Global Tissue Business Outlook

Global Tissue Business Outlook With Special Focus on European Developments

European Paper Week, Brussels, BelgiumNovember 17-19, 2015

Esko Uutela, Principal, Tissue, RISI

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Agenda

• Recent Global Trends

• North American Outlook

• Latin American Outlook

• Asian Outlook

• European Outlook

• Summary of Global Outlook

• Concluding Remarks

© Copyright 2015 RISI, Inc. | Proprietary Information2

RECENT GLOBAL TRENDS


World Tissue Consumption by Region, 2014China passed Western Europe in 2014 and is now the second-largest tissue consuming region worldwide; Latin America is number four

Million Tonnes, Share (%) of the Global Total


Global Consumption: 33.5 Million Tonnes (2014)

1.2 (3.7%)

6.4 (19.2%)

1.9 (5.8%)

0.7 (2.1%)

1.9 (5.5%)

0.4 (1.2%)

8.6 (25.7%)

3.8 (11.2%)

6.5 (19.5%)

2.0 (6.1%)

Annual Growth in the Global Tissue MarketRelatively stable growth with the exception of the Great Recession in 2009, volume growth slightly above 1.0 million tonnes per year

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Regional Volume Growth of Tissue Consumption, 2000-2014


One-third of global growth in

China!

Total Global Growth: 12.5 Million Tonnes (894,000 Tonnes per Year)

Latin America shows the second-largest

volume growth

World Tissue Consumption by RegionChina has passed Western Europe in market size, Asia Far East Japan and soon also Eastern Europe will be larger market than Japan

Global Consumption: 33.5 Million Tonnes (Preliminary Figure for 2014)


NORTH AMERICAN OUTLOOK


North American Tissue Market Growth Has Slowed Down in the Past Five to Six YearsFocus on product value, lightweighting cutting volume growth

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Average Growth: 1.25% per year

US Tissue Imports Growth, 2008-2014Canada continues to be the main US import source for tissue, but China has taken the second position before Mexico and Indonesia


Average growth rate, 2008-2014: +2.5% per year

Main US Tissue Import Sources Relative Shares of Total Imports, 2014


Total Imports: 299,400 Tonnes Total Imports: 502,100 Tonnes

Expected Growth in US Tissue Consumption by Business SectorAt-Home retailer labels will show strong growth of about 600,000 tonnes in 2010-2017, while At-Home branded volume remains flat

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2014 2015 2016 2017

Market VolumeNo Growth

Growth 6.5% per year

Growth 1.7% per year


Major Tissue Capacity Changes (>10,000 t/a) in North America, 2014-20162014• ST Tissue, Franklin, VA, USA (capacity creep-up) 18,000 t/a• Orchids Paper, Pryor, OK, USA (PM1 & PM2 closures) -12,000 t/a• Cascades Tissue, St. Helens, OR, USA (PM conv.) 50,000 t/a

56,000 t/a2015• Double Tree Paper/Royal Paper, Gila Bend, AZ, USA 29,000 t/a• Orchids Paper, Pryor, OK, USA 27,000 t/a• Lincoln Paper & Tissue, Lincoln, ME, USA -19,000 t/a

37,000 t/a2016• First Quality Tissue, Anderson, SC (new TAD PM) 64,000 t/a• Von Drehle Corp., Natchez, MS, USA (NTT PM) 32,000 t/a• St. Croix Tissue (APP), Baileyville, ME, USA 120,000 t/a• Confidential, USA 64,000 t/a• First Quality Tissue, Anderson, SC, USA (ATMOS PM) 68,000 t/a

348,000 t/a© Copyright 2015 RISI, Inc. | Proprietary Information13

Major Tissue Capacity Changes (>10,000 t/a) in North America, 2017-20182017• Orchids Paper Products, Barnwell, SC, USA (NTT PM) 32,000 t/a• Resolute Forest Products, Calhoun, TN, USA 60,000 t/a• First Quality Tissue, Lock Haven, PA, USA (TAD PM) 64,000 t/a

