Fastmarkets RISI Global Graphics Outlook. Key issues from the seminar and conference

Transcription

1 Fastmarkets RISI Global Graphics Outlook Key issues from the seminar and conference 1

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3 Lagging in global economic growth Lower advertising expenditures Lower consumption Global graphic market is weaker than expected Differences mostly driven by newsprint Digitization of printed products not slowing down in fact it accelerated 94.0% 92.0% Global graphics operating rates Heightened level of economic and geo-political uncertainty 90.0% 88.0% 86.0% Pressure building within the entire 84.0% 82.0% graphics industry value chain 80.0% Graphics now Graphics before

4 Graphic markets peaked in Price Production costs Operating rate 98.0% 96.0% Newsprint North America - 900k USD per tonne Capacity driven Restarts and demand reductions are loosening the market 94.0% 92.0% 90.0% 88.0% 86.0% The issue was not about how much we predicted markets to tighten 450k But about how fast markets eased after peaking % 4

5 Tariffs influenced prices Source of papers in the USA per region, percent of total Newsprint from Canada Europe US domestic Canada SC-Umec Newsprint 0% 20% 40% 60% 80% Originally set as high as 32%, tariffs affecting Canadian newsprint producers were removed at the end of August last year Uncoated mechanical from Canada Tariffs also set back to zero and refunded retroactively back to August Tariffs originally set at 18-20% Uncoated freesheet cut size paper In place since 2015 Tariffs ranging from 10% to 320% for various Chinese producers Coated freesheet from China and Indonesia In place since 2010 Tariffs ranging from 30% for APP to 340% for Sun Paper 5

6 Prices currently lagging market fundamentals Demand to decline 11% for a third consecutive time in % 96.0% 94.0% Newsprint North America 2 billion In savings on marketing budgets USD per tonne % 90.0% % % Price Operating rate 84.0% M&A and bankruptcies among printers accelerated since 2017

7 The USA is not the only one Average price increases % 0% 10% 20% 30% 40% 50% 60% Newsprint volume lost to high prices -5% Average demand reduction % -15% -20% -25% Volume loss: 130,000 Decline 2018: 9% Average decline: 6% Europe USA Volume loss: 90,000 Decline 2018: 11% Average decline: 8% Volume loss: 300,000 Decline 2018: 20% Average decline: 7% Asia Thousand tonnes

8 China importing more Thousand tonnes 1, Newsprint is the grade most impacted given its exposure to high prices and low availability of papers for recycling (PfR) Newsprint imports rose from less than 50,000 tonnes in 2016 to more than 320,000 tonnes in 2017, and are expected to reach more than 700,000 tonnes by Where are the volumes coming from? -1,000-1,500-2,000 Newsprint UWF CWF Exports (thousand tonnes) Europe Asia USA Canada

9 Coated woodfree also impacted Global impact is estimated at almost 1.0 million tonnes About 1% of global graphic paper demand Newsprint Umec Cmec UWF CWF Most impacted grades are newsprint and coated woodfree. Interestingly at the top and the bottom of the graphic paper spectrum Coated mechanical is the only grade benefiting from higher paper prices (grade shifting) Thousand tonnes

10 Uncoated woodfree 10

11 Closure of PM3 & PM4 at Port Hudson, LA Removal of 630,000 tonnes by mid-march It will mean the complete exit of G-P from the white paper business G-P: the fourth-largest producer of uncoated woodfree After G-P exit, 71% of the North American industry will be controlled by three players 92.0% 91.0% 90.0% 89.0% 88.0% Global uncoated woodfree market to strengthen Following closure of G-P Port Hudson Operating rates USA will not be short in paper, as imports are expected to pick up Europe will benefit from this development 87.0% 86.0% 85.0% Now Before

12 Global machine shuts/conversions, COMPANY MILL COUNTRY CAPACITY DATE Flambeau Park Falls USA 77,000 Q PCA/Boise Wallula USA 70,000 Q Georgia-Pacific/Koch Camus USA 215,000 Q International Paper Selma USA 213,000 Q Georgia-Pacific Port Hudson USA 630,000 Q Copamex Anahuac Mexico 185, Million tonnes of closures and conversions 67% of the reductions happening in the USA Despite these closures, global markets are expected to be weaker UPM Nordland Germany 200,000 Q Nippon Fuji Japan 86,

13 Global machine start-ups, Almost 1.1 million tonnes more than closures and conversions COMPANY MILL COUNTRY CAPACITY DATE Ittihad Paper Abu Dhabi UAE 325,000 Q Sun Paper Yanzhou, Shandong China 200,000 Q Shandong Chenming Shouguang, Shandong China 510,000 Q Shandong Chenming Shouguang, Shandong China 500,000 Q Shandong Bohui Shandong China 500,000 Q Shandong Bohui Shandong China 600, Malaysia Newsprint Industries Mentakab Malaysia 250,000 Q Million tonnes of new capacity 80% of the increases will happen in China Operating rates in China falling below 85% Almost 1.1 million tonnes more startups than closures/conversions

14 The world will need less capacity Thousand tonnes 8,000 6,000 4,000 Million tonnes 2,000 0 Change in demand and capacity, global graphics ,000-4,000-6,000 Demand Capacity

