risi paper market outlook: a possible recession and its impact on book paper markets john maine vice...
TRANSCRIPT
RISI Paper Market Outlook: A Possible
Recession and Its Impact on Book
Paper Markets
John MaineVice PresidentMay 2008
2
The U.S. Economy… Headed into Recession? (Real GDP Growth, Annualized Percent Change)
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Potential GDP Growth
3
Weak Dollar and Strong External Demand Will Limit Damage to Manufact’g but Consumer Hit Hard in 08
(Ind. Prod. Index, Real Consumer Spend, % Change Above year-ago by Quarter)
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
0 1 2 3 4 5 6 7 8 9
Industrial Production
Real Consumer Spending
4
The Recession Will be a Consumer-Led Recession
Impact of Housing, Labor Markets, Stocks and the Wealth-Effect
– Job Insecurity– Reduced Spending
Magazines, Catalog, and Retail Will be Impacted
– Reduced Ad Spending– Slower Retail Spending– Move to Internet– Use Cheaper and Less Paper
5
Magazine Ad Pages to Decline 3.6% in 2008 With A Risk of A Larger Drop
(PIB Magazine Ad Pages, Year-over-year Percent Change)
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9
Recession Years
6
Catalog Circulation Will Fall Again in 08 In addition to Exhibiting Less Pagination
(RISI Catalog Circulation Index, Year-over-year Percent Change)
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9
Recession Years
7
North American P&W Demand by GradeMillion Tonnes, % Change
2006 2007 2008 2009
Ctd. Woodfree * 6.6 6.0 5.7 5.9
%ch 8% -10% -5% 2%
Ctd. Mechanical 5.9 6.0 5.8 5.8 %ch 1% 3% -4% 1%
Unc. Woodfree * 13.0 12.4 11.9 11.7 %ch 0% -5% -4% -2%
Unc. Mechanical 6.1 6.2 6.1 6.1 %ch -1% 1% -1% 1%
Total 31.6 30.5 29.5 29.5
%ch 2% -3% -3% 0%
US GDP %ch 2.9% 2.2% 0.9%2.2%
*Includes bristols and cotton
8
North American Five-Year Growth Trends for 2008 to 2012 by Grade (000 tonnes)
-1200
-1000
-800
-600
-400
-200
0
200
Total P&W Coated Unc. Free Unc. Mech
-2.8% -8.2%
0.5% 1.8%
9
Paper Purchased for Use in U.S. Books in Tonnes and as a % of U.S. Printing & Writing Demand
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
1,650
1,700
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11 12
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Paper Used in Books Share of U.S. Demand (%)
000 tonnes (metric) % of P&W Demand
10
Paper Purchased for Usage in U.S. Books by Grade (000 tons)
050
100150200250300350400450500
CoatedMechanical
CoatedFreesheet
UncoatedMechanical
UncoatedFreesheet
2005 2006 2007
11
Update on U.S. Imports of Books Printed in Asia
China $ Sales of Books to the US jumped another 15% in 2007
– 616 Million Books per Year Now Imported From China– High Component of Children’s Books (185 million)– Growth Rate of 20% Per Year for Past Five Years
Asia Exported $1.5 billion in Books to the U.S. in 2007
– Equal to Nearly 5% of U.S. Publisher Net Sales of Books
12
Asia Now Exports $1.5 Billion in Books to the U.S. Market Compared With $0.6 Bill. in 1996
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
1996
2006
2007Other
Canada
China
Hong K.
Sing.
