North American Pulp and Paper Outlook SEPTEMBER 2019 ROD YOUNG Chief Economist 2019 | Fastmarkets | RISI Outlook Presentation 1
Global economy growing moderately, risks heightened Europe USA 2.5 % 1.9 % 1.8 % 2.9 % 2.6 % China 1.4 % 6.9 % 2.3 % 1.1 % 0.9 % 1.8 % 6.7 % 1.6 % 6.6 % 1.1 % 6.2 % 6.0 % 6.1 % 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021 Latin America 2016 2017 2018 2019 2020 2021 2.8 % 1.7 % 1.1 % 0.9 % 0.8 % 2016 2017 2018 2019 2020 2021 -0.9 % Annual real GDP growth 2 2019 | Fastmarkets | Macroeconomic Outlook
US job growth continues Monthly employment change, total non-farm, thousands; six-month moving average; 24-month moving average 600 400 200 0 -200 -400 -600 -800 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Employment change Six-mo. mov. avg. (employment change) 24-mo. mov. avg. (employment change) 3 2019 | Fastmarkets | Macroeconomic Outlook
Dollar regained strength in 2018, remains strong Trade weighted US dollar index: broad, goods, 1997=100 140 130 120 110 100 90 80 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 4 2019 | Fastmarkets | Macroeconomic Outlook
Chinese GDP trending lower, 2019 a slowdown Real GDP growth, annual percentage change 16% 14% 12% 10% 8% 6% 4% 2% 0% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 5 2019 | Fastmarkets | Macroeconomic Outlook
Global P&W demand dropped 2.5% in 2018 130,000 8% World P&W demand %ch 6% 120,000 2.5 4% 2% Thousands of tonnes 110,000 Million tonnes of demand decline in 0% 2018 100,000 -2% -4% 12% 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 Millions tonnes of average demand declines in 2011-2017 and 2012-2014 2019 | Fastmarkets | RISI Outlook Presentation
Is global graphic paper demand accelerating down? TONNAGE DECLINES STILL NOT SHRINKING DESPITE GREATLY DIMINISHED MARKETS Printing & writing Newsprint 0 100% 0 100% -500 90% 90% -500 -1,000 Thousands of tonnes Thousands of tonnes 80% 80% -1,000 -1,500 70% 70% -2,000 -1,500 60% 60% -2,500 -2,000 50% 50% -3,000 Tonnage decline % of 2010 demand level Tonnage decline % of 2010 demand level -3,500 40% -2,500 40% 7 2019 | Fastmarkets | RISI Outlook Presentation
P&W Demand Growth in 2019-2021 Thousand Tonnes, Percentage Per Year EUROPE -1.6% -4.5% -4.0% -3.4% NORTH AMERICA -5.4% -1.8% -3.6% -4.0% ASIA -6.9% -7.2% 1.6% 17 18 19 20 21 -0.6% -0.5% -1.5% MIDDLE EAST -1.8% 17 18 19 20 21 3.2% -1.2% 0.5% 0.3% 17 18 19 20 21 -7.4% 17 18 19 20 21 AFRICA LATIN AMERICA 0.9% 0.5% 0.1% 0.9% 0.9% -0.6% -1.0% 0.6% 0.4% OCEANIA 0.2% -4.6% -4.8% -4.6% -4.7% 17 18 19 20 21 17 18 19 20 21 -5.3% Three-Year Total Global Growth -6.58 -2.3% 17 18 19 20 21 Million Tonnes Average Percent Change 8 2019 | Fastmarkets | RISI Outlook Presentation
Global ADD/CVD duties on cut size copy paper ADD CVD DATES ADD DATES 1) Navigator tariff changed Australia USA from 8% to 37%, then Austria 21.6% 2018 Australia Paper 222% 2015 back down to 1.75% in October 2018. Finland 16.9% 2018 Suzano 17% 2015 Russia 4.2% 2018 Navigator (1) 1.75% 2015 2) APRIL Indonesia ADD revised up from 2% in Slovakia 17.4% 2018 APRIL Indonesia (2) 2% 4% 2015 March 2019. South Korea 34.2% 2018 APP Indonesia 17% 109% 2015 China 3.1% to 34.4% 2017 Asia Symbol 84% 7% 2015 Indonesia 12.6% to 45.1% 2017 APP China 149% 7% 2015 UPM China 149% 177% 2015 Brazil 2.9% 2017 Thailand 13.4% to 23.2% 2017 Sun Paper China 149% 177% 2015 Pakistan India $855/tonne Japan 39.1% 2018 Indonesia 2018 minimum price $855/tonne Brazil 35.9% 2018 Thailand 2018 minimum price $855/tonne China 21.9% 2018 Singapore 2018 minimum price Thailand 2% 2018 Mexico Indonesia 10.62% to 20.66% 2018 Brazil 38% 2013 2019 | Fastmarkets | RISI Outlook Presentation 9
Despite tariffs, cut size imports back near peak market share in USA US cut size demand by source 400 30% 22.5% Domestic supply Offshore imports Offshore import share (R.) 350 25% 300 Offshore share of US cut size in 2014 Thousands of tonnes 20% 250 12.9% 200 15% 150 10% Offshore share of US cut size in 2018 100 5% 50 0 0% 2012 2013 2014 2015 2016 2017 2018 2019 2019 | Fastmarkets | RISI Outlook Presentation
Effect of tariffs on US cut size imports IMPORTS FROM FIVE TARIFF TARGET COUNTRIES IMPORTS FROM NON-TARIFF COUNTRIES 300 10% 900 25% 9% 800 250 8% Thousand tonnes 20% 700 Share of US demand Share of US demand 7% Thousand tonnes 200 600 6% 15% 500 150 5% 400 4% 10% 100 300 3% 200 2% 5% 50 100 1% 0 0% 0 0% Portugal Indonesia Israel South Korea Finland China/Hong Kong Brazil Thailand Colombia All others Australia Five-country import share Import share 11 2019 | Fastmarkets | RISI Outlook Presentation 2019 estimated based on 5 months of US customs data.
