The global fiber wars –Virgin Vs. Recycled · 2015. 8. 13. · Uruguay also has good plantations and is fast emerging in the pulp sector. Infrastructure Companies are focusing on

The global fiber wars – Virgin Vs. Recycled

Presented at: Risi International L.A ConferenceB R d Thi jBy: Ragavendran ThiagarajanAugust 18‐19, 2015Sao Paulo

© Copyright 2015 Beroe Inc. All rights reserved1

Agenda

Global Overview of Major End‐use Industries: Paperboard, Paper and Tissues

Raw Materials and their Outlook – Pulp &

Regulations Conversions

Raw Materials and their Outlook Pulp & OCC

Pulp

Imports/Exports?

Shortsupply

Quality

Procurement Stand Point / Questions to be answered Declining

Demand?Over‐supply

Conclusion

Demand?supply OCC

Recovery


Containerboard Market Snapshot

N.A | Virgin 68% | 32% Recycled | 1.5‐2%Demand growth rate per annum (2015‐16E)

L.A | Virgin 28% | 72% Recycled | 1‐2%

Europe | Virgin 20% | 80% Recycled | 1‐1.5%

Africa | Virgin 30% | 70% Recycled | 3‐4%

| | |Asia | Virgin 8% | 92% Recycled | 3‐4%

Japan | Virgin 51% | 49% Recycled | 0‐1%



Changing Market Dynamics?


Cartonboard Market Snapshot

N.A | Virgin 66% | 34% Recycled | 1‐1.5%Demand growth rate per annum (2015‐16E)

L.A | Virgin 51% | 49% Recycled | 3‐4%

Europe | Virgin 50% | 50% Recycled | 2‐2.5%

Africa | Virgin 10% | 90% Recycled | 3‐4%

| | |Asia | Virgin 27% | 73% Recycled | 3‐4%

Japan | Virgin 68% | 32% Recycled | 1 2%



Clear Shift of Focus to Pulp?

• Asia, Eastern Europe, Latin America, Middle East,and Africa are regions in the spot light – Again!!

Chi d I di i A i B il i L ti A i d

• How will China’s capacity expansionin the virgin

• China and India in Asia, Brazil in Latin America and Russia are countries that will clock higher growths during 2015‐17 and forward as well

• Asia’s focus has been shifting from recycled to virgin in the virgin cartonboardsegment affect the Western players?

• Overcapacity

g y ggrades. However, with almost half of the global share, base (tonnages) for recycled is huge compared to virgin grades

Overcapacity Concerns?

• Global Trade?


Paper Market Snapshot

01North America CW

CM CW CM 01 CM

UW UM

CM UW UM

02 EuropeNews Print News Print

03South America

CW CM

CW CM

04UW UM

UW UM

Asia


News Print News Print CAGR rates from 2003‐2015F

Tissue Market Snapshot

01North America

Europeh

• Market led by Germany. Per capita consumption high at 01 Europe• Biggest producer and consumer in the

world – High per capita consumption

• Share of PL less – More Brand/Quality conscious consumers

p p garound 16 kg per person

• Strong growth forecasted in Eastern European region ‐driven by GDP growth; W.E declining

02• Low demand growth rates in the future declining

• % of PL high – Close to 50% in W.E

03South America

• Market led by Brazil, Mexico and Colombia

• Strong growth in the tissue segment in the

• Growth in China expected to be around 9‐10% for the next 2‐3 years, some other SEA countries expected to grow at around 6‐7%

04 Asia

past 5 years

• L.A – 2nd biggest growth region in the future after China

around 6 7%

• New investments in the sector

• However, given the expansion plans in China, how far are we away from a serious


away from a serious overcapacity?

Will High Growth in Tissues Sustain in the Long Run?

APACGlobal Average

N.A Latin America

8‐9%Facial Tissues, Paper Towels

4‐5%Toilet Tissues, Facial Tissues

1‐2%Bath Tissues,Paper Towels

4‐5%Toilet Tissues, Paper TowelsPaper Towels,

AFHFacial Tissues,

AFHPaper Towels,

FacialPaper Towels,

AFH

Per Capita Tissue Consumption ‐ 2014

23 kgNorthAmerica

13.5 kgWesternEurope

6 kgEasternEurope

5 kgLATAM

2.5 kgAsia

© Copyright 2015 Beroe Inc. All rights reserved9CAGR rates from 2014‐2018F

Pulp Capacity Additions – L.A

Company Country Capacity PeriodEldorado – Tres Lagoas Brazil 1.5 MMT 2013

Suzano ‐ Imperatriz mill Maranhao, Brazil 1.5 MMT 2014

Who Expanded in 2013‐14?

