Global Printing Writing Outlook - Fastmarkets RISI · compared to global GDP growth of 3.4% per...

Global Printing & Writing OutlookFighting to survive in a declining market

John MaineVice President, World Graphic Paper

October, 2016

© Copyright 2016 RISI, Inc. | Proprietary Information

• Co‐Founder of Resource Information Systems, Inc.

• With RISI for 37 years• Developed RISI P&W models• Works with more than 200 graphic paper clients worldwide

• Assisted by five local economists in RISI regional offices

• Directs numerous single‐ and multi‐client studies on graphic paper

VP Global Graphic PapersJohn Maine

[email protected]

© Copyright 2016 RISI, Inc. | Proprietary Information 2

Some Definitions – Graphic Paper• Newsprint• Uncoated Mechanical (Ume)

Directories, paperback books, newspaper inserts, low‐end magazines/catalogs

• Uncoated Woodfree/Freesheet (UWF or UFS) Office copy paper, envelopes, offset printing, direct mail, books, forms,

carbonless, tablets, stationery, specialties

• Coated Mechanical (Cme) Magazines, catalogs, newspaper inserts

• Coated Woodfree/Freesheet (CWF or CFS) High‐end magazines and catalogs, commercial printing, brochures, photo

printing, menus, posters, displays, direct mail


Tonnes = metric ton (2,205 lbs); tons = short ton (2,000 lbs)

3

Summary of Recent Events• Demand Drivers

Global GDP remains below “normal” due to sluggish developed economies, recession in Latin America and moderation in Asia

The move to electronic media and communication is accelerating globally, with the possible exception of books where high‐price policy for e‐books is hampering its growth

Magazines and newspaper inserts are leading the collapse

• Printing & Writing Paper Demand Sliding 1‐2% per year globally and accelerated downward in 2015 and

2016

• Supply and Trade Oversupply leading to pressure for increased exports and numerous

tariff actions to protect local supply


6

Paper & Board Markets – GlobalGraphic Paper Is Buffering Growth in Packaging and Tissue

• Paper and board demand has been sluggish over the past five years, growing less than 1% per year compared to global GDP growth of 3.4% per year in 2011-2015.

• Global GDP is expected to expand at a pace of 3% in 2016-2017 before beginning to accelerate in 2018, while paper and board demand will remain slow.

• Printing and writing is at 25% of global demand, but declining

Printing & Writing

Newsprint Tissue

Cartonboard/Other

Containerboard

409 million tonnes (% of total)

35 mt9%

92 mt23%

156 mt39%

102 mt25%

Paper and Board Demand

24 mt6%‐1.5 %

per year

‐4 %per year

+2 %per year

+3.5 %per year

+3 %per year

© Copyright 2016 RISI, Inc. | Proprietary Information6

Global P&W Demand Declining Steadily, with the Largest Hit in the Mechanical GradesPercentage Change in Global Demand by Grade

2011 2012 2013 2014Prelim.2015 Average

Coated Freesheet -0.3% -0.7% -1.1% -1.6% -3.6% -1.5%

Coated Mechanical -3.8% -3.2% -6.1% -3.5% -5.7% -4.4%

Uncoated Freesheet +1.0% -0.2% +0.1% -0.7% -0.7% -0.1%

Uncoated Mechanical -3.9% -7.4% -0.7% -3.9% -5.9% -4.4%

Printing & Writing -0.7% -1.7% -1.1% -1.7% -2.7% -1.7%


8

P&W Paper Demand Forecast for 2016‐2018 Shows Slow Decline, but Varies by RegionThousand Tonnes, Percent per Year

Global ‐3,049 (‐1.0%)

94 (1.5%)

‐1,834 (‐3.1%)

103 (0.1%)

96 (1.4%)

147 (0.8%)

‐51 (‐1.3%)

‐1,514 (‐2.8%)

‐90 (‐0.5%)

Three‐year total growth in tonnes(Three‐year average % change)


