World Pulp Outlook - events.risiinfo.com · China wood pulp import growth slows WOOD PULP IMPORTS ACCELERATE IN 2017 • Growth was steady and strong during the last decade plus •

2019 | Fastmarkets | World Pulp Outlook 1

David FortinVP, Fiber Economic Analysis

World Pulp OutlookGrowing Uncertainty Leads to Cautious Optimism

2

Agenda

2019 | Fastmarkets | World Pulp Outlook

• Review of current market conditions• Supply and demand outlook• Outlook for market tightness• Forecast summary and risks to the forecast

Recent Market Conditions

Supply disruptions ease, but risks remainAfter the strong uptick in supply disruptions through much of 2018, markets adjust as supply normalizes

End-user margins squeezed by rising input costsRapid rise in pulp prices and other inputs drive margins for non-integrated paper and board producers lower

Demand in China falters and prices plummetAbsence of seasonal improvement in demand this fall, along with more normalized supply, pushes pulp prices lower


Impact of Chinese import policies behind us for pulp Review the latest policies implemented in China for recovered paper imports and their impact on global fiber markets

China policy changes disrupt world fiber markets

RCP IMPORT POLICIES RESULT IN FIBER DEFICIT FOR PRODUCERSChina has already issued 5 million tonnes of import licenses for 2019, but purchasing remains measured

• China inspecting ALL containers from the USA since early May

• CCIC now performing pre-inspection of ALL exports to China

• 25% RCP import tariff since August

• Port congestion a growing concern

• More stringent rules for exporters even in Europe

• China continues to lower RCP imports


8,7000.5%

Contamination standard

Mixed paper ban

Domestic collections

Finished P&B

Virgin pulp

0

2,000

4,000

6,000

8,000

10,000

12,000

2018 RCP Loss Fiber needed Solution

Thou

sand

tonn

es2018 RCP fiber loss

Other RCPOther RCP

Other RCP

Mixed

0

5,000

10,000

15,000

20,000

25,000

30,000

2017 2018 2019 (E)Th

ousa

nd to

nnes

Total Chinese RCP imports

China wood pulp import growth slows

WOOD PULP IMPORTS ACCELERATE IN 2017• Growth was steady and strong

during the last decade plus

• Ratcheted higher in 2017 as markets reacted to new Chinese policies

• Settled back lower once limited market share gains were made

• Only marginal upward pressure on wood pulp imports moving forward


0

500

1,000

1,500

2,000

2,500

06 07 08 09 10 11 12 13 14 15 16 17 18

Wood pulp imports to China, thousand tonnes

South America Canada Asia/Oceania/Africa United States Russia Europe

Unexpected downtime continues at a lower rate

ROLLING WAVES OF UNEXPECTED DOWNTIME LIMIT THE IMPACT OF NEW SUPPLYThe large capacity additions, including APP OKI, Fibria Tres Lagoas, MetsaFibre Aanekoski and SCA Ostrand, had minimal impact on the pulp market in 2017-2018 as unexpected downtime counterbalanced the additional supply. Meanwhile, suppliers seem more willing to take offsetting steps as new supply starts up.