Pulp Expansions in L.ASuzano Imperatriz mill Maranhao, Brazil 1.5 MMT 2014

Arauco – Stora Enso 50‐50 JV Montes De Plata Uruguay 1.3 MMT 2014

Who is Expanding in the future?Mill Country Capacity Period

11MillionMT

y p yCMPC – Guaiba Brazil 1.3 MMT H1 2015Klabin – PUMA Brazil 1.5 MMT H1 2016Fibria – Tres Lagoas Brazil 1.75 MMT 2017‐18Eldorado – Tres Lagoas Brazil 2.3 MMT 2017‐18Arauco ‐MAPA Chile 1.5 MMT 2017‐18

4.3MillionMT

Brazilian Celulose Rio Pardense e Energia Brazil 2.2 MMT 2017‐18

Lwarcel Brazil 0.75 MT 2018‐19

Competition from Other Countries?Mill Country Capacity PeriodAPP Indonesia 2.8 MMT 2017‐18Vitracimex Vietnam 400,000 MT 2017‐18Xinjiang Zhongtai Siberia 500,000 MT 2020‐21Ence Spain 40000 MT 2016‐17


Svetlogorsk Belarus 400,000 MT 2016‐17Sveza Russia 1.2 MMT 2020‐212015‐20202013‐2014

Pulp Sales By Destination ‐Major Manufacturers

North America Europe Latin America Asia

24%

North America

41%

Europe

10%

Latin America

25%

Asia

Fibria

11%

1%

30%

31%

18%

17%

41%

46%

Suzano

CMPC 1%

6%

31%

20%

17%

8%

46%

66%

CMPC

Arauco

11% 34% 16% 39%Eldorado


Growth Drivers and Constraints – L.A Pulp

InternalI t lPositive Impact

Drivers

Negative Impact

Constraints

Internal Illegal logging Problems in illegal logging exist in some L.A countries. Extensive paperwork required for permits, access to credit among other reasons.

Internal Plantation ExpansionLatin American players are continuously expanding fast‐growing plantations. Brazil’s 85% of the plantation area consists of eucalyptus and remaining 15% (pine) credit among other reasons.

Rising Land CostThe land costs are expected to rise further. This is due to L.A players need to secure land for their planned pulp

consists of eucalyptus and remaining 15% (pine). Uruguay also has good plantations and is fast emerging in the pulp sector.

InfrastructureCompanies are focusing on transportation, warehousing p y p p p

capacity expansions and it might face competition from other sectors.

ExternalAsian/E.E countries emerging in pulp

facilities near to ports. Logistics is a key focus to major producers in L.A

ExternalIncreasing Demand

The Latin American players might face increasing pressure from other Asian and E.E countries. Ease of logistics (to China) and cost advantages will play an important role

The growth in Chinese/Asian demand is the key growth driver for Latin American manufacturers.

Cost CompetitivenessLatin American players are considered to provide the


best cost compared to other regions due to low cost access to raw materials.

OCC – Strong Demand from China to be a Thing of Past?

China’s huge appetite for OCC ‐ Chinese/Asian cartonboard and containerboard manufacturers have huge i l i h f ( d 12 MMT f 2014 17) f i i h d d h h

Demand From China

expansion plans in the future (around 12 MMT from 2014‐17), most of it in the recovered grade, though cartons is more focussed on pulp

Growth Rates in China for Paperboard

10

12

14

Previous Year

CAGR Paperboard (14‐17F) 4

6

8

ge Com

pared to

Growth Rates are expected to be much slower than the past

( )2-3%

0

2

4

2008 2012 2016F 2020F

% Cha

ng


2008 2012 2016F 2020F

Boxboard Containerboard

Global Demand Drivers of OCC

Demand from sectors like FBT, Shift between Virgin and

• Increase in Industrial production – GDP gro th strong in Asian economies

FMCG, Durables/ Non‐durablesand Quality Concerns

• Shifting consumers’ thoughts between irgin and rec cled grades in the end

Shift between Virgin andRecycled Grades

growth strong in Asian economies (China/India who are the largest OCC importers too from the West)

• Disposable incomes are increasing –M di t lik FBT

virgin and recycled grades in the end products

• Even virgin rich regions are increasing capacities in recycled space –C iMore spending on sectors like FBT,

FMCG – On the go, convenience shopping increasing

• Quality of OCC recovered? Asia Vs. the W t? Will d f b tt lit OCC

Conversions

• Also, availability of alternate forms of fiber in the region – Example: Non‐Wood Vs. Wood in Asia and it’s cost i tWest? Will need for better quality OCC

push W.E and U.S to limits?impacts


Global Supply Drivers of OCC

Presence of Off‐shore Recovery Units/Regulations• Most of Chinese boxes are exported – Not accounted?• Can presence of more off‐shore recovery units boost supply for big importers? Example ‐Can presence of more off shore recovery units boost supply for big importers? Example

American Chung Nam and Nine Dragons• FTA’s? Regulations? Example – Green fence to stop low quality recovered paper entering China

Increase in Recovery Rates/ Macro Economic Factors• Increase in recycling rates in countries other than W.E, Japan or U.S?• On a very long term perspective, If recovery rates grow high, less imports from West? This will

create oversupply in countries like Japan, U.S and other W.E countries

Additional Investments in this Sector

create oversupply in countries like Japan, U.S and other W.E countries• Support from Government? • How will macro economy support these moves?