156,000 t/aPotential Projects:• Kruger Tissue, Memphis, TN or Canada (TAD PM) 60,000 t/a• Sofidel North America, Circleville, OH, USA 70,000 t/a• Procter & Gamble, Box Elder, UT, USA (TAD PM) 72,000 t/a• ST Tissue, Franklin, VA, USA 64,000 t/a

266,000 t/a


Net Capacity Change* and Average Tissue Capacity Utilization in North AmericaAny new expansion adding to the committed capacity would change the current outlook to be even more negative

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*Based on committed projects only

A lot of new capacity to come on stream in 2016-2017, utilization rate will head south if no closures occur

LATIN AMERICAN OUTLOOK



Main Latin American Tissue Markets, 2014The five largest markets accounted for 77% of total consumption

Brazil30%

Mexico27%

Argentina8%

Colombia6%

Chile6%

Venezuela4%

Peru4%

Guatemala2%

Ecuador2%

Costa Rica2%

All Others9%

Total Market Size: 3.7 Million Tonnes

Latin American Tissue Market Shows Varying Annual Growth but a Positive TrendEconomic turbulences and political instability causing problems, dissappointing growth in 2014


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Volume Growth of Latin American Tissue Consumption by Main Country, 2004-2014In the past 10 years, growth has been strongest in Brazil, followed by Mexico and Argentina

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Expected Volume Growth of Latin American Tissue Demand by Main Country, 2013-2017Brazil clearly heading the Latin American market expansion

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Net Capacity Change* and Average Tissue Capacity Operating Rate in Latin America Project delays and strong demand helping a lot, but emerging new projects could change the outlook drastically in the medium term

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ASIAN OUTLOOK


Asia Offers Major Potential for Tissue Asia accounts for 60% of world population and 42% of global GDP, but only 35% of tissue consumption

Rest of the

World40%

China19%

Japan2%

Asia Far East35%

N&M East4%

Share of Population

Rest of the World

58%China16%

Japan5%

Asia Far East16%

N&M East5%

Share of GDP


Main Asian Tissue Markets, 2014China dominating, Asia Far East now larger than Japan

China56%

Asia Far East17%

Japan16%

N&M East11%



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Recent Growth Rates of Chinese Tissue Consumption The Chinese tissue market has been in a very strong growth phase, but since 2011 market growth has been disappointing


Average growth: 7.9% per year

Recently, growth has been slowing

Estimated Regional Division of Tissue Consumption in China, 2013 Thousand Tonnes


Western Economic Zone

Cheng Yu Economic Zone

Pearl River Delta Economic Zone

Yangtze River Delta Economic Zone

Bohai Bay Rim Economic Zone

Northeastern Economic Zone

North Central Region

South Central Region

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Western Economic Zone

Cheng Yu Economic Region

Pearl River Delta Economic Zone

Yangtze River Delta Economic Zone

Bohai Bay Economic Rim

Northeastern Economic Zone

Northern Central Region

Southern Central Region

Beijing

Shanghai

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Estimated Regional Per Capita Tissue Consumption in China, 2013Kilograms per Person

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Chinese Tissue Exports Growth, 2008-2014Chinese tissue exports are exploding and are shipped to practically every corner of the world, with Asia Far East, North America and Japan being the largest buyers, followed by Oceania


Average growth rate, 2011-2014: +20% per year, but no growth expected in 2015

Comparison of GDP and Tissue Consumption Growth in China, 2008-2017Tissue consumption growth will closely follow economic growth


Expected Growth Rates of Asian Tissue Consumption, 2014-2017 Strong growth in major markets with Japan, South Korea and Taiwan being exceptions, India to gradually take off, China slowing

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Average Growth: 5.4% per year


Chinese Investments Exploding, but Closures and Project Delays Expected There is a real investment peak with too much capacity being built, but currently also a wave of capacity closures in the industry

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New ProjectsClosuresNet Capacity Change

* PM start-up/learning curves considered


Net Capacity Change* and Average Capacity Utilization in the Asian Tissue IndustryOvercapacity is obvious, although project delays may help

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EUROPEAN OUTLOOK



Main European Tissue Markets, 2014The four largest markets account for exactly half of European tissue consumption

