Global Pulp Market Outlook

Transcription

1 Global Pulp Market Outlook Nearing a Cyclical Peak or in the Midst of a Prolonged Upturn? RISI North American Forest Products Conference October 2018 David Fortin VP, Fiber Economic Analysis Copyright 2018 RISI, Inc. Proprietary Information

2 Agenda Review of recent market conditions Shocks to both the demand and supply side of the market Outlook for the global pulp market Outlook for demand via paper and board production Planned pulp capacity expansion Review of BHK and BSK cost curves Pulp forecast summary Copyright 2018 RISI, Inc. Proprietary Information 2

3 Shocks to Both Supply and Demand Recent Market Conditions China s aggressive import policy changes impact global fiber and paper market Synchronized growth in the global economy Dramatic increase in pulp prices Copyright 2018 RISI, Inc. Proprietary Information 3

4 Major RCP Policy Changes in China New RCP import management system Mixed paper ban in effect as of January 1, 2018 New contamination level of 0.5% took effect on March 1, 2018 Latest updates China inspecting ALL containers from the USA since early May CCIC now performing pre inspection of ALL exports to China 25% tariff on RCP imports since late August China to ban ALL RCP imports by 2020!!! Copyright 2018 RISI, Inc. Proprietary Information 4

5 The Impact of China s RCP Import Policy Changes RCP Imports, Thousand Tonnes China RCP Imports RCP Fiber Loss 30,000 16,000 25,000 20,000 15,000 10,000 5,000 Mixed Other RCP Regulatory Loss Other RCP 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Mixed Paper Ban 0.5% Standard Pulping Loss 11,600 Virgin Pulp Finished P&B Domestic Collections RCP Loss Fiber Needed Solution Copyright 2018 RISI, Inc. Proprietary Information 5

6 Chinese Policies Have Resulted in Increased Domestic RCP Price Levels and Volatility Imported and Domestic OCC Prices, US Dollars per Tonne Imported OCC, USD/Tonne Domestic OCC, USD/Tonne Copyright 2018 RISI, Inc. Proprietary Information 6

7 Synchronized Growth in the Global Economy Purchasing Managers Indices Global Official Caixin Copyright 2018 RISI, Inc. Proprietary Information 7

8 Chinese Domestic Prices for Pulp Rebound Quickly China Domestic Resale and Imported Pulp Prices 7,700 7,200 6,700 NBSK Local, RMB (Left) NBSK Local, US$ ex VAT NBSK Import Net Price, US$ $1,100 $1,000 7,700 7,200 6,700 BEK Local, RMB (Left) BEK Local, US$ ex VAT BEK Import Net Price, US$ $1,100 $1,000 6,200 $900 6,200 $900 5,700 5,200 $800 5,700 5,200 $800 4,700 $700 4,700 $700 4,200 3,700 3,200 $600 $500 4,200 3,700 3,200 $600 $500 2, $400 2, $400 Copyright 2018 RISI, Inc. Proprietary Information 8

9 BSK Producers Maintain Price Premium to BHK Gross Pulp Prices, Delivered to China, US Dollars per Tonne 1, Spread BSK BHK (R) NBSK USD/Tonne BEK USD/Tonne Average Spread Source: RISI. Copyright 2018 RISI, Inc. Proprietary Information 9

10 Shocks to Both Supply and Demand Recent Market Conditions (Cont d) Unexpected downtime continues to impact the market Mixed messages from near term indicators Putting the latest price run in context Copyright 2018 RISI, Inc. Proprietary Information 10

11 Supply Disruptions Completely Offset the Wave of Recently Started Capacity Large capacity additions started in 2017 ramping up in 2018 OKI mill in Indonesia estimated at around 2 million tonnes Fibria s new line at Três Lagoas now fully ramped up Metsä Fibre s new line in Finland expected to be running at full capacity in the third quarter SCA Ostrand now running Unexpected downtime helped to counterbalance new capacity Suppliers are taking offsetting steps as new lines reach full capacity Fibria continues to take downtime at the Aracruz mill APP has been deliberate about new OKI tonnage and adjusted timeline for planned maintenance downtime in 2018 Copyright 2018 RISI, Inc. Proprietary Information 11