Additional Investments in this Sector• Companies are now increasingly investing in technologies to improve their efficiencies and also

quality of paper and board recovered• Advances in deinking and other processing technologies will permit many other grades of RCP to

be utilized effectively


be utilized effectively

Procurement Standpoint – Pulp

• Short rotation periods for hardwood pulp will be a huge advantage in L.A

• L.A can easily meet Asia’s appetite for good quality l

High

raw material

• China’s focus on virgin cartonboard gradesand expansions in the tissue sector in thenext 1‐2 years (and going forward as

ll) ll d fwell) will come in as good news forL.A manufacturers

• Increasing awareness amongconsumers for better quality

d h h d

• Huge capacity additions in L.A – Oversupply? S b tit ti b t BSKproducts, which needs

more virgin fiber• Substitution between BSK

and BEK?• Impact on prices in the long

run?


Procurement Standpoint – OCC

• Increasing recovery rates in countries like China, Mexico and India will boost supply in the future

Medium

• Government incentives/rebates for the recycling industry in emerging nations will again pave way for more players entering in this industry

• Technological investments bymanufacturers to improve efficiency

• Recovery rates cannot go beyond this in U.S, Japan and WEW.E.

• If supply becomes a constraint and demand remains strong, prices will increase in the long run


Procurement Standpoint – Non‐Wood Fibers

• More environment friendly and sustainable than wood based

d

Low

produce

• More output compared to wood (measured in pulp per hectare harvested)

• Storage? Facilities? Quality of the end‐product?Hi h ili Ch i l• High silica content. Chemical recovery facilities to remove them? Infrastructure?

• Year round supply issues• China and India leading theChina and India leading the race again (Fiber deficit regions; will continue to be dependent on imports)

• Less volumes compared to


wood based resources

Factors influencing Pulp Buying

60

70

on

RCP Usage in Tissue Manufacturing ‐ Global

80

100

Chinese Buying Pattern for RCP

20

30

40

50

of RCP

in Produ

ctio

40

60

Million MT

0

10

2000 2014 2017F 2020F

%

0

20

2013 2017F 2020FInternal Collections Imports

8

10

12

MT

How Oversupplied Will be the Pulp Market in 2020?

2

4

6

8

Million M


0Global Demand for Hardwood Grades L.A Hardwood Pulp Expansions

Key Factors to Consider?

• Capacity expansions are slower than expected in China. Demand declining in

OCC• Clearly China is the target market. Will

exports to China sustain? China’s plan

Pulpp g

the last 2 years. Future?

• OCC rates have hit the ceiling in most countries? Around 90‐91% in the U S

p pto reduce dependency?

• Will other forms of fiber eat into this share? Non‐wood Fibers in N.A and E U? countries? Around 90‐91% in the U.S

now. Future Supply?

• Will government regulations/improved recovery mechanisms in the emerging

E.U?

• Will China’s goal to reduce imports of any fiber meet quality standards of the West?

recovery mechanisms in the emerging countries boost supply?

• Supply to other Asian/L.A economies as

• Will growth in one segment (Tissue) overweigh others in the recycled space?

Will l d i l i i demand from China off late has been decreasing?

• We are not in a as‐panicky situation in

• Will we land in an oversupply situation for pulp very shortly? Impact on prices? Will this initiate a short term shift?

• L A at an advantageous position


OCC • L.A at an advantageous position –Positives far outweigh the negatives

Glossary

Acronym ExpansionADD Anti Dumping DutiesAFH Away From HomeAPAC Asia PacificBEK Bleached Eucalyptus KraftCAGR Compounded Annual Growth RateCM Coated MechanicalCW Coated WoodfreeE E Eastern EuropeE.E Eastern EuropeE.U European UnionFTA's Free Trade AgreementsGDP Gross Domestic ProductL.A Latin AmericaMMT Million Metric TonnesMT Metric TonnesN.A North AmericaOCC Old Corrugated ContainersPL Private LabelsRCP Recovered PaperRRP Retail Ready PackagingSRP Shelf Ready PackagingUM Uncoated MechanicalUW Uncoated Woodfree


UW Uncoated WoodfreeW.E Western Europe

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Documents

The global fiber wars –Virgin Vs. Recycled · 2015. 8. 13. · Uruguay also has good plantations and is fast emerging in the pulp sector. Infrastructure Companies are focusing on