Transcript Slide 1

Outlook for Book Publishing Papers
John Maine, VP World Graphic Paper
BMI Management Conference
April, 2013
1
US Economy Gaining Some Momentum
Quarterly Real GDP and Personal Consumption Growth, Annualized Percent Change
6%
4%
2%
0%
2.2%
2013
2.2%
2014
3.2%
GDP
Consumption
1Q14
2012
1Q13
1.8%
1Q12
2011
1Q11
Annual
1Q10
GDP
1Q09
-10%
1Q08
-8%
1Q07
-6%
1Q06
-4%
1Q05
-2%
U.S. Economic Outlook
2011
2012
2013
2014
2015
2016
2017
2018
13,300
13,594
13,887
14,338
14,832
15,250
15,372
15,827
1.8
2.2
2.2
3.3
3.4
2.8
0.8
3.0
9,429
9,603
9,796
10,097
10,446
10,769
10,861
11,161
2.5
1.8
2.0
3.1
3.5
3.1
0.8
2.8
4.1
3.8
3.1
4.7
4.8
3.5
0.7
3.5
Housing Starts, Mil. Units
0.61
0.76
0.94
1.24
1.48
1.47
1.28
1.42
Trade Account, Bil. $
-560
-540
-494
-491
-538
-597
-565
-530
Consumer Prices, % Ch
3.1
2.1
2.2
2.4
3.0
3.1
2.4
2.6
Producer Prices, % Ch
6.0
1.9
2.5
4.8
5.4
4.3
-0.5
3.6
West Texas Int. Oil Price, $/BBL
95
94
94
112
122
114
96
107
Natural Gas, Henry Hub, $/Mbtu
4.00
2.75
3.98
4.29
4.53
5.03
4.98
5.53
Fed. Funds Interest Rate, %
0.19
0.19
0.20
0.20
1.63
3.19
3.37
3.94
Prime Rate, %
3.19
3.19
3.20
3.20
4.63
6.19
6.37
6.94
10-Yr T-Bond Yield, %
2.78
1.81
1.97
2.78
3.81
4.79
4.92
5.33
GDP, Bil. 2005 $
Real % Ch
Consumption, Bil. 2005 $
Real % Ch
Ind. Production, % Ch
Media Tablet Ownership Expanding Rapidly,
Could Reach 40% of Adults by 2014
Percent of Adults Who Own Tablet Computers and E-readers
35%
31%
e-Readers
30%
29%
26%
Tablets
24%
25%
20%
19% 19%
15%
12%
10%
5%
8%
2%
3%
4%
3%
5%
4%
10% 10% 10%
9%
6%
5%
0%
Source: pewinternet.org
4
Adult Trade Book Sales by Format
Billion US Dollars
$6
$5
$4
2009
2010
2011
2012
$3
$2
$1
$0
Hardcover
5
Softcover
Mass-market
Paperback
E-Book
Source: BISG and some RISI Estimates
North American P&W Demand by Grade
Million Tonnes
35
Average Annual Growth 2013-2014
CWF
-2.9%
UWF
-3.2%
Cmec
-5.2%
Umec
-0.9%
30
25
Coated Woodfree
20
Uncoated Woodfree
Coated Mechanical
15
Uncoated Mechanical
10
5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
6
Projected Change in North American
P&W Demand by Grade
Percent
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
UWF
-5.0%
CWF
-6.0%
Cmec
Umec
-7.0%
P&W Total
-8.0%
2013
7
2014
Total Paper Usage in US Books Declining
(000 tons)
2,000
1,800
1,600
1,400
1,200
Change in Book
Paper Demand
1,000
800
2009
-20%
2010
-14%
2011
-6%
2012
-8%
2013-17 -3 to -4%
per year
600
400
200
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
0
Book Publishers Moving Toward Coated Freesheet
(much of which is imported) and Uncoated Mechanical
(substituting for more expensive uncoated freesheet)
2000
Umec
23%
2012
CFS
15%
Cmec
17%
UFS
45%
CFS
23%
Umec
34%
Cmec
18%
UFS
25%
US Consumption of Paper by Grade in
Book Publishing (percentage)
9
Uncoated Mechanical Bulky Book Market Cut
in Half by Decline of Mass-Market Paperback
(N. American Shipments to all End-Uses,000 tonnes)
450
15%
400
10%
Bulky Book
350
%ch (Rt scale)
5%
-20%
50
-25%
0
-30%
Source: PPPC
2012
100
2011
-15%
2010
150
2009
-10%
2008
200
2007
-5%
2006
250
2005
0%
2004
300
Combined North American Demand for Uncoated
Freesheet Offset and Uncoated Mechanical Superbrite
– Trends towards substitution of cheaper papers plateaus
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
000 tonnes
Superbrite Share
35%
30%
25%
20%
15%
10%
5%
0%
2004
2005
UFS Offset
2006
2007
2008
2009
UGW Superbright
2010
2011
2012
Superbright Share
North American Imports of Printed Books –
Trending Down As Asia Loses its Appeal
$3,000
Million Real 2012 Dollars
$2,500
$2,000
$1,500
$1,000
$500
$0
95
96
Asia
18
97
98
Europe
99
0
1
Other
2
3
Total
4
5
6
7
8
9
10
11
12
U.S. Imports of Printed Products from China –
Printing Of Books in China Has Abated For Environmental and
Economic Reasons
$1,200
Million Real 2012 Dollars
$1,000
$800
$600
$400
$200
$0
95
96
97
98
99
0
1
2
Books including Children's
18
3
4
5
6
7
Greeting Cards
8
9
10
all other
11
12
North American Demand for Coated
Woodfree Started Trending Down in 2007
7
6
5
Million Tonnes
Average Decline:
2007 to 2012
2013 to 2014
-6.2%
-3.0%
4
3
2
1
0
78 80 82 84 86 88 90 92 94 96 98 0
14
2
4
6
8 10 12 14
US Market for Coated Woodfree Sheets
versus Rolls
5,000
US Demand, Thousand Short Tons
4,500
4,000
3,500
3,000
2,500
2,000
1,500
Sheets
1,000
Rolls
500
0
2003
2004
2005
2006
2007
2008
