outlook for market pulp, growing influence of viscose · 2017-09-16 · hawkins wright. five peaks...
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HAWKINS WRIGHT
Pulp market outlook and the growing influence of the viscose sectorEUROPULP/UTIPULP, Barcelona, 14th September 2017
Hawkins Wright LTD
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• Some observations on the short-term cycle
• Growing influence of the viscose sector
Agenda
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Five peaks (and four troughs) since 2008
0
100
200
300
400
500
600
700
800
900
1,000
Q170 Q175 Q180 Q185 Q190 Q195 Q100 Q105 Q110 Q115
List
pric
es,U
S$/
tonn
e
Bretton Woodsdismantled
OPEC 2 Rising
energy costs
Economies boomNo new capacity
US dollar weakens
Weak US dollar
Rising wood costs
Dot com boom/bust,
emergence of Chinese market
Weak US dollar, rising fibre & energy costs, China growth
Financial stimulus,
production curtailment,
Chilean earthquake
OPEC 1 Nordic wood
costs rise
Energy & wood costs
fall.
Nordic devaluation
New low-costmills
Recession and start-up of new low cost millsExcess capacity
Wood costs fall Strengthening
US$
Financial crisis, stronger dollar,
recession
Euro crisis, stronger dollarChina slows
ECB commits to "whatever it takes",
QE3 in US
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HAWKINS WRIGHT
Five peaks (and four troughs) since 2008
200250300350400450500550600650700750800850900
Euro
/tonn
e ci
f NW
Eur
ope
NBSK €/tonne
BHKP €/tonne
PIX indices for NBSK and BHKP, in €
Source: FOEX
Price cycles may be distorted by currency movements and discount creep
1
2
3
4 5
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Some headlines from early 2016
And from Ft.com…
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Six months later…
Walter Schalka, Suzano CEO, November 2016
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Fibria financials (operating results)
Source: Fibria quarterly statements, balances extracted by Hawkins Wright
0
100
200
300
400
500
600
700
800
US$
/tonn
e
Interest
Capex (mostlyplantation)SGA
Freight
Other
Energy
Maintenance
Chemicals
Wood
"all in" cash costs of $450/t
net revenue
$$
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HAWKINS WRIGHT
Volatility is the challenge/opportunity of all commodity playersPulp prices v commodity indices
0
50
100
150
200
250
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Inde
x, 2
005=
100
Economist commodity index
IMF commodity price index
NBSK price (CIF Europe) index
BEKP price (CIF Europe) index
Source: Hawkins Wright, IMF, The Economist
70
80
90
100
110
120
130
140
150
160
170
Jan-15 Jan-16 Jan-17
Inde
x, 2
005=
100
Source: Hawkins Wright, IMF, The Economist
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And yet…
The time span of an elephant’s memory: 100 years
The time span of a gold fish’s memory: 3 seconds
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Pierre’s predictions from a year ago…
-100
-50
0
50
100
150
200
0
100
200
300
400
500
600
700
800
900
1000
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
US$
/t de
liver
ed
Differential China NBSK China BEKP
• China economy expanding steadily, but is it sustainable?
• OKI project…multiple scenarios
• Pulp demand continues to grow strongly, but over 10 million tonnes of capacity due online…
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Led to the following assumptions for hardwood market in 2017…
-1200 -1000 -800 -600 -400 -200 0 200 400 600 800 1000 1200 1400
PUMA, Guaiba, others
APP
APRIL
Fibria TL
Other
Net supply increase
Shipments
Surplus/deficit
BHKP market balance 2017, assumption in December 2016
PUMA started Mar'16
PL2 Dec, PL1 April?
Integrations and conversions
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In addition, heavy maintenance schedules in Latam and Asia…
Revised assumptions…
-1200 -1000 -800 -600 -400 -200 0 200 400 600 800 1000 1200 1400
PUMA, Guaiba, others
APP
APRIL
CMPC Guaiba
Fibria TL
Fibria Aracruz
Net supply increase
Shipments
Surplus/deficit
2017 BHKP market balance - the reality
5 mths out in 2017 = 600k?
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World-20 BCP shipments to ChinaY-o-y growth
• Over six months from October to March, Chinese pulp demand increased by 1.6 million tonnes = 3.2 million tonnes annualised.
“Trend” growth is 1.2 million tpa
Demand boom preceded supply-side revisions
PPPC estimates growth slowed dramatically in Q2.