World Uncoated Freesheet DemandMillion Tonnes, Percent Change

2013 2014 2015 2016 2017 2018

North America 8.8 8.4 8.3 8.1 7.8 7.7%ch 0% ‐5% 0% ‐3% ‐3% ‐2%

Western Europe 7.2 7.1 7.0 6.9 6.7 6.6%ch ‐3% ‐1% ‐2% ‐2% ‐2% ‐1%

Eastern Europe 3.1 3.1 3.1 3.1 3.1 3.1%ch 1% 0% 1% ‐1% 1% 1%

Far East 27.7 27.7 27.8 28.1 28.3 28.6%ch 1% 0% 1% 1% 1% 1%

Latin America 3.6 3.7 3.5 3.4 3.4 3.4%ch 0% 2% ‐6% ‐3% 0% 1%

Middle East, Africa, Oceania 3.2 3.3 3.1 3.2 3.2 3.3%ch ‐4% 2% ‐5% 1% 1% 2%

Total 53.7 53.3 52.9 52.7 52.6 52.8%ch 0% ‐1% ‐1% 0% 0% 0%


World Coated Freesheet DemandMillion Tonnes, Percent Change

2013 2014 2015 2016 2017 2018

North America 4.3 4.3 4.2 4.1 4.0 4.0%ch ‐1% 0% ‐3% ‐3% ‐1% ‐2%


Eastern Europe 1.3 1.3 1.2 1.2 1.2 1.1%ch 3% ‐1% ‐10% 0% 1% 2%

Far East 12.6 12.5 12.2 11.9 11.7 11.7%ch 1% ‐1% ‐2% ‐2% ‐1% 0%

Latin America 1.3 1.3 1.2 1.1 1.1 1.1%ch ‐7% ‐3% ‐9% ‐3% 0% 1%

Middle East, Africa, Oceania 1.4 1.2 1.2 1.2 1.2 1.2%ch 3% ‐13% ‐2% ‐1% ‐1% 0%

Total 26.3 25.9 25.0 24.4 24.0 23.8%ch ‐1% ‐2% ‐4% ‐2% ‐2% ‐1%


World Coated Mechanical DemandMillion Tonnes, Percent Change

2013 2014 2015 2016 2017 2018

North America 3.4 3.1 2.8 2.6 2.5 2.4%ch ‐8% ‐7% ‐11% ‐10% ‐4% ‐3%


Eastern Europe 1.0 1.0 0.9 0.9 0.9 0.9%ch ‐6% 2% ‐6% 0% 1% 2%

Far East 2.9 2.8 2.8 2.7 2.6 2.5%ch ‐3% ‐4% ‐2% ‐2% ‐4% ‐2%

Latin America 0.8 0.8 0.8 0.8 0.8 0.8%ch ‐5% 5% ‐7% ‐2% 1% 2%

Middle East, Africa, Oceania 0.8 0.8 0.8 0.8 0.8 0.8%ch 3% ‐4% 3% 1% 1% 2%

Total 13.7 13.2 12.5 12.0 11.6 11.3%ch ‐6% ‐3% ‐6% ‐4% ‐3% ‐3%


World Uncoated Mechanical DemandMillion Tonnes, Percent Change

2013 2014 2015 2016 2017 2018

North America 3.9 3.7 3.3 3.1 3.1 3.0%ch 4% ‐6% ‐12% ‐5% ‐2% ‐2%


Eastern Europe 0.8 0.8 0.8 0.8 0.8 0.8%ch 4% 0% ‐9% 1% 2% 2%

Far East 3.0 3.0 2.9 2.9 2.9 2.9%ch ‐2% ‐3% ‐2% 0% ‐1% 0%

Latin America 0.3 0.3 0.2 0.2 0.2 0.2%ch 0% ‐4% ‐17% ‐5% ‐1% 0%

Middle East, Africa, Oceania 0.5 0.5 0.5 0.5 0.5 0.5%ch ‐4% 2% ‐11% ‐1% ‐1% ‐1%

Total 13.0 12.5 11.7 11.5 11.3 11.2%ch ‐1% ‐4% ‐6% ‐2% ‐2% ‐1%


Paper & Board Markets – N America

Paper and Board Demand • Graphic paper demand remains

challenged by the ongoing decline of print publishing.

• P&W declines of 5% annually in past two years are below average and exacerbated by unusual cuts in newsstand/single-copy sales of magazines, newspaper inserts and the demise of print directories.

• Rates of decline should abate now that major cuts in threatened markets (e.g., directories) are done.

• We expect North American P&W demand to decline 3% annually.

