RISI

Outlook for Global Recovered Paper Markets

Hannah Zhao, Economist, Recovered PaperOctober 2012

Global OCC Market

55

60

$200

$240

$280US$ per Tonne %

35

40

45

50

$0

$40

$80

$120

$160

2006 2007 2008 2009 2010 2011 2012

US West Export (FAS)

N. German Export (FAS)

China Import (CIF)

China PMI-R

Global ONP Market

$220

$260

$300US$ per Tonne

$20

$60

$100

$140

$180

2006 2007 2008 2009 2010 2011 2012

US ONP#8 (FOB)Germany 1.11 (Free Delivered)China Import ONP(CIF)

RISI

ONP Prices in Chinese Market

$250

$300US$ per Tonne

$50

$100

$150

$200

2006 2007 2008 2009 2010 2011 2012

From US (CIF)From JP (CIF)From WE (CIF)

Sorted Office Paper in the North American and European Markets

$250

$300

$350Sorted Office Paper-US

Sorted Office Waste-UK

US$ per Tonne

$50

$100

$150

$200

2006 2007 2008 2009 2010 2011 2012

Data sources: RISI and Letsrecycle.com

Chinese Recovered Paper Imports

200

250

300

2.0

2.5

3.0US$ per TonneMillion Tonnes

0

50

100

150

0.0

0.5

1.0

1.5

2006 2007 2008 2009 2010 2011 2012

N. America W. EuropeJapan OtherImported OCC Price

RISI

World Recovered Paper Demand Will Continue to Grow in 2013-2014

• After it dropped sharply in 2009 and rebounded in 2010 – Improved general economy and paper and board market?

– Brighter 2013 after a gloomy 2012?

• Asia will account for a large share of demand growthAlth h th th i RCP d d ill l– Although the growth pace in RCP demand will slow

– Additions to recycled-based PAB capacity over next two years

– Shortage of virgin fiber in general

• Developed regions will generate very limited RCP usage growth– The main constraint: little growth or even a decline in

paper and board production

World RCP Demand & RCP Usage Rate

40%

50%

60%

200

250

300N. America W. EuropeJapan ChinaOther Asia Other WorldUsage Rate

Million Tonnes

0%

10%

20%

30%

0

50

100

150

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

World Recovered Paper Demand Will Continue to Grow in 2013-2014

• Containerboard (CNT) will account for more than 60% of the total demand increase – Very high RCP usage rate in world CNT sector: 87% in

2011

– Output will continue to expand worldwide in the next p ptwo years

– Other paper and board, mainly paper packaging grades, will also show substantial demand gains

• OCC will register the largest tonnage gains– Mixed paper demand may also grow as the cheaper

substitute

– Demand for high grades may also increase? Used inmaking tissue, printing & writing paper and white tops