Includes coated bristols and imports of coated mechanical sheets
15
2009
2010
2011
2012
US Market Share for Coated Sheets by
Source of Supply – Imports Are Critical
70%
------Post Tariff Era------
60%
50%
North America
Tariff applied to
China and
Indonesia in
2010
Europe
40%
China/Indonesia
30%
Other Asia
20%
10%
0%
2003
2004
2005
2006
2007
2008
2009
2010
Note: Includes coated bristol sheets and coated mechanical sheet imports
16
2011
2012
US Market Share for Coated Rolls by
Source of Supply – Imports Actually
Lost Share
100%
90%
80%
70%
North America
60%
Europe
50%
China/Indonesia
40%
Other Asia
30%
20%
10%
0%
2003
2004
2005
Note: Includes coated bristol
17
2006
2007
2008
2009
2010
2011
2012
Supply and Trade Trends
for Printing & Writing Papers
18
Announced Net Capacity Changes for
2013-2014 vs RISI Forecast of Demand
Growth for the Same Period
Coated Woodfree
1,200
1,000
Capacity Growth
Thousand Tonnes
Demand Growth
800
600
400
200
0
-200
-400
Europe
19
N. America
Asia
Global
Coated Woodfree Operating Rates
Lack of announced capacity expansion to cause operating rates
to improve in 2013-2014
95%
93%
91%
89%
87%
85%
83%
N. America
81%
W. Europe
79%
Asia
77%
75%
2008
20
2009
2010
2011
2012
2013
2014
Announced Net Capacity Changes for
2013-2014 vs RISI Forecast of Demand
Growth for the Same Period
Coated Mechanical
Thousand Tonnes
400
300
Capacity Growth
200
Demand Growth
100
0
-100
-200
-300
-400
-500
Europe
21
N. America
Asia
Latin America
Global
Coated Mechanical Operating Rates
Decline in North America leads to weaker markets, Europe
forecast assumes shuts
100%
N. America
95%
W. Europe
90%
With
assumed
shuts
85%
With
existing
capacity
80%
75%
2008
22
2009
2010
2011
2012
2013
2014
Announced Net Capacity Changes for
2013-2014 vs RISI Forecast of Demand
Growth for the Same Period
Uncoated Woodfree
2,500
2,000
Capacity Growth
Thousand Tonnes
Demand Growth
1,500
1,000
500
0
-500
-1,000
Europe
23
N. America
Asia
Latin America
Global
Uncoated Woodfree Operating Rates
More shuts are likely to occur to balance global demand and
supply over the next two years
0.92
Global with Announced Capacity Changes
Only
0.91
Global with Assumed Shuts Including Shuts
of Old Capacity in China
0.9
0.89
0.88
0.87
2008
24
2009
2010
2011
2012
2013
2014
Announced Net Capacity Changes for
2013-2014 vs. RISI Forecast of Demand
Growth for the Same Period
Uncoated Mechanical
300
200
Thousand Tonnes
100
0
-100
-200
-300
-400
-500
Capacity Growth
-600
Demand Growth
-700
Europe
25
N. America
Asia
Latin America
Global
Uncoated Mechanical Operating Rates
Massive shuts in Europe cause global markets to tighten despite
restarts in North America
100%
95%
90%
85%
N. America
80%
W. Europe
Global
75%
2008
26
2009
2010
2011
2012
2013
2014
Costs for Virgin and Recycled Fiber Will Likely
Increase Over the Next Two Years
$950
US$/ton
BHKP
SOP#37
Hard Wht. Shv.#30
$850
$750
$650
$550
$450
$350
$250
$150
$50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Data sources: RISI and Letsrecycle.com
27
High Grade Recycled Paper in the US Market
• Demand and supply are seeing widely different growth
rates and this will create upward pressure on high
grades
– Demand: fast-growing paper sectors, such as tissue, will
request more high grades of recovered paper
– Supply: printing and writing paper, the major supply of
high grades, however, will see significant decline in
consumption
• Costs are forecast to move upward through 2014 along
with the strengthening virgin pulp market, after a weak
year in 2012.
28
Period of Relative Cost Stability to End as
Costs Rise for Fiber, Energy, and Transport
N. American Mill Delivered Cash Costs for Producing 34 lb. LWC
$1,050
$1,000
Integrated to Pulp
$950
Not Integrated to
Chemical Pulp
$900
$850
$800
$750
$700
2008
29
2009
2010
2011
2012
2013
2014
Historical Publishing Paper Prices ($US/cwt)
…Trending down while the rest of the world is starting to increase
$55
$50
$45
$40
$35
$30
2005
30
SC-A
Ctd. No. 5 34 lb
Ctd. No. 3 60 lb.
Unc. Offset 50 lb.
2006
2007
2008
2009
2010
2011
2012
2013
Thank you for your attention!
For more information:
World Graphic Paper
5-Year Forecast
Global Newsprint Risk
of Closure Study
www.risi.com/gnr
China’s Influence on World
Graphic Paper Markets in the
Coming Decade
www.risi.com/chinagraphic
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