Global Outlook for Graphic Papers October 2019 John Maine VP, Global Graphic Paper
Global P&W demand dropped 2.5% in 2018 130,000 8% 6% 2.6 120,000 4% 2% 110,000 Thousand tonnes Million tonnes of demand decline in 0% 2018 100,000 -2% 12% -4% 90,000 -6% -8% Smaller global market in 2018 versus 80,000 2010 -10% 70,000 -12% 1.6 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 World P&W demand %ch Millions tonnes of average demand declines in 2011-2017 2019 | Fastmarkets | Global Graphic Paper Outlook 2
Is global graphic paper demand accelerating downward? TONNAGE DECLINES STILL NOT SHRINKING DESPITE GREATLY DIMINISHED MARKETS Printing & writing Newsprint 0 100% 0 100% -500 90% 90% -500 -1,000 80% 80% Thousand tonnes Thousand tonnes -1,000 -1,500 70% 70% -2,000 -1,500 60% 60% -2,500 -2,000 50% 50% -3,000 -3,500 40% -2,500 40% Tonnage decline % of 2010 demand level Tonnage decline % of 2010 demand level 2019 | Fastmarkets | Global Graphic Paper Outlook 3
P&W demand growth in 2019-2021 Thousand tonnes, percentage per year EUROPE -1.5% -4.5% -5.7% -5.3% -3.9% NORTH AMERICA -1.6% ASIA -3.5% -3.7% -6.2% -7.1% 1.6% 17 18 19 20 21 -0.6% -0.9% -0.4% -2.1% MIDDLE EAST 17 18 19 20 21 3.2% -0.1% 0.2% 17 18 19 20 21 -3.5% -7.4% 17 18 19 20 21 AFRICA LATIN AMERICA 0.5% 0.0% -0.8% -0.9% 0.8% -1.9% 0.6% 0.5% 0.5% OCEANIA 0.2% -4.7% 17 18 19 20 21 -5.3% -4.9% -5.2% -5.5% 17 18 19 20 21 Three-year total global growth -6.7 -2.4% 17 18 19 20 21 Million tonnes Average percent change 4 2019 | Fastmarkets | Global Graphic Paper Outlook 4
Newsprint demand growth in 2019-2021 Thousand tonnes, percentage per year EUROPE -7.4% -8.9% -7.5% -8.6% -8.2% NORTH AMERICA ASIA - - - -9.8% - 11.2% 11.0% 11.6% 14.6% -7.6% -7.1% -6.7% -7.2% - 17 18 19 20 21 11.0% MIDDLE EAST -6.6% -6.8% -4.9% -4.7% 17 18 19 20 21 - 17 18 19 20 21 20.4% 17 18 19 20 21 AFRICA LATIN AMERICA 3.3% -8.6% -5.0% -3.5% -3.4% -3.3% -3.2% - - - 12.0% 12.2% 13.1% OCEANIA 17 18 19 20 21 - -7.5% -7.8% -7.3% 17 18 19 20 21 - 10.6% 16.4% Three-year total global growth -3.8 -7.0% 17 18 19 20 21 Million tonnes Average percent change 5 2019 | Fastmarkets | Global Graphic Paper Outlook 5
Uncoated woodfree demand much more stable than total P&W GLOBAL UWF DEMAND DECLINED ONLY 0.2% PER YEAR IN 2011-2018 AND WAS FLAT IN 2017-2018 56,000 8% 600 101% 54,000 6% 400 100% 52,000 4% Thousand tonnes 200 99% Thousand tonnes 50,000 2% 0 98% 48,000 0% -200 97% 46,000 -2% -400 96% 44,000 -4% -600 95% 42,000 -6% Tonnage decline % of 2010 demand level Demand %ch 2019 | Fastmarkets | Global Graphic Paper Outlook 6
Largest global P&W declines in mechanical papers 120,000 -4.2% 100,000 80,000 Thousand tonnes Annual demand decline for mechanical papers in 2014-2018 60,000 -3.3% 40,000 Annual demand decline for coated 20,000 papers in 2014-2018 0 54% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Uncoated woodfree Uncoated mechanical Coated woodfree Coated mechanical Share of total P&W market for UWF after flat performance in 2014-2018 2019 | Fastmarkets | Global Graphic Paper Outlook 7
Few pockets of P&W demand growth left in the world P&W demand growth in 2019 and 2020 INDIA IS ALMOST THE ONLY Latin America MAJOR MARKET STILL Oceania GROWING Other Asia • More and more Asian markets joining ranks of secular decline. India • Western European and North China American demand declines may be worsening. Africa . Middle East Eastern Europe Western Europe North America -2,500-2,300-2,100-1,900-1,700-1,500-1,300-1,100 -900 -700 -500 -300 -100 100 300 500 Thousand tonnes 2019 | Fastmarkets | Global Graphic Paper Outlook 8
US printing & writing end-use markets 9 2019 | Fastmarkets | Global Graphic Paper Outlook 9
North American magazine circulation per issue 420 6% -1% 400 4% 380 2% Rate of decline in subscriptions 360 0% Millions 340 -2% -16% 320 -4% 300 -6% Drops for single-copy sales 280 -8% 10% Circulation % Change (R) Source: Alliance for Audited Media & Fastmarkets RISI; includes consumer, farm, religious, paid & verified and analyzed nonpaid; excludes digital. Free magazines surge to 10% share of all magazines printed 2019 | Fastmarkets | Global Graphic Paper Outlook 10