Germany17% UK

13%

France10%

Italy10%Iberian Peninsula

10%Russia7%

Nordic Countries6%

Benelux5%

Poland5%

Greece2%

All Others15%


Eastern European Importance Increasing Rapidly in the European Tissue Business

WE88%

Other EE9%

Russia3%

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Other EE

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Russia7%

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Forecast European Volume Growth of Tissue Consumption by Main Country, 2013-2017Russian growth is stunted by the poor economic outlook

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Total Expected Growth: 701,000 Tonnes

Tissue Trade Balance in Western Europe by Country, 2014 vs. 2004 (+ Net Exports, - Net Imports) The UK is the by far largest regional tissue net importer, followed by the Benelux, Spain is small net exporter, Portugal small net importer

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37

… a lot of characteristics remain similar …

Major Capacity Changes (>8,000 t/a) in the Western European Tissue Industry, 2013-2014Keeping in mind the less than 400,000 t increase in demand for WE between 2013-17, the planned and potential projects are dangerously high & growing!!!2013:• various projects but also three major closures, net change 84,000 t/a2014:• Cartiera Eurotec, Fabbriche di Vallico, Lucca, Italy 18,000 t/a• FRIPA, Miltenberg, Germany -17,000 t/a• Nueva Socarpi (Eurovast), Lanciole, Pistoia, Italy 13,000 t/a• LC Paper, Besalu, Spain 40,000 t/a• FRIPA, Miltenberg, Germany 36,000 t/a• Virtisu (CEL), Bilbao, Aranguren, Zalla-Vizcaya, Spain 26,000 t/a

116,000 t/a

© Copyright 2015 RISI, Inc. All rights reserved.38

Major Capacity Changes (>8,000 t/a) in the Western European Tissue Industry, 2015

2015:• Cominter Tisu (ex Hernani), Guipuzgoa, Spain (PM3 restart) 22,000 t/a• Cartiera della Basilica, Lugliano, Bagni di Lucca, Italy (net) 16,000 t/a• Fortissue (SUAVECEL), Viano do Castelo, Portugal 30,000 t/a• Fourstones Paper Mill Co., Leslie, Scotland, UK 25,000 t/a• Papergroup, San Gennaro, Lucca, Italy 26,000 t/a• WEPA Group, Bousbecque, Lille, France 32,000 t/a• AMS BR Star Paper, Vila Velha de Rodão, Portugal 32,000 t/a• SCA, St.-Cyr-en-Val, France -35,000 t/a• SCA, Stubbins, UK (closure plan announced) -35,000 t/a• WEPA Group, Giershagen, Marsberg, Germany 32,000 t/a

215,000 t/a


Major Capacity Changes (>8,000 t/a) in the West. European Tissue Industry, 2016 and later2016-2017:• Isma 2000, La Pobla de Claramunt, Spain 12,000 t/a• Paper Prime (Trevipapel), Vila Velha de Rodão, Portugal 32,000 t/a• Renova, Torres Novas, Portugal (NTT PM) 35,000 t/a • Norske Skog, Bruck, Austria 70,000 t/a• Portucel, Cacia, Portugal 70,000 t/a

219,000 t/aPotential Projects (2017-2018):• Goma-Camps, Ejeo de Caballeros, Spain, Italy 60,000 t/a• ICT Iberica, El Burgo de Ebro, Spain or other location 70,000 t/a• Accrol Paper, Blackburn, Lancashire, UK 60,000 t/a• Delipapier (Sofidel), Ingrandes, France 60,000 t/a

250,000 t/a


Net Capacity Change* and Average Capacity Operating Rate in Western Europe until 2018European investments will push capacity utilization down in 2014-2017 and several planned projects indicate this trend could continue

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©41* Based on committed projects only!!!, … meaning, the red line development is very likely to further drop©

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Major Capacity Changes (>8,000 t/a) in the Eastern European Tissue Industry, 2014-20152014:• Hanke Tissue, Kostrzyn, Poland 15,000 t/a• Petrocart, Piatra Neamt, Romania -10,000 t/a• Petrocart, Piatra Neamt, Romania 25,000 t/a• SCA, Sovetsk, Tula, Russia 60,000 t/a• Paperka, Muniks, Smolevichi, Belarus 14,000 t/a• Syktyvkar Tissue Group, Semibratovo, Russia 30,000 t/a• Fabryka Papieru Kaczory, Margonin, Poland 21,000 t/a• Hayat Kimya Group, Alabuga, Tatarstan, Russia 70,000 t/a