Printing & Writing

Newsprint

Containerboard

Cartonboard/Other

Tissue

77 million tonnes (% of total)

9 mt12%

16 mt21%

30 mt39%

19 mt25%

4 mt5%

‐7% Per year

‐3% Per year

+2% Per year

+2% Per year

+2% Per year


Overall US P&W Demand Down Sharply in First Seven Months of 2016US Apparent Consumption, Thousand Tonnes, Seasonally Adjusted

Coated Freesheet

CoatedMechanical

UncoatedFreesheet

Uncoated Mechanical

2015 3,432 2,617 7,568 3,070% Change -3.1% -11.5% -0.1% -12.5%

7 Months 2016 1,964 1,360 4,290 1,647% Change -4.3% -12.5% -3.7% -7.6%

RISI Forecast for 2016 -3.0% -10.9% -3.6% -6.4%RISI Forecast for 2017/2018 -1.5% -4.1% -2.6% -2.2%


North American UFS Demand by GradeMillion Tonnes, % Change

2014 2015 2016 2017 2018

Offset & Opaque 1.53 1.57 1.58 1.50 1.44%ch ‐9% 2% 2% ‐5% ‐4%

Business (Cut Size) 4.01 3.95 3.78 3.71 3.69%ch ‐2% ‐1% ‐5% ‐2% ‐1%

Envelope 0.77 0.80 0.81 0.78 0.76%ch ‐5% 4% 1% ‐4% ‐3%

Cover & Text 0.18 0.17 0.15 0.14 0.13%ch 10% ‐7% ‐12% ‐4% ‐4%

Formbond 0.50 0.55 0.54 0.50 0.48%ch ‐9% 9% ‐2% ‐7% ‐4%

Carbonless 0.18 0.17 0.15 0.15 0.14%ch ‐16% ‐8% ‐8% ‐5% ‐5%

All Other * 1.20 1.15 1.11 1.08 1.05%ch ‐8% ‐4% ‐3% ‐3% ‐3%

Total 8.36 8.34 8.10 7.84 7.67%ch ‐5% 0% ‐3% ‐3% ‐2%

* Includes cotton and bristol.


17

‐8%

‐6%

‐4%

‐2%

0%

2%

4%

6%

280

300

320

340

360

380

400

420

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Circulation Pe

r Issue

: Millions

Circulation% Change (R)

Circulation of Printed Magazines in N. America Declined 1% in 2015, 1.3% in First Half 2016

Source: Alliance for Audited Media & RISI; includes consumer, farm, religious, paid & verified and analyzed nonpaid, excludes digital.

‐1.0%


18

Magazines Distributed for Single‐Copy Sales Are the Primary Source of Magazine Circulation Declines

‐18%‐16%‐14%‐12%‐10%‐8%‐6%‐4%‐2%0%

200250300350400450500550600650

2011

Q1

Q2

Q3

Q4

2012

Q1

Q2

Q3

Q4

2013

Q1

Q2

Q3

Q4

2014

Q1

Q2

Q3

Q4

2015

Q1

Q2

Q3

Q4

2016

Q1

Q2

Millions of C

opies D

istributed Unit Draw%chya (R)

Source: Magnet. Note that actual copies sold is only about 30% of copies distributed; data are for North America.

2011 ‐6.8%2012 ‐7.5%2013 ‐7.9%2014 ‐11.8%2015 ‐5.7%


‐30.0%

‐25.0%

‐20.0%

‐15.0%

‐10.0%

‐5.0%

0.0%

5.0%

2008Q1

2009Q1

2010Q1

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

2016Q1

Percen

tage Cha

nge in PIB

Magazine Ad

Pages

%Ch Year Ago

Annual 2013 ‐4.1%2014 ‐10.4%2015 ‐11.7%2016 ‐7.9%2017 ‐6.0%2018 ‐5.5%

The Decline in Magazine Ad Pages Is the Primary Factor Driving Down Paper Use and the Slide Is Continuing in 2016

Includes Sunday magazines and the effect of discontinued print editions


US Catalog Mailing Declined 3.5% in 2015, Showing Moderate Declines in First Half 2016

-20%

-15%

-10%

-5%

0%

5%

2008Q1

2009Q1

2010Q1

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

2016Q1

Perc

enta

ge C

hang

e in

Cat

alog

s M

aile

d

%Ch Year Ago

Annual2013 -4.6%2014 -1.9%2015 -3.5%2016 -2.5%2017 -2.8%


21

US Postal Mail VolumesStandard mail advertising falling modestly

5

6

7

8

9

10

11

60

65

70

75

80

85

90

95

100

105

110

1995199619971998199920002001200220032004200520062007200820092010201120122013201420152016*

