Transcript Pulp, Paper and Paperboard Markets Gradual Upturn Underway after Recent Downturn UNECE Market Discussion, September 2002

Pulp, Paper and
Paperboard Markets
Gradual Upturn Underway
after Recent Downturn
UNECE Market Discussion, September 2002
 A steep downturn in industrial production
(and GDP growth) in North America and
Europe resulted in receding demands
for paper & paperboard in packaging
and print advertising media in 2001
 An upturn appears underway in 2002 for
pulp, paper and paperboard markets,
but recovery is likely to be gradual
 North American paperboard output
in the first half of 2002 is up by
about 1% relative to first half 2001
 The upturn in paperboard output
follows the upturn in overall
industrial production
10
3,900
5
3,700
0
3,500
3,300
Paperboard production
declined with industrial
production, but an
upturn is underway
1997
1998
1999
2000
-5
Year-over-year change (%)
Monthly Production ('000 m.t.)
U.S. Paperboard Prod., 5-mo. avg.
Industrial Production (% Change)
-10
2001
2002
Sources: AF&PA, U.S. Federal Reserve
 North American paper output in
the first half of 2002 was down by
about - 6% relative to first half 2001
 An upturn in paper production is
underway but lagging, mainly due
to steep declines in advertising
expenditures in 2001
3,500
5
3,300
15
3,100
10
Advertising Spending
11%
7% 8% 8%
0
2% (f)
5
0
-5
-5
-7%
-10
'97
'98
'99
'00
'01
Year-over-year change (%)
10
% Change
Monthly production ('000 m.t.)
U.S. Paper Production, 5-mo. avg.
Industrial Production (% Change)
'02
-10
2,900
1997
1998
1999
2000
2001
2002
Sources: AF&PA, U.S. Federal Reserve, McCann Erickson
 The recent downturn follows a period
of consolidation and structural change
within the pulp & paper sector.
 With higher capacity concentration
in paper & paperboard, price impacts
of the downturn were offset by strategic
adjustments (mill closures, etc.), and
price volatility was passed down
along the supply chain . . .
Percent of Total Capacity
Consolidation Trends – Capacity Shares
of ‘Top 3 Companies’ in North America . . .
60
Coated Papers
57 58
50
40
44
Uncoated Free
Sheet
43
38
30
31
29
27
Linerboard
20
Market Pulp
10
0
1991
2001
Source: Miller Freeman
Price Index, monthly (1982 = 100)
Printing &
Writing
150
Paperboard
Paper-grade
Woodpulp
100
2000
2001
2002
Source: U.S. Bureau of Labor Statistics, Producer Price Indexes
Less Concentration, More Volatility
Market Volatility – Price Indexes of
Commodities along the Supply Chain . . .
 The global pulp market collapsed from
mid-year 2000 through 2001, but turned
upward in the first half of 2002
 In the past several months, pulp prices
have subsided with another short-term
buildup of pulp inventory, but the longer
term (futures) outlook remains positive
with a declining inventory trend
Norscan Pulp Inventory, NBSK List prices & Futures
'000 Tonnes
$/tonne
Norscan Inventory
NBSK list - Europe
3-mo. NBSK (weekly)
Futures (June 02)
Futures (Sept 02)
2,500
2,000
$1,000
$900
$800
$700
1,500
$600
$500
1,000
$400
 prices turned up in 1st
half 2002, then subsided
 market views long-term as
“deteriorated but positive”
500
$300
$200
$100
0
$0
Dec 03
Sep 03
Jun 03
Mar 03
Dec 02
Sep 02
Jun 02
Mar 02
Dec 01
Sep 01
Jun 01
Mar 01
Dec 00
Sep 00
Jun 00
Mar 00
Dec 99
Sep 99
Jun 99
Mar 99
Dec 98
Sep 98
Jun 98
Mar 98
Dec 97
Sep 97
Jun 97
Sources: PPPC, PULPEX
Other Aspects of the Downturn:
 EU/EFTA production dropped -3% as
consumption fell by -4% in 2001
 Growth rates for the Russian Federation also
dropped, although growth remained positive;
the trade balance drifted into a deficit
 U.S. purchases and production of paper &
paperboard dropped by >10% since 1999
 Industry profits were severely impacted
(as were capacity growth and investment)
although profits turned upward in 2002
 Long-term sustainability of pulpwood demand
becomes an issue for the United States
EU/EFTA – Paper & paperboard trends
Change from one year earlier
Production
8%
Consumption
6%
4%
2%
0%
1998
-2%
-4%
1999
2000
2001
Growth in production and
consumption both subsided
Source: UNECE
Russian Federation – Paper & paperboard
Change from one year earlier
Production
40%
Consumption
30%
20%
10%
Production lagging;
Growth declined but
remained positive
0%
1998
1999
2000
2001
Source: UNECE
Russia's pulp and paper exports and
Imports in 2000-2001 (million USD)
300
Million US $
250
200
150
100
50
0
-50
-100
1st qtr. 2nd qtr. 3rd qtr. 4th qtr.
2000
2000
Exports
2000
2000
Imports
1st qtr. 2nd qtr. 3rd qtr. 4th qtr.
2001
2001
2001
2001
Total trade balance
Sources: State Customs Committee, PPB Express
Monthly Production ('000 m.t.)
Paper & Paperboard Purchases
Paper & Paperboard Production
8,000
5-month
moving
averages
7,500
7,000
Down
more than
10% since 1999
6,500
(largest drop since 1970s)
6,000
1997
1998
1999
2000
2001
2002
Source: AF&PA
After-Tax Profits, Paper & Allied Products, Quarterly
4
2001/2000: -89%
2002/2001: +23% (2nd Qtr.)
