Global Specialty Pulp Outlook October 2019 Patrick Cavanagh Economist 1 2019 | Fastmarkets | Global Specialty Pulp Outlook
Viscose fibers lead the development ▪ Even though total textile fiber usage has weakened ▪ Share gains for viscose fibers, mainly against cotton ▪ North America has very little VSF capacity, while China accounts for 66% of global output Dissolving pulp demand still Production of hi-alpha products is also growing ▪ Mainly in the cellulosic ethers sector growing at a strong pace ▪ Cellulose acetate limited by drop in cigarette consumption ▪ North America accounts for more than half of global hi-alpha pulp capacity 2 2019 | Fastmarkets | Global Specialty Pulp Outlook
World textile fiber demand 120 100 80 Million tonnes 60 40 20 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Synthetic Cotton Cellulosic 3 2019 | Fastmarkets | Global Specialty Pulp Outlook
Global viscose fiber production rose 6% in 2018 Annual growth has averaged 5% for the past five years • Despite decelerating economic growth in some areas, demand has remained steady • Production is centered in Asia, particularly in China • Operating rates plunged to 85% last year • From 91% in 2016 and 90% in 2017 Production expected to increase before cooling • An expected increase of 7% in 2019 before decelerating in 2020 • Less opportunity to export as economies slow • Continued wave of VSF capacity expansion will weigh on operating rates 2019 | Fastmarkets | Global Specialty Pulp Outlook 4
Global viscose fiber production 8 7 6 5 Million tonnes 4 3 2 1 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Americas Europe Other Asia China 5 2019 | Fastmarkets | Global Specialty Pulp Outlook
Production of hi-alpha products is also growing But on a much smaller scale than viscose fibers • Cellulose acetate limited by declining cigarette usage and filter sizes • Cellulosic ethers growing along with economy • Products such as nitrocellulose and food casings also rising Hi-alpha pulp consumption even lower • Due to furnish share being well below one-to-one • For both major products, acetate and ethers 2019 | Fastmarkets | Global Specialty Pulp Outlook 6
Global hi-alpha derivatives output 3.0 2.5 2.0 Million tonnes 1.5 1.0 0.5 0.0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Americas Europe Other Asia China 7 2019 | Fastmarkets | Global Specialty Pulp Outlook
Global dissolving pulp demand 10 9 8 7 6 Million tonnes 5 4 3 2 1 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Americas Europe Other World China 8 2019 | Fastmarkets | Global Specialty Pulp Outlook
China is also a major factor on the supply side of dissolving pulp China is the largest producer of dissolving pulp • With total capacity of 2.4 million tonnes in 2018 • At 20 producing companies • Accounting for 26% of world capacity However, capacity has stagnated since 2012 • Declining competitiveness of cotton linter producers • Offset by increasing wood-based capacity • Shift to paper grade at swing mills over the last two years • High cost of imported wood fiber 2019 | Fastmarkets | Global Specialty Pulp Outlook 9
Chinese dissolving pulp capacity 2,500 2,000 1,500 Million tonnes 1,000 500 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Wood Cotton Bamboo 10 2019 | Fastmarkets | Global Specialty Pulp Outlook
More dissolving pulp capacity is coming in China Led by the recently started Chenming greenfield mill • Swing mill, producing paper grade and viscose pulp • Asia Symbol’s Rizhao mill can now produce viscose pulp • Potential to supply fiber to rapidly expanding VSF capacity Chinese dissolving pulp capacity expected to rise by 200,000 tonnes in 2019-2020 • Could be much more, depending on production decisions by Chenming and Asia Symbol Despite this, imported dissolving pulp accounted for nearly 60% of Chinese demand in 2018 • China will remain dependent on imported fiber 2019 | Fastmarkets | Global Specialty Pulp Outlook 11
World dissolving pulp capacity 12 10 8 Million tonnes 6 4 2 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Americas China Europe Other World Other Asia 12 2019 | Fastmarkets | Global Specialty Pulp Outlook
Significant additions to capacity are also scheduled outside of China In Latin America • Arauco is converting a paper grade mill in Chile • LD Celulose is pursuing a greenfield DP mill in Minas Gerais State, Brazil • Bracell has announced plans for a brownfield project on site of the former Lwarcel mill in São Paulo State, Brazil Elsewhere • APRIL is shifting more paper grade capacity to viscose pulp in Indonesia • Sun Paper started a greenfield BHK/DP swing mill in Laos • Sappi is upgrading its mills in South Africa and the USA • Stora Enso is converting a paper grade line in Finland • Ence is building a new BHK/DP swing line in Spain Potential for more than 3.5 million tonnes of new supply 2019 | Fastmarkets | Global Specialty Pulp Outlook 13
World dissolving pulp operating rates 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Hi-alpha Viscose 14 2019 | Fastmarkets | Global Specialty Pulp Outlook
Viscose pulp prices are the lowest since the global financial crisis After reaching high levels in 2017-2018 • Supported by a strong paper grade market and increasing output of VSF • Now downward pressure from falling paper grade prices, new capacity and relatively low VSF prices have pushed inflation adjusted prices to near record lows • Cotton linter prices have also been relatively low Hi-alpha pulp prices are beginning to erode • Following an extended period of flat prices • Good growth in cellulosic ethers segment • Limited by continuing problems in cellulose acetate 2019 | Fastmarkets | Global Specialty Pulp Outlook 15
Viscose pulp pricing will be subject to competing influences through 2020 Major factor will be paper grade pricing • Which will affect amount of swing capacity in viscose • Continuing good demand growth will be a positive • Significant capacity expansion will be a limiting factor • As will comparatively weak VSF pricing Impacts on hi-alpha pulp prices • Variations in viscose pulp prices • Further growth in cellulosic ethers segment • Upgrading of viscose pulp capacity 2019 | Fastmarkets | Global Specialty Pulp Outlook 16
Dissolving pulp prices in China $2,500 $2,000 US dollars per tonne $1,500 $1,000 $500 $0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Viscose Hi-alpha 17 2019 | Fastmarkets | Global Specialty Pulp Outlook
Dissolving pulp profitability Price/variable cost, delivery to Shanghai 3.0 2.5 2.0 1.5 1.0 0.5 0.0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Viscose Hi-alpha 18 2019 | Fastmarkets | Global Specialty Pulp Outlook
Paper grade strength pushed fluff prices higher ▪ Prices for fluff rose through much of 2018, despite paper grade remaining flat for much of the year ▪ Swing capacity remains a factor ▪ Shipments of fluff to key markets declined as prices rose ▪ Coincided with lower demand and tariffs in China Higher prices depressed demand Global trends remain supportive of growth for fluff pulp in 2018, but the ▪ Aging populations worldwide bode well for fluff ▪ Average income levels are expected to rise outlook remains mostly positive ▪ Absorbent hygiene usage rates remain relatively low in emerging markets ▪ Lower fluff prices will help curb substitution 19 2019 | Fastmarkets | Global Specialty Pulp Outlook
Global fluff pulp demand in 2018 6.3 MILLION TONNES Europe 25% North America 18% Asia Pacific Latin America 34% 15% Middle East and Africa 8% 20 2019 | Fastmarkets | World Pulp Outlook
Demand for US imports stalled in China as prices increased throughout 2018 Thousand tonnes per month 300 $1,400 250 $1,300 200 $1,200 150 $1,100 100 $1,000 50 $900 0 $800 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 US BSK imports Fluff list price (R) 21 2019 | Fastmarkets | World Pulp Outlook
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