12 Unexpected Downtime Continues at a Lower Rate Capacity Lost to Unexpected Downtime, Thousand Tonnes Company Mill Country Grade (Comment) Days Capacity / Day Total Idle Start Regionwide Nordics NBSK (Exceptionally Warm Winter) Q3 Fibria Aracruz Brazil BEK (Proactive Downtime) Q3 AV Group Terrace Bay Canada NBSK (Lightning Strike) Q3 Fibre Excellence Tarascon France SBSK (Upgrades to Environmental Controls) Q3 Södra Cell Mönsterås Sweden NBSK (Unexpected Shut) Q3 Hyogo Pulp Tanigawa Japan USK (Boiler Explosion) Q3 Domtar Plymouth USA FLF (Hurricane Florence) Q3 IP Riegelwood USA SBSK/FLF (Hurricane Florence) Q3 IP Georgetown USA FLF (Hurricane Florence) Q3 IP New Bern USA FLF (Hurricane Florence) Q3 Canfor Northwood Canada NBSK (#5 Recovery Boiler Repair) Q3 Third Quarter Net Total (Rated Capacity) 230 Year to Date Unexpected Downtime 1,257 Copyright 2018 RISI, Inc. Proprietary Information 12

13 Near Term Conditions and Trends Pulp inventories are low across the industry Unexpected and planned downtime Differences in China between small and large buyers Some recent signs of normalization Paper and board markets entering seasonally strong period Pulp prices are high and paper prices have been rising Pace of paper price gains lagging and margins getting squeezed Exchange rate changes mitigating upward pressure on prices DP/BHK price differential remains narrow Bringing swing capacity back into paper grade for now Copyright 2018 RISI, Inc. Proprietary Information 13

14 Pulp Market in the Midst of an Historical Run Total Change in Gross NBSK Delivered to Europe, US Dollars per Tonne Dec 93 to Nov Apr 09 to Sep 10 Mar 16 Present Dec 85 to Mar Copyright 2018 RISI, Inc. Proprietary Information 14

15 Copyright 2018 RISI, Inc. Proprietary Information 15

16 Producers Generating Near Record Margins Net NBSK Price/Average Variable Cost of High Cost Producer, Delivered to Europe Mar 2016 to Present Dec 1985 to Mar Copyright 2018 RISI, Inc. Proprietary Information 16

17 Meanwhile, Paper Producer s Margins Squeezed BEK/High Quality Virgin Parent Roll Price Ratio, Delivered to USA BEK/Parent Roll Linear (BEK/Parent Roll) 0.3 Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Oct 2017 Jan 2018 Apr 2018 Jul 2018 Copyright 2018 RISI, Inc. Proprietary Information 17

18 Strong US Dollar Increases Fiber Costs for Non US Pulp Consumers Slightly Currency Units per Tonne, Indexed, January 2017 = BEK Delivered to Europe 2.1 BEK Delivered to China BRL USD EUR BRL USD RMB Copyright 2018 RISI, Inc. Proprietary Information 18

19 A Dearth of Supply and Strong Demand Pulp Outlook Solid growth in end use markets supports pulp consumption growth Limited growth in supply for both BSK and BHK Market grows tighter Copyright 2018 RISI, Inc. Proprietary Information 19

20 World Production of Paper and Board Accelerating, but Very Slowly Percentage Change in Production of Graphic, Packaging, Specialty and Tissue Paper 8.0% 6.0% 4.0% 2.0% 2.1% 4.0% 3.0% 6.6% 1.1% 0.3% 1.0% 0.9% 0.2% 1.2% 1.7% 1.9% 1.9% 1.7% 0.0% 2.0% 0.6% 4.0% 6.0% 8.0% 5.3% Copyright 2018 RISI, Inc. Proprietary Information 20