Bill

ion

Piec

es

Postal Fiscal Years

First Class

Std A Mail

Periodicals (R)

* 2016=USPS forecast from operating plan

USPS Forecast

Pieces of Mail 2016

First Class -3.2%

Standard Mail

-1.6%

Periodicals -5.1%

Total Mail -2.1%


22

Real Dollar Sales for US Commercial PrintingRecent growth coming from digital and services

5,500

6,000

6,500

7,000

7,500

8,000

8,500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Million Re

al 2003$

per M

onth Annual Growth

2012 ‐1.4%2013 ‐0.3%2014 +0.4%2015 +3.1%2016H1 +0.2%

Recession


Tariffs Popping Up Globally as P&W Trade Soars• Declining demand and oversupply prompting producers to search for export demand

• The USA is an obvious target Strong dollar leads to high prices in USA Large buyers in financial stress looking to save money Large, well‐defined and open market (before tariffs) Many mill closures open the door for shift in supply sources


Three Key Areas Currently Subject to Import Tariffs into the USA• Coated sheet imports from China and Indonesia since 2010 Five‐year review affirmed continuation of CVD tariffs on China of 19%

to 203% and on Indonesia of 18% ADD duties also remain in place at 8% to 136% for major China

producers and 20% for Indonesia

• Canadian SC producers paying 18‐20% tariff since mid‐2015 Expedited review underway for two non‐respondents caught in the net

• CVD or ADD tariffs now in place for copy paper imports from all major current offshore suppliers


US Market Share for Coated Sheets by Source of Supply

0%

10%

20%

30%

40%

50%

60%

70%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Percen

t

N. AmericaEuropeChina/IndonesiaOther Asia

Tariffs Applied to China/Indonesia

• Chinese/Indonesian shares dropped from 25% to near 0%

• Europe and other Asian producers filled the gap

• Resulted in very little market share gain for North American producers


27

Mill Cash Costs for SC Paper Delivered to the US Market Europe goes from high cost in 2013 to low cost in 2016

$0

$100

$200

$300

$400

$500

$600

$700

$800

Europe Canada USA Europe Canada USA

US Dollars per Ton

Mill Costs Delivery to Chicago Tariff

Q1 2013, 0.99 USD/CAD,1.32 USD/EUR

Price Range in 2016Price Range in 2013

Q1 2016, 0.73 USD/CAD,1.10 USD/EUR

Source of cost data: RISI Cornerstone Cost Benchmarking Service


Strong Dollar, Tariffs on Canadian SC and Madison Mill Shut Will All Lead to a Rise in SC Imports as European Mills Increase Share of North American Demand from 16% in 2015 to 23% by 2017

13%

15%

17%

19%

21%

23%

0

100

200

300

400

500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Impo

rt Sha

re of D

eman

d

SC Im

ports into North

America

ImportsShare of Demand


North American Demand for Ume SC Is Declining Rapidly in 2015/2016 as Market Share Gains from LWC Become Limited

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Thou

sand

Ton

s

North American SC DemandSC Demand Growth

2014 ‐2.3%2015 ‐10.0%2016 ‐7.2%2017 ‐1.7%2018 ‐1.9%


Final Tariffs in Place for All Major Offshore Suppliers of Cut Size Copy Paper to USA

ADD CVD Combined

Australia Paper 222% 222%

Suzano 22% 22%

Portucel 8% 8%

April Indonesia 2% 21% 23%

APP Indonesia 17% 109% 126%

Asia Symbol (China) 84% 7% 91%

APP China 149% 7% 156%

UPM China 149% 177% 326%

Sun Paper China 149% 177% 326%

• Two of these suppliers remained in the market throughout

• A third supplier returned to the market in January 2016 after lower final rates announced


US Imports of Cut Size Copy Paper from Five Tariff Target Countries

0%

5%

10%

15%

20%

25%

0

100

200

300

400

500

600

700

800

900

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20167mo

Impo

rt Sha

re of D

eman

d

Impo

rts, Tho

usan

d Tonn

es

PortugalIndonesiaChina/HKBrazilAustraliaFive‐Country Import Share


2016 annualized estimate from seven months of data

31

US Imports of Cut Size Copy Paper from Non‐Tariff Target Countries

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

0

20

40

60

80

100

120

140

160

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20167mo

Impo

rt Sha

re of D

eman

d

Impo

rts, Tho

usan

d Tonn

es

All Others Israel GermanyFinland Thailand FranceImport Share


2016 annualized estimate from seven months of data

32


New 8½ x 11 Sheeters Coming on Line in September to December 2016 in Non‐Tariff Countries Indicates Intention to Sell More in USA and Canada