Company Mill Country Grade (Comment) Days Capacity/day Total

Fibria Aracruz Brazil BEK (proactive downtime) — — 50

Hyogo Pulp Tanigawa Japan USK (recovery boiler) — — 43

WestRock Panama City USA FLF (Hurricane Michael) — — 42

WestRock Panama City USA SBSK (Hurricane Michael) — — 6

WestRock Panama City USA SBHK (Hurricane Michael) — — 1

Georgia-Pacific Foley USA FLF (Hurricane Michael) 3 0.6 2

International Paper Riegelwood USA SBSK (Hurricane Florence) 7 1.1 8

International Paper Riegelwood USA FLF (Hurricane Florence) 7 0.9 6

Suzano Imperatriz Brazil BEK (extended maintenance) 2 4.5 9

IGIC Woodland USA NBHK (extended maintenance) — — 18

Canfor Systemwide Canada NBSK (Enbridge gas pipeline explosion) — — 25

Canfor Northwood Canada NBSK (#5 recovery boiler) 68 1 60

Net total 2018 Q4 270

Total 2018 1,540

Total 2017 1,270

Pulp markets recently completed an historical run


0

100

200

300

400

500

600

700

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Cum

ulat

ive

pric

e ch

ange

, USD

/tonn

e

Consecutive months

Cumulative price change

Mar-16 to Oct-18 Dec-85 to Mar-90

Dec-93 to Nov-95

0.75

0.95

1.15

1.35

1.55

1.75

1.95

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52N

et p

rice

/ hig

h av

erag

e va

riabl

e co

st

Consecutive months

Net price / high average variable cost

Mar-16 to Oct-18Dec-85 to Mar-90

Meanwhile, paper and board producers margins squeezed

PRODUCT PRICES NOT ABLE TO KEEP PACE WITH PULP• Margins increasingly tight

• Some paper markets already weak due to oversupply

• Tissue producers especially challenged


0.30

0.35

0.40

0.45

0.50

0.55

0.60Ratio of BEK to tissue parent roll prices in the US

Net BEK/Parent Roll

China stalls as global economic growth slows

SYNCHRONIZED GLOBAL GROWTH DECELERATING• Developed countries still growing,

but at a slower rate

• This is not unexpected given the length of this business cycle

• New leaders, policies and the rise of protectionism have both stimulated growth and created headwinds

• The Chinese economy has decelerated markedly


45.0

46.0

47.0

48.0

49.0

50.0

51.0

52.0

53.0

54.0

55.0

12 13 14 15 16 17 18 19

Purchasing manager’s indices

Official Caixin Global

Inventory cycle is key to price inflection point

INVENTORIES BUILD IN CHINA AS DEMAND SLOWS• Record pulp production by some

producers in the third quarter arrived just as demand faltered in China

• Inventory data always difficult to read accurately

• Not just pulp inventories that have grown, also paper and board

• Key to change in price direction is timing of inventory correction


0

200

400

600

800

1,000

1,200

Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19

Inventories at key Chinese ports, thousand tonnes

Qingdao Changshu

Global producer inventories bloated


15

20

25

30

35

40

45

50

55

60

65

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Day

s of

Sup

ply

BHK AVG BHK (2004-10 = 36.4, 2011-18 = 41.2) BSK AVG BSK (29.4)

Source: PPPC, RISI

Domestic pulp prices in China plummet


* Reflects net renminbi domestic resale price converted to US dollars, excluding VAT and logistics costs.

500

550

600

650

700

750

800

850

900

950

1,000

12 13 14 15 16 17 18 19

NBSK prices in China, $/tonne

NBSK domestic resale* NBSK net import

450

500

550

600

650

700

750

800

850

12 13 14 15 16 17 18 19

BEK prices in China, $/tonne

BEK domestic resale* BEK net import

NBSK premium to BEK falls as prices tumble

THE OUTSIZED SPREAD BETWEEN NBSK AND BEKHAS CORRECTED• The large spread allowed BSK to

fall harder and faster at first

• Spread is now below cash cost differential, placing additional downward pressure on BEK

• There is a chance that NBSK may firm and move higher before BEK if/when prices recover


-100

0

100

200

300

400

500

0

100

200

300

400

500

600

700

800

900

1,000

10 11 12 13 14 15 16 17 18 19

Effective list prices delivered to China, US dollars per tonne

Spread BSK-BHK (R) NBSK BEK Average spread

The strong US dollar matters on the margin


0.70

0.90

1.10

1.30

1.50

1.70

1.90

2.10

2.30

1 =

Janu

ary

2017

BEK delivered to Europe

BRL USD EUR

0.70

0.90

1.10

1.30

1.50

1.70

1.90

1 =

Janu

ary

2017

BEK delivered to China

BRL USD RMB

Outlook for market pulp

Minimal new capacity expected through 2020Anticipation of new supply, which has since been delayed, resulted in dearth of projects ready to break ground

Many project announcements after price runThe list of proposed projects for the 2021-2022 time frame is growing, but only a few projects will end up moving forward

Tighter markets expected in the near termAssuming China reaccelerates, the increase in demand against modest capacity gains should result in tighter markets placing upward pressure on prices


Growth in end-use markets is slow and steady

Production of paper and board expected to grow moderately, but the grades matter for type of fiber consumed and the impact of fiber demand

