Global Graphic Market - Forest Products Industry Events...Estimated US Market Share in 2017...

© Copyright 2018 RISI, Inc. | Proprietary Information

Global Graphic Market ReviewHow far we have come… and where are we going?

Alejandro MataSenior Economist, European Forest Products

European ConferenceMarch 2018

2

• Bachelor’s degree in Engineering, MBA degree earned in 2007

• Worked in business and market intelligence functions for one of Europe’s leading paper producers

• Has been analyzing and forecasting the industry since 2009

• Author of the Paper Trader Europe, Paper Packaging Monitor Europe, the European Graphic 5‐Year and 15‐Year Forecasts and the Packaging Paper 5‐Year and 15‐Year Forecasts

Senior Economist, European Forest ProductsAlejandro Mata

[email protected]


3© Copyright 2018 RISI, Inc. | Proprietary Information

2008: inflection point in the global graphic demand

Mobile devices become mainstream

Rise of the Internet

Behavioural change Internet of

things


‐12.0%

‐10.0%

‐8.0%

‐6.0%

‐4.0%

‐2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

‐20.0

‐15.0

‐10.0

‐5.0

0.0

5.0

10.0

GRA

PHIC PAP

ER DEM

AND CHAN

GE

(MILLION TONNES)

Demand Change % Change

Two periods of heavy demand losses (2001 & 2008)

Economic downcycles matter

Technologic disruption

Consumers Advertisers


What worked before might not work again


‐

20,000

40,000

60,000

80,000

100,000

120,000

140,000

‐

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

European Advertising Expenditures (million Euros)

Total Internet Print Other

Overall advertising dollars growing again since 2013

Most of the internet growth coming from mobile advertising

Internet advertising growing at the expense of print advertising

Speed of conversion is slowing down


over‐55s will become the second‐biggest demographic of Facebook

users this year.

2.2

4.5

7.2

5.95.6

6.4

12 to 17 18 to 24 25 to 34 35 to 44 45 to 54 +55

UK Facebook Users 2018 vs 2017

13%

9%

2%

8%


Technology Disruption To Continue

Paper mapsWith step‐by‐step directions on GPS Navigation Systems, paper maps are hardly necessary anymore.

Standalone GPS devicesSame goes for GPS devices. Your phone can perform all the same functions, plus text someone that you've arrived.


Cloud services will make contracts,

medical forms, and other paper documents redundant

Paperwork


Replaced by online payment methods and apps.

Bills


Internet of things making dictionaries and encyclopedias

are no longer necessary.

Reference books


Paper textbooks are expensive, heavy, and often obsolete

due to new discoveries. Higher education is already

changing.

Textbooks


80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

‐6.0

‐4.0

‐2.0

0.0

2.0

4.0

6.0

GRA

PHIC PAP

ER CAP

ACITY CH

ANGE

(MILLION TONNES)

Capacity Change OR

Capacity coming down, but not fast enough

Operating Rates still below 90%

Smaller demand reductions helping to tighten the market towards the end of the forecast

The China Effect . . .


‐2.5

‐2.0

‐1.5

‐1.0

‐0.5

0.0

CHAN

GE (M

ILLION TONNES)

Demand Supply

‐0.7‐0.6

‐0.5‐0.4

‐0.3

‐0.2‐0.1

0.00.1

0.2

CHAN

GE (M

ILLION TONNES)

Demand Supply

‐2.0

‐1.5

‐1.0

‐0.5

0.0

0.5

1.0

CHAN

GE (M

ILLION TONNES)

Demand Supply

‐3.0

‐2.5

‐2.0

‐1.5

‐1.0

‐0.5

0.0

CHAN

GE (M

ILLION TONNES)

Demand Supply

17

The China Effect


Economic growth engine transitioning from investment towards consumption

Risk of overinvesting is lower

Fiber crisis (mixed paper grades import ban)

Higher raw material prices

Lack of fibers partly responsible for capacity closures

Imports currently rising

Tightening global market conditions

0

500

1000

1500

2000

2500

3000

3500

RMB PE

R TO

NNE

OCC Post‐consumer

OCC Post‐consumer

ONP, 5.2

MIX, 5.7

HGR, 0.9

OCC, 16.7


Tightening Of Global Market Conditions

80%

82%

84%

86%

88%

90%

92%

94%

96%

2012 2013 2014 2015 2016 2017 2018 2019 2020

Printing & Writing Operating Rates

Asia China EU Global NA

75%

80%

85%

90%

95%

100%

2012 2013 2014 2015 2016 2017 2018 2019 2020

Newsprint Operating Rates

Asia China EU Global NA

19

Graphics Becoming More Global


20

Exports Are On The Rise In Europe


300,000

350,000

400,000

450,000

500,000

550,000

Weakening of the euroGlobal demand decline, the USA in particular, and capacity closures in EU

