 2010-11
Consumption
Production
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OIL AND COTTON OUTLOOKS
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High cotton price drives up cultivation area in 2011-12 season – weakening demand/supply and prices from Q2/2011. The International Cotton Advisory Committee (ICAC) foresees the cotton acreage to be reduced from historical trend of 33 million hectares to 32 million hectares by 2020, however yield improvements will result in marginal production increases.
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1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Real 2010 USD/t
Crude Oil, Brent
Forecast
* Crude Oil Brent, USD/barrel. ** Cotton Liverpool Index, US cents/pound.
Cotton, Liverpool Index
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HOW WILL IT ALL END?
• Demand outlook for textile growth over the decade at 2+%/yr is significant. Much of thedemand growth will be taken by synthetics.
• However market demand is strong enough to allow the balance of supply (natural andviscose fibers) to increase, although by a smaller proportion than synthetics
• The supply constraints of cotton are serious and the supply forecast for 2020 byICAC would allow only a marginal growth of cotton. This would allow cotton to captureonly a small portion of core demand growth leaving viscose fibers a significant marketopportunity in substitution.
• The demand outlook for dissolving wood pulp based viscose is attractive, yetvolatile to development of cotton supply and general market development. Assuming aslightly pessimistic or optimistic general market outlook for textile fibers would have asignificant impact on the viscose market opportunity.
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WHAT DOES THIS MEAN FOR DISSOLVING PULP PRICES?
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Sharp upturn from mid 2009, due to economic recovery, cotton shortages and high commodity prices in China. Peak price of $2600 in May; July-Aug fall-off to $1150-1200, Sept pricing back up a bit (high season for textile business)With robust demand outlook and swings in supply (both cotton crops and new DP capacity), expect continued volatility
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1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
2010 USD/t
Real
Nominal
* Prices in China CIF or C&F; Deflator used for real prices US WPI.
Peak prices at 2600, mainly upside risk during Q2 2011, big increase in cotton volumes and additional supply of diss pulp drive price down during 2nd half 2011
??
Forecast
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CONTACT:
NAME: GORDON FLOEMAIL: [email protected]: 604-443-1014
Thank You !