RISI

Containerboard Production & RCP Usage Rate

80%

90%

120

140

160

180N. America W. Europe

Japan China

Other Asia Other World

Usage Rate

Million Tonnes

60%

70%

0

20

40

60

80

100

2000 2002 2004 2006 2008 2010 2012 2014

Newsprint Production & RCP Usage Rate

65%

70%

75%

30

40Million Tonnes

50%

55%

60%

65%

0

10

20

2000 2002 2004 2006 2008 2010 2012 2014

N. America W. Europe JapanChina Other Asia Other WorldUsage Rate

P&W Production & RCP Usage Rate

10%

11%

12%

80

100

120Million Tonnes

6%

7%

8%

9%

0

20

40

60

2000 2002 2004 2006 2008 2010 2012 2014

N. America W. Europe Japan China

Other Asia Other World Usage Rate

RISI

Tissue Production & RCP Usage Rate

65%

70%

30

40N. America W. Europe

Japan China

Other Asia Other World

Usage Rate

Million Tonnes

50%

55%

60%

0

10

20

2000 2002 2004 2006 2008 2010 2012 2014

Other PAB Production & RCP Usage Rate

60%

65%

70%

60

70

80

90

100Million Tonnes

45%

50%

55%

60%

0

10

20

30

40

50

60

2000 2002 2004 2006 2008 2010 2012 2014

N. America W. Europe Japan China

Other Asia Other World Usage Rate

Asian Containerboard and Boxboard Capacity Expansions 2012-2013

CountryCapacity

(Thousand Tonnes)Year Grade

China 4,700 2012 Recycled CNT

China 2,750 / 2,900 2012 Recycled / Virgin BOX

China 4,400 2013 Recycled CNT

China 700 / 600 2013 Recycled / Virgin BOX

Indonesia 350 2012 Recycled CNT

Indonesia 350 2013 Recycled CNT

India 300 2012 Recycled CNT

India 280 2012 Recycled BOX

India 55 2013 Recycled CNT

India 285 2013 Recycled BOX

Vietnam 200 2012 Recycled CNT

Japan 300 2012 Recycled BOX

Thailand 60 2012 Recycled BOX

RISI

North American Containerboard and Boxboard Capacity Expansions

CountryCapacity

(Thousand Tonnes)Year Grade

Canada -68 2011 Recycled CNT

Canada -375* 2012-2013 Recycled CNT

USA 495 2011 Virgin CNT

S * % CUSA 2385* 2012-2013 40% Recycled CNT

Canada -36 2011 Recycled BOX

Canada -6* 2012-2013 Recycled BOX

USA -85 2011 Most Recycled BOX

USA 185* 2012-2013 All Virgin BOX

* Including assumed and unidentified projects and shifts

North American Graphic Paper and Tissue Capacity Expansions

CountryCapacity

(Thousand Tonnes)Year Grade

Canada -580 2011 Newsprint

Canada -400* 2012-2016 Newsprint

USA -285 2011 Newsprint

USA -330* 2012-2016 NewsprintUS 330 0 0 6 p

Canada -773 2011 P&W

Canada 74* 2012-2016 P&W

USA -870 2011 P&W

USA -1,670* 2012-2016 P&W

Canada -30 2012 Tissue

USA -116 2011 Tissue

USA 596 2012-2013 Tissue

* Including assumed and unidentified projects and shifts

Global Recovered Paper ?!

• Different grades of paper are seeing widely different growth rates and this will have important effects on RCP demand and availability– Fast-growing paper sectors, such as CNT and tissue,

will request more recycled fiberq y

– Printing & writing paper, the net supplier of RCP, however, will see much slower growth in consumption

RISI

RCP Crunch: Tissue and P&WMillion Tonnes

30

35

70

75P&W Consumption Tissue Production

10

15

20

25

50

55

60

65

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

P&W Consumption in Developed World

World Tissue Production

• Different growth rates in paper demand and production across regions– Developed regions: currently high paper collection

rate but flat or even declining paper consumption

– Developing regions: fast-growing paper production and consumption but currently low paper collection

Global Recovered Paper ?!

and consumption, but currently low paper collection rates

• Global RCP crunch

– Caused by differences between different paper

grades and regions

Paper and Board Production in Different Regions

200

250Million Tonnes

50

100

150

1997 1999 2001 2003 2005 2007 2009 2011 2013

Developing Regions

Developed Regions

RISI

• Possible fiber furnish change in different paper grades and regions– Containerboard, tissue

– Switch from recycled fiber to virgin pulp in areas with relatively cheap virgin fiber

Global Recovered Paper ?!

y p g

– US South: to debottleneck the current recovery boilers

– Eastern Europe: new white top kraftliner capacity, Russia, 2015

• Trade will continue to be a big player in the global RCP market– Exports from developed regions to developing areas