15 No more safe havens 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 15

16 European economy also slowing down Europe reached the top of the business cycle in 2017 Differences mostly driven by woodfree Clear difference between woodfree grades and publication papers (mechanical and newsprint) 94.0% 92.0% Operating rates Prices have increased considerably since 2017 European exports constrained by capacity reductions and weak global demand for graphics 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% Graphics now Graphics before

17 Clear difference between woodfree grades and publication papers Changes % Operating rates Capacity 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% Publication Woodfree Demand Publication Woodfree ,000 1,500 2,000 Thousand tonnes

18 There is a difference from a demand point of view Woodfree declining almost twice as fast 6.0% 4.0% 2.0% Publication -4.9% -5.1% -6.4% Woodfree -2.8% -4.9% -5.4% 0.0% -2.0% % decline in demand Increased popularity of substitute grades is partly responsible for this trend -4.0% -6.0% -8.0% Coated mechanical increasingly used instead of coated woodfree Super-bright uncoated mechanical papers also substituting for uncoated woodfree -10.0% Publication Woodfree

19 Coated paper dynamics are changing Woodfree less exposed to a single end use 10.0% 5.0% 0.0% % decline in demand % Cmec CWF 50% 40% 30% 20% 10% 0% -5.0% -10.0% -15.0% -20.0% Coated mechanical outperforming woodfree since 2017 Coated woodfree demand losses rose from 3% per year to 7% in 2018 and % CWF Cmec There is something else accelerating demand losses

20 Prices have increased considerably since 2017 Reasons for the increases differ between woodfree and publication papers % Higher prices vs January March 2015 = 1 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Latest Newsprint Umec Cmec UWF CWF Grade with smallest increase: coated mechanical For woodfree, increases are more related to higher production costs For publication papers, increases have also been influenced by tighter market balances

21 Publication papers Woodfree papers Newsprint Umec Cmec Fiber furnish composed mostly of mechanical pulp (mostly integrated) and papers for recycling UWF CWF Mostly produced with chemical pulp Production largely not integrated into pulp Coatings and fillers account for up to 50% of the furnish for coated woodfree Fillers account for up to 25% of the furnish for uncoated woodfree 0% 20% 40% 60% 80% 100% PfR Mechanical pulp PfR Chemical pulp

22 How much effect from higher prices? Thousand tonnes 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 European demand, graphic papers Thousand tonnes

23 OPPORTUNITIES RISING FOR EUROPEAN PRODUCERS AROUND THE GLOBE

24 European producers are not exporting more High volatility due to changing global markets and capacity reductions in EU Thousand tonnes Global demand decline, the USA in particular, and capacity closures in EU EU capacity closures European graphics LARGEST TRADE PARTNERS Africa 450 Middle East 400 Weaker euro Latin America 350 China fiber restrictions 300 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 Far East/Oceania North America 0 2 Million tonnes

25 US prices above European prices China prices have skyrocketed due to capacity closures, effects from PfR imports ban and tight global market conditions North American (Canadian) producers the largest threat for EU exports, as they will boost exports to contain the drop in operating rates USD per tonne Newsprint exports Exports decreasing to India but increasing to China 1, Million tonnes China Germany USA

26 US prices above European prices since weakening of the euro in 2014 Exports rising, primarily to the United States, where closures have pushed operating rates close to 100% Tight market conditions in European publication markets limiting gains USD per tonne Coated mechanical exports Overall exports rose by more than 10% in ,200 1,100 1,000 Million tonnes China Germany USA

27 Europe exporting more to North America due to high prices in the USA and more than 11% reduction in capacity in 2018 Coated woodfree exports Exports declined considerably in 2018 All other regions in decline due to the weakening in the economy and higher paper prices USD per tonne 1,300 1,200 1,100 1,000 Million tonnes China Germany USA

28 Production-demand balance in Europe Thousand tonnes ,000-1,500-2,000-2, * Bad export years Good export years Million tonnes of capacity reductions by ,000 DEMAND PROD CAP

29 Capacity changes in Europe, Assumptions accounting for 50% of the total European capacity changes, GRADE COMPANY MILL COUNTRY CAPACITY DATE Newsprint Volga Balakhna Russia Cmec Sappi Lanaken Belgium Cmec Burgo Verzuolo Italy Cmec Burgo Verzuolo Italy UWF UPM Nordland Germany CWF Scheufelen Lenningen Germany CWF Feldmuehle Uetersen Germany Net change Assumptions Newsprint Umec Cmec UWF CWF -1,500-1, Thousand tonnes

30 Take home points Global graphic markets easing due to weakness in global economy High paper prices have accelerated demand losses Globally, up to 1.0 million tonnes or an additional 1% of demand lost in 2018 In Europe, about 600,000 tonnes by 2020 No more safe havens China is no longer the growth engine of the world Packaging papers becoming oversupplied (slowing demand + large number of projects within the next three to five years) Increased competition in export markets Producers using exports to limit losses in operating rates (newsprint in North America) Demand slowdown is reducing opportunities globally 05 Capacity closures will still be needed to compensate for production losses 30

31 Thank you PAPER TRADER EUROPE