Other Asia
Value of Books Imported into the U.S., Million $
13
U.S. Imports of Printed Products from China
$0
$200
$400
$600
$800
$1,000
$1,200
90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7
Books including Children's Greeting Cards all other
Million Real 2007 Dollars
14
Euro Area Growing Modestly, But no RecessionEuro Area Real GDP Growth, Annualized Percent Change
0%
1%
2%
3%
4%
5%
6%
96 97 98 99 00 01 02 03 04 05 06 07 08 09
Potential GDP Growth
15
European Demand for Printing and Writing Paper Supported by Growth in the East
16.0
20.0
24.0
28.0
32.0
36.0
96 97 98 99 0 1 2 3 4 5 6 7 8 9
West East Central SouthEast
Million Tonnes
16
European P&W Demand by GradeMillion Tonnes, % Change
2006 2007 2008 2009
Ctd. Woodfree 9.0 9.2 9.3 9.6
%ch 3% 2% 1% 2%
Ctd. Mechanical 7.7 8.0 8.1 8.3 %ch 2% 4% 1% 2%
Unc. Woodfree 11.6 11.8 11.7 11.9 %ch 1% 1% 0% 1%
Unc. Mechanical 5.6 5.8 5.8 5.9 %ch 7% 3% 1% 2%
Total 34.0 34.8 35.0 35.7
%ch 3% 2% 1% 2%
Euro Area GDP %ch 2.9% 2.6% 1.5%2.1%
Includes Eastern Europe
17
European Five-Year Growth Trends for 2008 to 2012 by Grade (000 tonnes)
0
200
400
600
800
1000
1200
1400
1600
Total P&W Ctd Free Ctd Mech Unc. Free Unc. Mech
4.6%
1.1%
6.8%
6.0%
6.1%
18
Asian P&W Demand by GradeMillion Tonnes, % Change
2006 2007 2008 2009
Ctd. Woodfree 11.3 12.0 12.8 13.4 %ch 4% 6% 6% 5%
Ctd. Mechanical 2.8 2.9 3.1 3.3 %ch 7% 3% 6% 5%
Unc. Woodfree 21.6 22.5 23.1 23.6 %ch 4% 4% 3% 2%
Unc. Mechanical 1.7 1.7 1.9 2.0 %ch -8% 3% 8% 5%
Total 37.5 39.2 40.8 42.2
%ch 4% 5% 4% 3%
GDP %ch 8.0% 8.0% 7.1%6.6%
19
Asian P&W Paper Demand Growth by Country, 2006-2009 (Thousand Tonnes)
-1000 0 1000 2000 3000 4000 5000
Other
Taiwan
India
South Korea
Japan
China/HK
2006 Total: 1320
2007 Total: 1688
2008 Total: 1645
2009 Total: 1414
20
Asian Five-Year Growth Trends for 2008 to 2012 by Grade (000 tonnes)
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
Total P&W Ctd Free Ctd Mech Unc. Free Unc. Mech
21%
15%29%
25%28%
21
World Demand Summary for Uncoated Woodfree
Million Tonnes
2006 2007 2008 2009
North America 13.0 12.4 11.9 11.7 %ch 0% -5% -3% -2%Europe (1) 11.6 11.8 11.7 11.9 %ch 1% 1% 0% 1%Asia 21.6 22.5 23.1 23.6 %ch 4% 4% 3% 2%Latin America 3.3 3.4 3.5 3.6 %ch 9% 2% 2% 3%Middle East, Africa, 3.5 3.7 3.8 4.0 and Oceania 7% 6% 4% 5%
Total World 53.1 53.7 54.054.8
%ch 3% 1% 1% 1%
(1) Includes Western, Central, South Eastern and Eastern Europe
22
World Demand Summary for Coated WoodfreeMillion Tonnes
2006 2007 2008 2009
North America 6.6 6.0 5.8 5.9 %ch 8% -10% -2% 1%Europe (1) 9.0 9.2 9.3 9.6 %ch 3% 2% 1% 2%Asia 11.3 12.0 12.9 13.4 %ch 4% 6% 6% 5%Latin America 1.3 1.3 1.4 1.4 %ch 12% 5% 3% 4%Middle East, Africa, 1.8 1.9 2.0 2.1 and Oceania 5% 5% 3% 5%
Total World 30.0 30.5 31.332.3
%ch 5% 1% 3% 3%
(1) Includes Western, Central, South Eastern and Eastern Europe
23
Supply Issues
Mergers Yield Fewer Options for Buyers
Capacity Declining Rapidly in North America and Europe
European Mills Shun North American Market Due to Euro
Asian Coated Shipments to North America Rise
24
Mergers Lead to Dominant Player in Each Sector
25
North American Market Share in the Peak of the Last Cycle Vs. Now for the Top Three Producers
in each Segment
0%
10%
20%
30%
40%
50%
60%
70%
Newsprint Unc.Mech.
Ctd.Mech.
