UFS Market Dynamics April 2018
Nor orth th Am Americ erican an UFS M FS Mar arket et Upda pdate te Improvi Imp ving ng mar market et co cond nditi ition ons s driv driven en by by str stron onge ger r de deman mand d an and r d red educ uced ed supp supply • UFS demand forecast returns to historical decline levels • PPPC 2018 demand forecast decline -3.3% (1% = 80K tons) • Improved economic activity offsetting some of per capita consumption decline • Capacity reductions are adding up • IP and Boise/PCA strategic focus on containerboard growth, leads to conversion of UFS machines • Rising costs and low selling prices lead to poor profitability, closures of marginal producers • Coated producers shifting focus back to coated paper, reducing UFS production • Imports of UFS have declined due to weak USD, global paper price increases, rising transportation costs • Increased pulp pricing, input costs of raw materials and transportation lead to rising pulp and paper prices across the globe • UFS operating rates are increasing, inventories are down reflecting tighter market • Domtar remains firmly committed to UFS in North America www.domtar.com
Nor North th Ameri America can n Ca Capa pacity R city Red educ uctions tions Capacity Reductions Date UFS Reduction % of UFS Capacity Glatfelter Chillicothe Q3 2017 60,000 .7% Appleton Coated Q4 2017 80,000 1% GP Camas Q1 2018 237,000 3% Boise/PCA Wallula Q4 2018 190,000 2.3% IP Riverdale (Selma) Q3 2019 220,000 2.7% Displaced Uncoated Volume (Coated Mills) Various *100,000 1.2% *Domtar Estimate 887,000 10.9% • Capacity reductions of 20% in CFS market will result in operating rates exceeding 100%. CFS producers are less inclined to manufacture UFS as their primary market tightens. Announced closures and conversions will reduce UFS capacity by nearly 11% www.domtar.com
Ca Capa pacity city/Dema /Demand nd Histo History y & & Pr Projec ojection tion 11,500 100.0% 11,000 95.0% 10,500 Thousands of short tons 10,000 90.0% 9,500 85.0% GP Camas 9,000 250K 8,500 80.0% Glatfelter IP Courtland 60K 750K Boise/PCA 8,000 A64 190K IP Selma 75.0% 360K Appleton 220K 7,500 80K 7,000 70.0% Adj. Demand Capacity Oper. Rate Source: PPPC, Fisher, RISI, Domtar estimates www.domtar.com
Impor Imp orts ts of of UFS UFS Ha Have e Dec Decli line ned Cop opy y Pape per Impo r Imports I ts Into nto N.A N.A. . (to (tons/mo ns/mo.) .) Key Factors: 18.0% • Imports have declined 120,000 16.0% 50% since 2015 Imports 90,000 tons/ mth 14.0% 100,000 • Back to historic levels of 12.0% Imports 60,000 tons/ mth 8% of demand 80,000 10.0% • Weakening USD 60,000 8.0% • Global demand 6.0% 40,000 increase 4.0% 20,000 • Price increases 2.0% continue in Europe, - 0.0% Jan 2013 Apr 2013 Jul 2013 Oct 2013 Jan 2014 Apr 2014 Jul 2014 Oct 2014 Jan 2015 Apr 2015 Jul 2015 Oct 2015 Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Latin America and Asia Imports Imports % of Demand Source: PPPC www.domtar.com
Pricing Histor Pricing History y – Key ey UC UCFS FS Gr Grades ades $1,100 $1,050 $1,000 Copy $950 Offset Rolls Forms Bond Envelope $900 $850 $800 Source: RISI www.domtar.com
Mar Market et Pu Pulp lp Price Prices C s Con ontinue tinue to In to Incr crea ease se No North th America merican n List List Pricing Pricing pe per r RISI ISI (AD (ADMT) T) March $1,300 2018 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 Softwood Hardwood Source: RISI www.domtar.com Source: RISI
Input Costs Inp ut Costs Continu Continue to e to Inc Increa ease se MANUFACTURING TRANSPORTATION • Pulp • Carrier capacity constraints • Primary Chemicals/Caustic • Freight increases expected to Soda continue • Specialty Chemicals • Hurricane impact long term • Packaging • Electronic Log Device (ELD) • Boxes and Ream Wrap www.domtar.com
Domta Domtar is r is the the Cl Clea ear r Nor North Americ th American an Le Lead ader er CAPACITY SHARE % OF SALES IN PAPER¹ 60% ALL OTHERS 15% GLATFELTER DOMTAR 7% 37% G-P 8% BOISE 14% 12% 7% 7% IP 22% IP G-P BOISE(PCA) DOMTAR ¹ NA production, estimated based on current capacity announcements As a percentage of business, we are by far the most focused on paper. 8,200K tons www.domtar.com Source: Company reports, Fisher, RISI, Domtar estimates
Do Domt mtar ar is is Co Committ mmitted ed To The Future of Paper EDUCATION ADVOCACY INVESTMENT INNOVATION Marketing & promoting Advocating for the $600M+ invested Research & the benefits of paper interests of domestic annually to maintain Development at our to end users paper producers mills world-class assets and ensure Support for new Providing tools to help Publically refuting best-in-class products customers sell product misconceptions about land-owner initiatives & “print” to their that drive responsible the paper industry forestry management customers practices www.domtar.com
Growing Y Gr wing Your our Busines Business PROTECT & LONG-TERM MOST RELIABLE BROAD RANGE & ADAPTABLE OF BEST-IN-CLASS COMMITTED STRENGTHEN BRAND PRODUCTS REPUTATION SUPPLY CHAIN PARTNERSHIP www.domtar.com
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