Linear
2
Polynomial
1
III 02
II 02
I 02
IV 01
III 01
II 01
I 01
IV 00
III 00
II 00
I 00
IV 99
III 99
II 99
I 99
IV 98
III 98
II 98
I 98
IV 97
III 97
II 97
I 97
IV 96
III 96
II 96
I 96
-2
IV 95
-1
III 95
II 95
0
I 95
Billions of Dollars
3
The downturn in profits was
severe in 2001, although
profits improved in 2002
Source: U.S. Department of Commerce
4%
3.0%
2.9%
2.7%
With receding demand,
weak exports and a
flood of imports, U.S.
paper industry capital
investment declined,
and capacity growth
ground to a halt.
2.8%
2%
1.4%
1%
0.6% 0.6%
0%
2001
2000
1999
1998
1997
1996
-1%
1995
1994
Annual Growth in Capacity
3%
U.S. Capacity Growth
-1.3%
-2%
Source: AF&PA
In 2001, for the first
time in many decades,
U.S. capacity actually
declined. Very little
capacity growth is
anticipated in the next
several years.
Southern pine pulpwood
stumpage prices have dropped
by more than 50% since 1998:
Southern Pine Pulpwood
Stumpage (nominal $)
ALA
FLA
GA
LA
N.C.
VA
S.C.
AVG.
Supply Side:
• Plantations 
• Thinning 
• Drought 
• Beetles 
• Recycling 
• Sawmill
Residues 
$/cubic meter
25
20
15
Demand Side:
• Purchases 
• Production 
• Exports 
• Imports 
• Pulpwood
Exports 
10
5
0
1984 1987 1990 1993 1996 1999 2002
Source: Timber Mart-South
180
60
120
Actual Pulpwood (F.S., FRA)
Projected Pulpwood (RPA)
Actual Wood Pulp (AF&PA)
Projected Wood Pulp (RPA)
60
40
20
Woodpulp production and pulpwood receipts
have declined by ~15% since the mid-1990s.
Both are projected to recover gradually, not
reaching previous peak levels until after 2020.
0
1970
1980
1990
2000
2010
0
2020
Wood Pulp, Millions of m.t.
Pulpwood, Millions of cubic meters
U.S. Woodpulp Production and Pulpwood Receipts
at Pulp Mills, Historical and Projected 80
240
Macro Perspectives:
 An upturn in GDP & industrial output
is clearly underway, but a secondary
slowdown or “double-dip” is still
viewed as a concern.
 There is still a long climb ahead to
full recovery of growth in GDP and
industrial output
U.S. GDP – Change from one year earlier, quarterly
5%
4%
3%
Upturn underway
but “double-dip”
still a threat
2%
1%
0%
-1%
III IV I II III IV I II III IV I II III IV I II
98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02
Source: U.S. Department of Commerce
EU-15 GDP – Change from one year earlier, quarterly
4%
3%
European
GDP upturn
lagging and
less certain
2%
1%
0%
III IV I II III IV I II III IV I II III IV I II
98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02
Source: Eurostat
U.S. Industrial Production and
Capacity Utilization, Year-over-year
83
8
6
81
4
Indust. Production
Capacity Utilization
2
0
79
While industrial production
and capacity utilization have
-4
turned upward since 2001,
-6
there is still a long climb
-8
ahead to full recovery
-2
77
75
73
-10
1997
1998
1999
2000
2001
2002
Source: U.S. Federal Reserve
Capacity Utilization (%)
Year-over-year Change (%)
10
EU-15 & euro zone industrial production – Change from
one year earlier, monthly
EU-15
Source: Eurostat
euro zone
U.S. industrial production – Change from
one year earlier, monthly
2
0
-2
-4
-6
Source: Federal Reserve
-8
-10
2
02
0
A-
J-
02
2
-0
J-
M
2
2
-0
0
A-
M
02
1
02
F-
J-
-0
D
1
1
-0
1
-0
N
O
0
S-
1
01
0
A-
J-
110
Dollar Index
105
100
95
7
6
5
4
3
2
1
0
90
85
.
Despite dramatic reductions
in interest rates by the
Federal Reserve, the
U.S. Dollar and
Trade Deficit
remain very
high
Federal Funds Rate (%)
35
30
25
20
15
10
5
1995 1996 1997 1998 1999 2000 2001 2002
0
80
1995
1996
1997
1998
1999
2000
2001
2002
Monthly Deficit (Billions, '82 $)
115
Real Broad Dollar Index
Real Trade Deficit in Goods
Summary:
Economic outlook is positive
but said to be . . .
“slow and uneven” (Federal Reserve)
or
“deteriorated but positive” (IFO World
Survey)
 gradual recovery appears most likely
for pulp & paper markets
Paper & Paperboard Trade:
21
The U.S. trade deficit in paper & board
has widened significantly since 1997 . . .
Millions of Tons
18
15
12
9
1996
1997
Exports
1998
1999
2000
2001
Imports
Data Sources: AF&PA and Commerce Dept.
Data include “paper, paperboard & products”
U.S. Pulp & Paper Industry Capital Spending & Depreciation
15
Trends show declining capital spending, now
well below equipment depreciation levels . . .
Billions of Dollars
12
9
6
(Planned)
3
0
1996
1997
1998
1999
Capital Project Spending
2000
2001
2002
Depreciation
Sources: Capital Project Spending Trend – Pulp & Paper (Paperloop) Project Report
Depreciation (Paper & Allied Products) – Bureau of Census
Billions of Dollars
350
300
Value of Goods Imports, quarterly
Imports subsided in
2000 - U.S. role as a
“global engine of
growth” diminished
?
250
. . . but value of goods
imports surged again
recently
200
150
100
1996
1997
1998
1999
2000
2001
2002
Source: U.S. Department of Commerce, BEA