• Carvajal, Colombia

• Hankuk, Onsan Mill, South Korea

• Taiwan Pulp and Paper, Hsin Ying Mill, Taiwan

• Thai Paper, Ban Pong Mill, Thailand

33

Global Printing & Writing Capacity Is Shrinking, but Not Fast Enough to Push Global Operating Rates Back Above 90%Recent operating rates of 88% indicate weak global market

83%84%85%86%87%88%89%90%91%92%93%

‐2.5%

‐2.0%

‐1.5%

‐1.0%

‐0.5%

0.0%

0.5%

1.0%

Globa

l P&W Ope

ratin

g Ra

te

(%)

Chan

ge in

Globa

l Cap

acity

(%)

Change in CapacityOperating Rate (%)


36

North American Coated Paper Operating RatesBig drop in the second quarter of 2016 indicates weak market and likelihood of upcoming shuts

84%

86%

88%

90%

92%

94%

96%

98%

100%

2012 2013 2014 2015 2016 2017 2018

Coated Freesheet

Coated Mechanical


37

North American Uncoated Paper Operating RatesUFS market tighter due to import tariff and capacity shuts

84.0%

86.0%

88.0%

90.0%

92.0%

94.0%

96.0%

98.0%

100.0%

2012 2013 2014 2015 2016 2017 2018

Uncoated MechanicalUncoated Freesheet


Industry Financial Outlook


39

Mill Cash Costs Began Rising in Mid‐2016, but Will Still Decline on an Annual Basis Outsized slide in Ume costs driven by falling Canadian dollar

-10%-8%-6%-4%-2%0%2%4%6%8%

10%

2011 2012 2013 2014 2015 2016 2017 2018

Percent Change in Mill Cash Costs in US Dollars for Average of All Existing North American Mills

UFS Cut Size

CFS Offset

Ume

Excludes tariff costs for Canadian mills, which may offset cost decline in 2016


US Prices Are Persistently and Unprecedentedly Far Above European Prices Due to the Strong Dollar, Which Is Limiting Opportunity for US Price Hikes and Drawing in More Imports from Europe

$32.5

$37.5

$42.5

$47.5

$52.5

$57.5

$62.5

$650

$750

$850

$950

$1,050

$1,150

$1,250

US

Dol

lars

per

CW

T

Pric

e of

20

lb. C

opy

Pape

rU

S D

olla

rs p

er T

on

USAEurope (A4B)Europe (in Euros)


Similar Story for Coated Papers…

$27.5

$30.0

$32.5

$35.0

$37.5

$40.0

$42.5

$45.0

$47.5

$50.0

$550

$600

$650

$700

$750

$800

$850

$900

$950

$1,000

US

Dol

lars

per

CW

T

Pric

e of

40

lb. L

WC

US

Dol

lars

per

Ton

USAEuropeEurope (in Euros)

41© Copyright 2016 RISI, Inc. | Proprietary Information

Publishing Paper PricesCoated looking cheap relative to uncoated

$34

$38

$42

$46

$50

$54

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US$/cwt

SC‐A

Ctd. No. 5 40 lb

Ctd. No. 3 60 lb.

Unc. Offset 50 lb.

42© Copyright 2016 RISI, Inc. | Proprietary Information

Price to Mill Cash Cost MarginsAverage for all existing North American mills

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

2010 2011 2012 2013 2014 2015 2016 2017 2018

Price/Mill Cash Co

sts

Forecast

Newsprint

Ume – SC‐AUFS ‐ Copy Paper

Cme/LWC‐40 lb

CFS‐ 60 lb. rolls

SC margin is before impact of tariff on Canadian mills


World Graphic Paper 5‐Year Forecastwww.risi.com/worldgraphic

Global Cut Size Uncoated Freesheet Studywww.risi.com/cutsize

China’s Influence on WorldGraphic Paper Markets in theComing Decadewww.risi.com/chinagraphic

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