15

Modest growth in paper and paperboard production masks divergent trends

PACKAGING AND TISSUE DRIVE GROWTH • Packaging paper accounts for two-thirds of

paper production and its share is growing

• Tissue accounts for just 9% of production, but its share is growing as well

• Graphic paper will continue its secular decline due to substitution to electronic media, with its share falling from 40% as recently as 2006 to 26% in 2020

• The largest paper and board producing region in the world is China with more than 110 million tonnes of production

• Production growth in China will fall due to lack of fiber because of both natural and policy reasons, with the US and Other Asia the main benefactors

-1%

0%

1%

2%

3%

0

50

100

150

200

250

300

2016 2017 2018 2019 2020

World paper and paperboard production by grade

Paper packaging and specialties Graphic papersTissue % Ch total paper and board


GROWTH RATES BY SEGMENT 2017 2018 2019 2020 2021

Total paper and paperboard 1.7% 0.5% 1.3% 1.4% -0.2%Paper packaging and specialties 3.3% 1.2% 2.2% 2.4% 0.7%Graphic papers -2.5% -2.1% -1.8% -1.8% -3.4%Tissue 4.0% 3.9% 3.9% 3.8% 2.7%

Little growth in BHK supply through 2020


Company Mill Country Project CapacityThousand Tonnes

Suzano Maranhão Brazil Incremental growth, net of integration to tissue 90

ENCE, Altri, Navigator Systemwide Iberia Incremental growth, net of integration to tissue 250

APRIL Kerinci Indonesia Further conversion dissolving pulp, 2018-19 -500

UPM Kaukas & Kymi Finland Debottleneck, 2017-18 150

Oji Nantong China Debottleneck, 2018 70

Yongxin Huatang China Conversion from nonwood, 2018 40

Sun Paper Savannakhet Laos Greenfield BHK/DP, started 2018 Q2 300

Eldorado Três Lagoas Brazil Additional environmental permit 55

Montes del Plata Montes del Plata Uruguay Debottleneck 100

Chenming Huanggong China Greenfield BHK/DP, started 2018 Q4 600

Net Total 2017-2020 1,155

Chenming Shouguang China Integrated BHK to 1 mm MT UFS 1,200

BHK cash cost curve from cost benchmarking

LATIN AMERICAN PRODUCERS DOMINATE THE LOW END OF THE COST CURVE• Latin American producers benefit

from low-cost wood and the exchange rate

• Higher-cost facilities tend to be much smaller and located in Asia and the Northern Hemisphere


Similar for BSK with minimal growth through 2020


Company Mill Country Project Capacity Thousand Tonnes

UPM Kaukas & Kymi Finland Debottleneck, 2017-18 50Bellesbumprom Svetlogorsk Belarus New line started 2017 Q4 400SCA Östrand Sweden New line started 2018 Q2 470Resolute FP Saint Felicien Canada Rebuild, 2018 30Mondi Steti Czechia Rebuild, 2018 70Oji Tasman New Zealand Convertion to UKP, 2019 -125BillerudKorsnäs Gruvön Sweden Integration to new BM, 2019 -130Arauco Valdivia Chile Conversion to DP, 2019 -500Stora Enso Enocell Finland Conversion to DP, 2019 -320

Net Total 2017-2020 -55

BSK cash cost curve from cost benchmarking

EASTERN EUROPEAN AND LATIN AMERICAN PRODUCERS AT THE LOW END OF THE COST CURVE• Latin American producers benefit

largely from the exchange rate

• Pine can be grown in other regions of the world just as well as in Latin America


Pulp market still expected to grow tighter


0.86

0.87

0.88

0.89

0.9

0.91

0.92

0.93

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

11 12 13 14 15 16 17 18 19 20

Thou

sand

tonn

es

Market pulp consumption Market pulp capacity Shipment/Capacity ratio (R)

Forecast Summary ▪ Base case forecast calls for China to regain

growth trajectory in second quarter 2019, after the Chinese New Year

▪ Demand will move ahead of supply again in 2H19

▪ This will result in tighter markets and upward pressure on prices into 2020

▪ Risks remain and revolve largely around the health of Chinese economy, the escalating trade war with the US and a looming recession


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Documents

World Pulp Outlook - events.risiinfo.com · China wood pulp import growth slows WOOD PULP IMPORTS ACCELERATE IN 2017 • Growth was steady and strong during the last decade plus •