Unc. Free. Ctd. Free
2000
2007
26
European vs. N. Amer. Combined Market Share of Top Three Producers in 2007 Indicates Further
Consolidation to Come in Europe
0%
10%
20%
30%
40%
50%
60%
70%
Newsprint Unc. Mech. Ctd. Mech. Unc. Free. Ctd. Free
Europe N. Amer. Asia
27
N.A. Paper Mill/Machine Closures (000 Tonnes)
UGW CFS CGW UFS
IP Pensacola 318
NewPage Luke 90
GP Wauna 100
Boise Wallula 220
UPM Miramachi 450
Tembec St. Francisville 280
Domtar Gatineau 90 23
Dirigo Gilman, Vt 64
Fraser Madawaska 82 64
Domtar Port Edwards 31
Domtar Baileyville 113
AbitibiBow Fort William 150
AbitibiBow Dolbeau 88
Kruger Three Rivers 135
2007 Totals 2007 388 460 532 933
28
N.A. Paper Mill/Machine Closures (000 Tonnes)
UGW CFS CGW UFS
Wausau Groveton, NH 95
Neenah Urbana, OH 35
Domtar Port Edwards 117
IP Bastrop, LA 225
Domtar Dryden, ON 177
New Page Rumford, Me 62 50
New Page Niagara, WI 230
Kruger Three Rivers 68
AbitibiBow Donnacona 160
AbitibiBow Dalhousie 40
AbitibiBow Belgo 260
AbitibiBow Gatineau 45
2008 Totals 2008 573 62 280 649
29
North American Capacity Closures Announced for 2007 and 2008 (000 tonnes)
0
200
400
600
800
1000
1200
1400
1600
1800
Unc. Mech Ctd. Mech Ctd. Free Unc. Free
9% of Demand
13% of Demand
16% of Demand 14% of
Demand
30
European Paper Mill/Machine Closures (Tonnes)CFS CGW SC
2006 Burgo Marzabotto 70,000
UPM Voikka 400,000
Kymi 150,000
Stora Enso Corbeham 250,000
Varkaus 100,000
Scheufelen Scheufelen 15,000
Klippan Molndal 45,000
2007 UPM Jamsankoski 110,000
M-Real Sittingbourne 210,000
Gohrsmuhle 100,000
Myllykoski Dachau 230,000
Andapak Belgium 80,000
Stora Enso Reizholz 215,000
Totals 700,000 1,060,000 215,000
31
European Paper Mill/Machine Closures (Tonnes)
CFS CGW SC
2008 Stora Enso Summa/Anjala 80
M-Real Kangas 100
Stora Enso Anjala 155
Totals 255 80
European Paper Mill/Machine Expansions (Tonnes)
CFS CGW SC
2008 Myllykoski Plattling, GY 380
Totals 380
32
European Paper Mill/Machine Closures (Tonnes)
UFS
2007 M-Real Wifsta, Sw 175,000
Stora Enso Berghuizer, Ne 235,000
Various Small Be, Fr, Sp 65,000
2008 Mondi Szolnok, Hu 140,000
2009 M-Real New Thames, Uk 230,000
Totals 845,000
European Expansions UFS
Dec 07
Q3 09
Stora Enso Varkas, FN 95,000
Portucel Setubal, PT 500,000
33
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
$1.50
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09$0.60
$0.70
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
US$ per CN$ (R)
US$ per Euro (L)
Euro and Canadian Dollar Will Remain Strong Against Key Paper Supply Regions, Limiting
Supply from Those Regions in 2008
34
European Supply of Printing and Writing Papers to U.S. Market is Declining due to the Strong Euro
0
500
1,000
1,500
2,000
2,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Ctd. Free. Ctd. Mech. Unc. Mech. Unc. Free.
U.S. Imports From Europe (000 Tonnes)
35
US Coated Freesheet Offshore Imports by Source
0
200
400
600
800
1,000
1,200
1,400
1,600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Europe Asia
(000 Tonnes)
36
US Coated Mechanical Offshore Imports by Source
0
200
400
600
800
1,000
1,200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Europe Asia
(000 Tonnes)
37
US Total Coated Paper Offshore Imports by Source
0
200
400
600
800
1,000
1,200
1,400
1,600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Europe Asia
(000 Tonnes)
38
U.S. Coated Paper Imports From China by Month
0
5
10
15
20
25
30
35
40
45
J2006
F M A M J J A S O N D J2007
F M A M J J A S O N D J2008
Ctd Free Ctd. Mech
000 tonnes per month
39
U.S. Coated Mechanical Paper Imports From China by Month – Sheets vs Rolls
0
5
10
15
20
25
30
35
40
45
J2006
F M A M J J A S O N D J2007
F M A M J J A S O N D J2008
Rolls Sheets
000 tonnes per month
40
Operating Rates Get Extraordinarily High in 2008 Despite Possibility of a Recession, Especially for
Coated and Uncoated Mechanical Grades
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Unc. Free.
Unc. Mech.
Ctd. Mech.
Ctd. Free.
Operating rates, North America
41
Printer Inventories of Paper (Days of Supply, seasonally adjusted)
3537394143454749515355
2003 2004 2005 2006 2007 2008
Data Source: Calculated by RISI from IDEAlliance data
Days
Coated Mech.
Total Paper
42
U.S. Publishing Paper Pricing by Quarter ($/short ton)
$550$600$650$700$750$800$850$900$950
$1,000$1,050
0 1 2 3 4 5 6 7 8
Ctd. No. 3 60 lb. Ctd. No. 4 50 lb. Ctd. No. 5 40 lb.
SC-35 lb 50 Lb UFS Offset
43
Average Profitability for Coated Freesheet Paper Producers in Europe and U.S.
-10%
-5%
0%
5%
10%
15%
20%
25%
0 1 2 3 4 5 6 7 8 9 10
Profitability defined as (price-cost)/cost. Costs are total costs including depreciation, interest, SG&A, and delivery.
West Europe
U.S.