Indonesia shifting US exports to rolls after tariff hike Cut size Offset rolls Other (rolls or sheets) Rolls share of total (R.) 50% 250 60% 50% 200 Share for rolls for Indonesian exports to USA in 2019 40% Thousand tonnes 150 30% 100 20% 50 10% 0 0% 2019 | Fastmarkets | RISI Outlook Presentation 2019 estimated based on 5 months of US customs data.
Global coated paper machine shuts/conversions, 2019-2020 COMPANY MILL COUNTRY CAPACITY 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 2019 Convert a PM to specialty Stora Enso Oulu Finland -1,080,000 CFS End of 2020 Shut PM6, convert PM7 to kraftliner Arjowiggins Bourray, Besse-sur-Braye France -348,000 CFS 2019 Q1 Mill closure UPM Plattling Germany -155,000 CME 2019 Q3 Shut PM10 ND Paper Biron USA -103,000 CME Q3 2019 Shift PM25 to packaging New-Indy Catawba USA -310,000 CME n/a Potential conversion to packaging Verso Luke USA -408,000 CFS 2019 Q3 Shut by June 30th Nippon Paper Ind. Fuji Japan -33,000 CME 2019 Shut PM11 APP Tijwi Kimia Indonesia -245,000 CFS 2019 Convert 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 Global totals -601,000 CME -2,835,000 CFS -3,436,000 total Note: There are currently no major coated paper capacity expansions occurring globally. 2019 | Fastmarkets | RISI Outlook Presentation 13
Global uncoated woodfree prices 1,500 US 20 lb copy paper W. Europe A4-B HOW LARGE OF A GLOBAL PREMIUM CAN THE USA Brazil domestic cut size Southeast Asia 70 gsm UWF 1,400 MAINTAIN? 1,300 • Brazilian prices can jump above US 1,200 levels due to currency swings, premium versus offshore imports. USD/tonne 1,100 • US and European prices have historically been close, but wide gap 1,000 has re-opened due to tighter US 900 market. • Asian gap with US prices at all-time 800 peak of more than $300/tonne in 700 early 2019. 600 14 2019 | Fastmarkets | RISI Outlook Presentation
Signs that printing & writing profitability has peaked MARKETS HAVE ALREADY STARTED TO WEAKEN • Weak demand, more capacity startups and falling costs for fiber in Asia 2-5 % • US producers forced to roll back some of 2019 UWF price hike despite G-P closure AFTER SPIKING, MILL COST INFLATION IS ABATING Mexican USD P&W prices down 2-5% y-o-y in 3Q19 • Pulp prices in decline • Energy down sharply, albeit starting to recover RISE IN IMPORTS 5-15 % • Global oversupply will increase competition • Stronger US dollar and some tariff reductions Brazilian P&W prices down 5-15% in REDUCED CONVERSION OPPORTUNITY first half of 2019 • Less room for new containerboard machines, global economic risks 15 2019 | Fastmarkets | RISI Outlook Presentation
Next moves for US printing & writing prices will be down $1,300 US PRICES 5-12% ABOVE YEAR-AGO LEVELS IN EARLY 2019 $1,200 • No room for any further gains even $1,100 with major capacity closures. • Prices for most grades have already $1,000 begun to erode. US dollars per cwt • Any potential recession likely to $900 trigger larger demand declines and result in price drops. $800 $700 2011 2012 2013 2014 2015 2016 2017 2018 2019 SC-A Ctd. No. 5 40 lb Ctd. No. 3 60 lb. Unc. offset 50 lb. Cut size copy 16 2019 | Fastmarkets | RISI Outlook Presentation
North American containerboard producers are taking economic downtime to address slower demand growth 33 4% 32 3% 31 2% 30 1% Million tonnes 29 0% 28 -1% 27 -2% 26 -3% 25 -4% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Demand Demand % change Corrugated boxes % change 17 2019 | Fastmarkets | Global Containerboard and Boxboard Outlook
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