Net exports rising due to: Improving global market conditions Sustained weakness in the euro vs

USD Changingmarket conditions in

Chinamaking them focus more on local markets

Most of the increases concentrated on Newsprint Coated Woodfree Coated Mechanical


400

450

500

550

600

650

700

750

800

850

900

USD

PER

TONNE

Global Newsprint Prices

China Germany USA France

US prices above European prices since weakening of the euro in 2014

China prices skyrockets due to capacity closures and global tightness in the market

Limited fiber supply and higher prices for domestic recovered papers behind price increases in China

European prices currently rising

Weakening of the euro

© Copyright 2017 RISI, Inc. | Proprietary Information 22

The Rise Of Trade Protectionism Globally

23

The UWF Ca

se (C

ut Size)



Newsprint Trade Barriers Rising In The USAEstimated US Market Share in 2017

Newsprint SC Ume Directory Ume

Other Ume

USDomestic 33% 18% 3% 47%

Canada 67% 58% 94% 51%

Europe 0% 24% 3% 2%

Tariffs on Newsprint and Certain Other

Uncoated Mechanical Paper from Canada

Could Have Big Impact on US Availability and

PricesMight open opportunities for Europeans, who already benefit from higher exports to the USA due to existing tariffs (Ume)


European Markets Are Improving?


Up between 20% and 45% since January 2017

Driven costs up for non‐integrated paper producers

Impacting Woodfree producers in Europe

Buyer or Seller?Market Pulp

Graphic Paper Market

Up between 5% and 15% since January 2017

Increases are cost and market driven

Margins under pressure = capacity closures

Paper buyers under pressure = closures


Average Cash Cost for non‐integrated producers is:

Above semi‐integrated producers

Above integrated producers


-5%

-4%

-3%

-2%

-1%

0%

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

Euro

pean

Dem

and

% C

hang

e

Cha

nge

in E

urop

ean

Gra

phic

Dem

and

(Mill

ion

Tonn

es)

Million Tonnes Percent

However . . .

PMI’s heading south in February

Retail sales growth cools down

Secular demand factors still in place

Demand Decline Is Slowing:

29

Exports Are On The Rise In Europe


Jan‐14

Apr‐14

Jul‐1

4

Oct‐14

Jan‐15

Apr‐15

Jul‐1

5

Oct‐15

Jan‐16

Apr‐16

Jul‐1

6

Oct‐16

Jan‐17

Apr‐17

Jul‐1

7

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

2012 2013 2014 2015 2016 2017 2018 2019

FORE

IGN CURR

ENCY

PER

US DOLLAR

European and Other Offshore Mills Have Advantage

US Mills Have Advantage

Euro stronger than anticipated

EU producers less supported than before from currency fluctuations

European Graphic Exports


Not Necessarily…A strong euro can

• Lower global cost competitiveness, as exports become more expensive overseas

• Reduce the impact of rising prices of imported raw materials

Time to Panic?!?


‐1073

‐110

‐811‐713

‐780

‐1244

‐919

‐1081

‐623

‐235

‐1400

‐1200

‐1000

‐800

‐600

‐400

‐200

0Newsprint Umec Cmec UWF CWF

Supply & Demand Changes(Thousand Tonnes)

Demand Capacity

Something Else Is Happening In Europe Capacity closures and

conversions picked up since 2015

Most of the changes occurring in Newsprint and Umed

All other grades at risk of further market imbalances going forward

Market conditions might force more companies out


75%

80%

85%

90%

95%

100%

2008 2010 2012 2014 2016 2018 2020

Western European Operating Rates

Newsprint Umec Cmec UWF CWF

Operating rates are rising thanks to capacity closures

Largest increases reported in Uncoated Mechanical and Newsprint• Good demand• Sufficient capacity

reductions

Only minor increases in Coated Mechanical and Uncoated Woodfree

CWF is the only exception• Lack of capacity

closures• Demand declining fast

Generally, operating rates are expected to keep rising thanks to capacity rationalization


Enjoy the Ride!!

34

European Graphic Paper 5‐Year Forecastwww.risi.com/forecasts

Paper Trader Europewww.risi.com/PTE

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Global Graphic Market - Forest Products Industry Events...Estimated US Market Share in 2017...

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