225,000 t/a2015:• AB Grigiskes, Traku, Vilnius, Lithuania (new PM + closures) 21,000 t/a• Fabryka Papieru i Textury Beskidy, Wadovice, Poland 17,000 t/a• LLC Pulp Invest, Kazan, Tatarstan, Russia 27,000 t/a• Claire's, Nikopol,Bulgaria 16,000 t/a• Syassky, Syasstroy, Russia -20,000 t/a• SC Metalicplas Impex, Dej, Romania 30,000 t/a• ICT Poland, Kostrzyn, Poland 70,000 t/a

161,000 t/a© Copyright 2015 RISI, Inc. All rights reserved.42

Major Capacity Changes (>8,000 t/a) in the European Tissue Industry, 2016-2017

2016-2017:• Firma W. Lewandovski, Wloclawek, Poland 20,000 t/a• Firma W. Lewandovski, Wloclawek, Poland -15,000 t/a• Wolma/Paper Recycling, Russia 21,000 t/a• Syassky, Syasstroy, Russia 38,000 t/a• Arkhbum Tissue Group (APPM), Vorsino, Russia 70,000 t/a

134,000 t/a

In addition, there is a number of potential projects still under consideration


Net Capacity Change* and Average Capacity Operating Rate in Europe until 2018European investments will push capacity utilization down in 2014-2016 and several planned projects indicate this trend could continue

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SUMMARY OF GLOBAL OUTLOOK


Anticipated Growth in the Global Tissue MarketTissue consumption is expected to benefit from improving global economic growth


Expected Regional Volume Growth of Tissue Consumption, 2013-2017Volume growth dominated by China, followed by Latin America

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Total Expected Global Growth: 4.7 Million Tonnes © Copyright 2015 RISI, Inc. | Proprietary Information47

World Tissue Capacity Change*, 2000-2018Thinking of some 1 million tons of demand growth, too much capacity coming on stream in 2015-2017! The outlook is not encouraging for new investments.

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Project delays can be expected

Net Capacity Change* and Average Capacity Utilization in the Global Tissue IndustryMajor capacity closures could improve outlook, but only marginally. Global overcapacity is the name of the game!

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Concluding Remarks• China's growth is slowing and also cutting average global

growth to 3.6% per year, which is still good, although down from 4.0% earlier. But China will continue to be the main driving force of global tissue industry expansion, followed by Latin America and the Middle East. Project delays will be common.

• North American developments are characterized by slow but steady growth and quality upgrading—now in the AfH sector as well—and fights between brands and private labels.

• In Europe, the tissue business had a rather quiet phase, with disappointing recent growth, but now many new plans are moving forward, we can only hope the consumption will show a more positive trend than in the past few years. Europe's outlook is also shadowed by the ongoing political tension due to the Russian-Ukrainian conflict.

• Latin America is in a good growth phase, despite weaker economic prospects, driven by Brazil, but Mexico is back on a growth track again.


• In Latin America, Brazil's recessionary phase has slowed consumption growth, and problems in Argentina as well as Venezuela have caused clouds on the horizon. But the long-term outlook continues to be good. However, capacity additions by so many players mean that competition will stay tight.

• In Asia, the longer-term prospects are good, and given the huge population, tissue has great future there. In China, major restructuring is going on and we expect even more mills to be shut down, not only for environmental concerns, but also increasingly for financial reasons.

• APP's expansion in Indonesia does not seem to have any limits, but soon it will face the simple problem of where to sell all this extra supply. Overcapacity has hit the global tissue business, and so new export-oriented tissue capacity is not needed in the next two to three years.


Concluding Remarks

World Tissue Business Monitorwww.risi.com/wtbm

Thank you for your attention!For more information:


Outlook for World Tissue Businesswww.risi.com/owtb

Special Study Recently Published:Exploding Chinese Tissue Business – Opportunities and Challengeswww.risi.com/chinatissue

US Tissue Monthly Datawww.risi.com/ustm

Global Tissue Business Outlook

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