Pulp and RCP Consumption in World Paper and Board Production

200

250Million Tonnes

100

150

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Virgin Pulp RCP

Recovered Paper Vs. Virgin Fiber

0 4

0.5

0.6Million Tonnes

0.1

0.2

0.3

0.4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

SOP#37/NBHK

UBB #47/NBHK

RISI

Recovered Paper Vs. Virgin Fiber

1.1

1.2

1.3

1.4

1.5

1.6

OCC/Soft Pulp Wood

Million Tonnes

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

2011

Chinese Domestic Collections and Net Imports of RCP

80

100Domestic Collections

Net Imports

Million Tonnes

0

20

40

60

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

RISI

30.0

40.0

50.0Domestic ConsumptionNet Exports

US Recovered Paper CollectionsMillion Tonnes

0.0

10.0

20.0

90 92 94 96 98 00 02 04 06 08 10 12 14

Net export share: 1990: 24%, 2000: 26%, 2010: 39%, 2011: 42%

Western European Recovered Paper Collections

40.0

50.0

60.0

Domestic Consumption

Net Exports

Million Tonnes

0.0

10.0

20.0

30.0

90 92 94 96 98 00 02 04 06 08 10 12 14

Net export share: 2000: 5%, 2010: 14%, 2011: 15%

Paper & Board Consumption Per Capita

150

200

250KG

Where the new paper demand

0

50

100

US JP WEU CA OCE CN EEU ASA M.East LA Oth. ASA AFR

Where the new paper demand& RCP supply will come from

in the future

RISI

True Chinese Paper Collection Rate

• Paper Collection Rate = RCP collection/PAB consumption• Chinese collection rate is understated because of huge amount of

exports of paper in the form of packaging and exports of converted p p p p g g ppaper products

• RISI recently completed an analysis of the true Chinese collection rate after adjusting the exports of paper packaging materials and converted paper products– Two methodologies:

1) based on physical volume of export goods2) based on monetary value of export goods

• Key result: 22 million (net) tonnes of paper packaging and converted paper products went overseas and true Chinese collection rate was about 57% in 2010.

Rising Paper Collection Rates in 2013-2014

• Fast-growing paper collection rate in China – A big jump in paper collection rate in 2010 (53% to

57%) compared to world average level (56%)– Strong demand and high RCP prices– Growing potential supply: fast-growing paper and

board consumption along with economic developmentboard consumption along with economic development– More RCP will stay within China: export driven

economy to domestic consumption driven

• Rising paper recovery rates in other regions– Strong demand and RCP pricing, policies – Currently low levels, especially in the emerging

economies– Eastern Europe, Other Asia, Latin America and the

Middle East

RISI

Guangzhou, China

Sichuan, China

More and Larger Recovered Paper Baling and Packing Plants in China

Collection Rates: Driven to Higher Levels by Strong Demand and Limited Supply

65%

75%

85%World ChinaOther Asia Latin AmericaNorth America EuropeJapan

25%

35%

45%

55%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

RISI

Quality and Yield

• Quality issues– Higher recovery rates newer sources are more

contaminated – More mixed collection of RCP in the developed world to

control recovery costs and to get more participation from the generatorsMore mixed collection leads to higher levels of non– More mixed collection leads to higher levels of non-paper contaminants and mixed fibers

• Yields– North America: many paper mills still do not have

upgraded stock preparation system lower yield rate– Europe and China: better stock preparation system

Global Recovered Paper Markets: What Lies Ahead?

• Upward pressure on RCP pricing– Ever higher paper collection rates will push up RCP

collection costs, along with rising transportation and labor costs

– Limited supply worldwide will give RCP prices moreLimited supply worldwide will give RCP prices more running room

• Global recovered paper crunch will call for:– Fiber furnish change in the regions with relatively cheap

virgin fiber

– Trade will remain a big part of global RCP market

Global Recovered Paper Markets: What Lies Ahead?

• Some fiber-short regions, such as Asia, will remain heavily dependent on RCP – Still lower cost than virgin fiber in these regions

• Risks• Risks– Slowdown in Asian economic growth

– European economy

RISI

For more information:

Outlook for Global Recovered Paper Markets

World Pulp and Recovered Paper 5-Year & 15-Year Forecasts

Thank you for your attention!

Forecasts

World Recovered Paper Monitorwww.risi.com/wrpm