21 Most of the Growth in the Paper Industry Is in Packaging with a Modest Effect on Market Pulp Production of Paper and Board by Grade, Thousand Tonnes Packaging/Specialty P&W Tissue News Tissue + P&W Copyright 2018 RISI, Inc. Proprietary Information 21

22 Relatively Little BHK Capacity Expansion Suzano (Brazil) 90,000 tonnes incremental at Maranhão mill, net of integration into tissue ENCE, Altri, Navigator (Iberia) 250,000 tonnes in incremental projects net of integration into tissue APRIL Kerinci (Indonesia) Further conversion to DP 200, ,000 tonnes, Asia Symbol Rizhao (China) Beginning conversion to DP 200,000 tonnes, ? UPM (Kaukus and Kymi) 150,000 tonnes from debottleneck, Svetlogorsk (Belarus) Started production in November ,000 tonnes in 2018(?) Sun Paper Savannakhet (Laos) Start up in second quarter of 2018 Swing mill: 300,000 tonnes BHK / 250,000 tonnes DP Eldorado/PE (Brazil) Received permit to produce additional 55,000 tonnes Montes del Plata (Uruguay) 100,000 tonnes from debottleneck Chenming Shouguang (China) 1.2 million tonne new line (integrated and delayed) Copyright 2018 RISI, Inc. Proprietary Information 22

23 BHK Cash Cost Curve, 1Q18 Machine Level Costs, Delivered Shanghai, Not Including I, SG&A or Logistics South Africa Asia Europe South America North Amer. Copyright 2018 RISI, Inc. Proprietary Information 23

24 Similar Story for BSK Capacity Expansion UPM (Kaukus and Kymi) 50,000 tonnes from debottleneck, Svetlogorsk (Belarus) 300,000 tonnes, 2018? SCA Östrand (Sweden) 470,000 tonnes, June 2018 Chenming Huanggong (China) 600,000 tonnes, fourth quarter 2018? Swing mill with DP Resolute Saint Felicien (Canada) 30,000 tonnes, upgrades 2018 Mondi Steti (Czech Republic) 70,000 tonnes BSK, late 2018 Oji Tasman (New Zealand) 180,000 tonnes, conversion to UKP, 2019 BillerudKorsnäs Gruvön (Sweden) 130,000 tonnes, integrated to new BM, 2019 Arauco Valdivia 500,000 tonnes, conversion to DP, 2019 Plan to increase DP share as demand increases Stora Enso Enocell (Finland) 320,000 tonnes, conversion to DP, 2019 Copyright 2018 RISI, Inc. Proprietary Information 24

25 BSK Cash Cost Curve, 1Q18 Machine Level Costs, Delivered Shanghai, Not Including I, SG&A or Logistics Asia Europe South America North America NZ Copyright 2018 RISI, Inc. Proprietary Information 25

26 Global Wood Pulp Market Grows Tighter Million Tonnes Market Pulp Consumption Market Pulp Capacity Shipment/Capacity Ratio (R) Copyright 2018 RISI, Inc. Proprietary Information 26

27 Forecast Summary Pulp market will reach a relative balance in the fourth quarter of 2018 Pulp supply will increase as new lines ramp up Chinese pulp demand will ease due to oversupply in paper and board Demand will strengthen seasonally Pulp demand will remain strong due largely to tight fiber supplies in China Market conditions will tighten again into 2019 as capacity expansion slows and demand tracks higher with continued economic growth Risks revolve largely around negative impacts on global economic growth from the simmering trade war Copyright 2018 RISI, Inc. Proprietary Information 27

28 Thank you! For more information: World Pulp & Recovered Paper 5 Year and 15 Year Forecasts World Pulp Monthly Copyright 2018 RISI, Inc. Proprietary Information 28