Magazine ad pages continue sharp losses in 2019 WORST PERFORMANCE IN AD PAGES SINCE THE GREAT RECESSION IN 2008/2009 QUARTERLY ANNUAL 5% 5% 0% 0% -5% -5% -10% -10% -15% -15% -20% -20% -25% -25% -30% -30% Source: PIB & Fastmarkets RISI; includes Sunday magazines and the effect of discontinued print editions. 2019 | Fastmarkets | Global Graphic Paper Outlook 11
US catalog circulation CATALOG MAILING DROPPED 1.7% IN 2018, BUT OFF SHARPLY IN 2019 DUE TO COST OF PAPER AND POSTAGE QUARTERLY ANNUAL 5% 5% 0% 0% -5% -5% -10% -10% -15% -15% %Ch year ago -20% -20% 2019 | Fastmarkets | Global Graphic Paper Outlook 12
US postal mail volumes 115 11 MARKETING MAIL GETTING THINNER 105 10 AND LIGHTER 95 9 Pieces dropped 1.4% in both FY2018 and FY2019 Billions of pieces YTD, but weight declined 3.1% in 2018 and 5.8% 85 8 in 2019, indicating less paper usage per piece. 75 7 FORECAST FY ENDING USPS PIECES OF MAIL 2019 SEPT 30, 2018 65 6 -3.2% -3.9% First class 55 5 -1.4% -1.4% Marketing mail -8.1% -5.8% Periodicals 45 4 -2.4% -2.6% Total mail First class Marketing mail Periodicals (R) 2019 | Fastmarkets | Global Graphic Paper Outlook 13
Real dollar sales for US commercial printing PRINTING SALES ARE STABLE, BUT PAPER USAGE IS DOWN AS PRINTERS DIVERSIFY TO SERVICES ANNUAL GROWTH MONTHLY 8,500 Recession 4% 8,000 Millions of real 2003$ per month 2% 7,500 0% 7,000 -2% 6,500 -4% 6,000 -6% 5,500 -8% 5,000 -10% 2019 | Fastmarkets | Global Graphic Paper Outlook 14
Unit sales of printed books 720 3.0% 700 1.3% 2.0% Unit sales in thousands 680 Growth in 2018 1.0% 660 -1.5% 0.0% 640 Decline in first eight months of 2019 -1.0% 620 20% -2.0% 600 580 -3.0% E-book share of total book publishing 2013 2014 2015 2016 2017 2018 2019 has flattened at 20% (9 mo est) Unit sales Percentage change (R) Source: NPD Bookscan, covers 80-85% of print sales. 2019 | Fastmarkets | Global Graphic Paper Outlook 15
Paper supply and demand balance 2019 | Fastmarkets | Global Graphic Paper Outlook 16
No more safe havens for graphic paper mills China no longer the growth engine it used to be Packaging papers are becoming oversupplied Tissue and specialty papers offer little volume for sufficient growth 2019 | Fastmarkets | Global Graphic Paper Outlook 17
Global coated paper machine shuts/conversions, 2019-2020 CAPACITY COMPANY MILL COUNTRY DATE COMMENTS (TONNES/YR) Arctic Paper Grycksbo Sweden -45,000 CFS Q1 2019 Shut PM7 Feldmuehle Uetersen Germany -80,000 CFS Q1 2019 Shut PM2 Lecta Condat France -230,000 CFS Q2 2019 Convert a PM to specialty Stora Enso Oulu Finland -1,080,000 CFS Q4 2020 Shut PM6, convert PM7 to kraftliner Arjowiggins Bourray, Besse-sur-Braye France -348,000 CFS/CME Q1 2019 Mill closure UPM Plattling Germany -155,000 CME Q3 2019 Shut PM10 Burgo Verzuolo Italy -400,000 CME Q4 2019 Convert PM9 to packaging ND Paper Biron USA -103,000 CME Q3 2019 Shift PM25 to packaging Verso Luke USA -408,000 CFS Q3 2019 Shut by June 30 Nippon Paper Ind. Fuji Japan -33,000 CME 2019 Shut PM11 Gold Huasheng Jiangsu China -150,000 CWF 2020 New carbonless/thermal production to reduce CWF APP Tijwi Kimia Indonesia -245,000 CFS 2019 Convert PM10 to packaging Hokuetsu Niigata Japan -161,000 CFS 2019 Close by end of June Nippon Paper Ind. Yufutsu Japan -88,000 CFS 2020 Mill shut Daio Paper Mishima Japan -150,000 CFS 2019 Conversion to kraft papers and paperboard -774,000 CME -2,912,000 CFS -3,686,000 total Note: There are currently no major coated paper capacity expansions occurring globally other than restart of West Linn. 2019 | Fastmarkets | Global Graphic Paper Outlook 18
Global coated paper operating rates US MARKETS NOW EASING AFTER MAJOR SHUTS OPERATING RATES DECLINE IN 2019 DESPITE CAUSED TIGHT MARKETS AND RISING PRICES IN 2018 MAJOR CAPACITY CUTS Coated freesheet Coated mechanical 100% 100% 95% 95% 90% 90% 85% 85% 80% 80% 75% 75% 70% N. America W. Europe Asia N. America W. Europe 2019 | Fastmarkets | Global Graphic Paper Outlook 19
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