Shipments remain +9.2% (+0.7 million t) Jan-Jul
Impact from the latest buying spree has yet to be revealed (will not become evident until late October)
Source: PPPC
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
-200
-100
0
100
200
300
400
6 month ave, annualised
year
on
year
gro
wth
, (th
ousa
nd to
nnes
)
y-o-y growth
6-month ave; annualised
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HAWKINS WRIGHT
A major price-inventory cycle has taken place throughout the Chinese manufacturing sector
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Closing Inventory of Paper and Paper Board, Change over Beginning of the year (%)
Source: National Bureau of stats
But momentum has now eased…Chinese inventory of paper and board has increased +20% y-t-d
Other issues are now supporting Chinese pulp demand (currency, wastepaper imports, and obsolete capacity closures, seasonality, traders & pulp supply-restrictions…)
Underlying paper demand is not accelerating, and therefore the current rally is unlikely to last this time
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Fine paper prices
Source: Hawkins Wright
Uncoated woodfree prices as an index
Coated woodfree prices as an index
85
90
95
100
105
110
115
120
125
130
Janu
ary
2015
=100
China
N America
Europe
85
90
95
100
105
110
115
120
Janu
ary
2015
=100
China
North America
West Europe
Although China is seasonally strong, curtailment may be required to maintain paper prices.
Implies lower fibre consumption
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HAWKINS WRIGHT
Paper market strength may also impact supply-side…APP/OKI
0
1
2
3
4
5
6
7
8
9
APP Indonesia APP China
mill
ion
tonn
es
APP Paper and board production estimates, 2016
CWF
UWF
Tissue
White board
Containerboard
Paper mill operating rates are a key factor in determining fibre availability from APP
We estimate APP group P&B production >13.5 million tonnes!
Inventory movements, furnish adjustments, pulp production levels across all plants, purchasing requirements all play a role
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Bleached chemical market pulp capacity 2017-21:BSKP +2.2Mt, BHKP +3.8Mt = 6Mt
Source: Hawkins Wright
Includes: Äänekoski, Klabin, OKI, Fibria, Sodra, SCAExcludes: all projects that have not yet satisfied all of their preconditions (e.g. financing, final board room approval etc).
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Annual change in capacity (million tonnes)
Tota
l cap
acity
(mill
ion
tonn
es)
Annual change in BCP capacityBSKPBHKP
Illustration of supply growth based upon
existing capacity announcements
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Summary…
Short-term• Pulp prices will continue to go up and down in ways which are difficult to predict• Above trend capacity growth 2015-2019, not yet reflected in production • Exceptionally strong demand growth in China from Q4 2016, unlikely to be sustained
Longer-term• Market pulp demand drivers remain solid (emerging market growth, tissue, graphic
paper integration, declining RCF availability)• Although certain projects could follow by 2021, none is confirmed. Truly “low-cost”
projects are increasingly hard to find• Gathering momentum in viscose sector presents additional upside risk to commodity
pulp sector…
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Exciting times in the viscose sector
Cotton Linter Pulp: 99%
Dissolving wood pulp: 92-98%
Fluff Pulp: 88%
Paper Grade Pulp: 84-88%
INPUT COOKING PROCESS BLEACHING PROCESS OUTPUT
17 t of specialty cellulose
20 t of rayon grade cellulose
25 t of fluff pulpInorganics/Organics
Black liquor Waste Treatment 27 t of paper grade pulpOrganics - EnergyInorganics - Recovery
100 t of Green Wood
Lignin 20-28%
Water
Cellulose 43-45%Hemicellulose 27-30%
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Viscose competes with cotton and polyester
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Chinese staple fibre prices2007-2017
Source: Hawkins Wright, Emerging Textiles
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Yuan
/MT
PSF Cotton VSF
Preliminary estimates suggest that the Texas floods have destroyed approximately 300,000 bales of cotton; this shouldn’t be significant enough to impact the global market. Futures have gone up, but should settle down once the uncertainty diminishes.
Impact from Indian floods remains unknown.
• Viscose demand remains buoyant despite re-establishing a pricing premium over cotton
• Viscose is becoming increasingly valued as a blend with cotton and lower priced polyester
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Pulp prices vs. other commodities
Source: Hawkins Wright
0
50
100
150
200
250
300
350
400
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Inde
x 20
05=1
00
The Economist Industrial Commodity(US$) Price IndexBEKP Market Pulp Price
Dissolving wood pulp price
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Chemical cellulose and paper grade pulp demandIndexed since 1990
50
100
150
200
250
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Inde
x 19
90=1
00
Mkt pulp
Chemical cellulose
FORECAST
Source: Hawkins Wright
Hawkins Wright LTD
HAWKINS WRIGHTSource: Hawkins Wright Estimates
DWP demand rises by 3 million tonnes in 10 years
-
2,000
4,000
6,000
8,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
000s
t
Other
Cotton linter pulp
Dissolving woodpulp
Rayon grade, 5,130
Acetate, 620
Ethers, 600
Others, 150
Other, 1,370
• China accounts for 52% of DWP demand in 2016, and 91% of growth
• Rising DWP demand and higher margins are encouraging conversions of kraft pulp mills
• APRIL/Sateri have especially ambitious plans
Chemical cellulose (including cotton linter)
World chemical cellulose demand, 2000-16Hawkins W
right LTD
HAWKINS WRIGHT
DWP demand +8% y-t-d (Jan-June 2017)Driven by China (+16%)
Source: Hawkins Wright
200
220
240
260
280
300
320
340
Q1-'13
Q2-'13
Q3-'13
Q4-'13
Q1-'14
Q2-'14
Q3-'14
Q4-'14
Q1-'15
Q2-'15
Q3-'15
Q4-'15
Q1-'16
Q2-'16
Q3-'16
Q4-'16
Q1-'17
Q2-'17
thou
sand
tonn
es
700
800
900
1,000
1,100
1,200
1,300
1,400
Q1-'13
Q2-'13
Q3-'13
Q4-'13
Q1-'14
Q2-'14
Q3-'14
Q4-'14
Q1-'15
Q2-'15
Q3-'15
Q4-'15
Q1-'16
Q2-'16
Q3-'16
Q4-'16
Q1-'17
Q2-'17
thou
sand
tonn
es
Commodity grade DWP shipments by quarter
Specialty grade DWP shipments by quarter
Dominant features:Commodity grade DWP• Resurgent VSF marketsSpecialty grade DWP• Consumer destocking coming to an end
2016 2017
North America 295 275 -7% -20
West Europe 415 415 +0% +0
Latin America 25 30 +20% +5
Japan 80 85 +6% +5
China 1,485 1,730 +16% +245
India 305 320 +5% +15
Indonesia 240 265 +10% +25
Thailand 70 65 -7% -5
Other 75 40 -47% -35
TOTAL 2,990 3,225 +8% +235
Of whichSpecialty 590 610 +3% +20Viscose 2,400 2,615 +9% +215
6 months % change Y-o-y
Growth in 000s t(000s tonnes)
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Chinese cotton linter pulp production2000-2016
Source: Hawkins Wright
0
200
400
600
800
1,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
Chi
nese
CLP
Pro
duct
ion
000s
tonn
es
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4 million t/y of paper grade pulp conversions committed, with more to come…
Year Company Mill CountryImpact on mkt pulp
Convertedfrom
Date of conversion
2019 Arauco Valdivia Chile -550 BSKP Q2 2019
Asia Symbol Rizhao China -300 BKP 2016
Riapulp Kerinci Indonesia -150 BHKP 2016-
2013 Buckeye Technologies Perry USA -40 Fluff Q1 2013
Schweighofer Group Hallein Austria -160 Sulphite Q1 2013
Lenzing Paskov Czech Rep -280 Sulphite Q1 2013
Jari Monte Dourado Brazil -420 BHKP Q1 2013
SAPPI Cloquet USA -450 BHKP Q2 2013
Rayonier Jesup USA -260 Fluff Q3 2013
SAPPI Ngodwana South Africa -235 BSKP Q3 2013
SCG Paper Nam Phong Thailand -110 BHKP Q4-2013
2012 Altri Caima Portugal -115 Sulphite Q1 2012
Sun Paper Yanzhou China -300 BHKP Q1 2012
Stora Enso Enocel Finland -200 BSKP Q1 2012
Sodra Cell Morrum Sweden -200 BHKP Q1 2012
2011 Fortress Paper Thurso Canada -250 BHKP Q4 2011
Fortress Lebel-sur-Quévillon Canada NBSK n/a
Paper Excellence Prince Albert Canada NBSK n/a
TOTAL 2011-2019 -4,020
Plus hybrid grades from other kraft pulp mills
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Net price differentialsBSKP and BHKP vs. DWP
Source: Hawkins Wright Estimates
0
50
100
150
200
250
300
350
400
450
500
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
US
$/t (
CIF
. Chi
na)
DWP premium vs. NBSK DWP premium vs. BEKP
Swing capacity may revert to kraft pulp when differentials fall…
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Price differentials also impact on demand side….Paper grade pulp used as an extender
Source: Hawkins Wright
Paper grade pulp usage as DP extender estimated at 0.4-0.5 Mt in 2016.
Yibin Heist, Fulida, Tangshan Sanyou imported 0.6Mt kraft pulp in 2016
0
50
100
150
200
250
300
350
400
450
500
2010 2011 2012 2013 2014 2015 2016
Pap
er g
rade
pul
p us
ed a
s an
ext
ende
r00
0s to
nnes
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HAWKINS WRIGHT
Viscose & DWP summary
• Textile demand underpinned by demographic and economic trends; few substitutes!• As viscose technology improves and gains market acceptance, so the economic and
sustainability case versus cotton and polyester grows…
• Nevertheless, market is competitive and supply and demand are price sensitive • Market potential is huge, but current demand is relatively small, so new supply must be
introduced carefully. Furthermore, Sateri accounts for ~50% of growth in viscose capacity
• Dependence on China presents a further risk, particularly in light of government interference in cotton and DWP trade policy
• The sector will continue to have a major impact on supply & demand for commodity grade pulps
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