Global Printing & Writing Outlook

Transcription

1 Global Printing & Writing Outlook Fighting to survive in a declining market October, 2016 John Maine Vice President, World Graphic Paper

2 John Maine VP Global Graphic Papers Co Founder of Resource Information Systems, Inc. With RISI for 37 years Developed RISI P&W models Works with more than 200 graphic paper clients worldwide Assisted by five local economists in RISI regional offices Directs numerous single and multi client studies on graphic paper 2

3 Some Definitions Graphic Paper Newsprint Uncoated Mechanical (Ume) Directories, paperback books, newspaper inserts, low end magazines/catalogs Uncoated Woodfree/Freesheet (UWF or UFS) Office copy paper, envelopes, offset printing, direct mail, books, forms, carbonless, tablets, stationery, specialties Coated Mechanical (Cme) Magazines, catalogs, newspaper inserts Coated Woodfree/Freesheet (CWF or CFS) High end magazines and catalogs, commercial printing, brochures, photo printing, menus, posters, displays, direct mail Tonnes = metric ton (2,205 lbs); tons = short ton (2,000 lbs) 3

4 Summary of Recent Events Demand Drivers Global GDP remains below normal due to sluggish developed economies, recession in Latin America and moderation in Asia The move to electronic media and communication is accelerating globally, with the possible exception of books where high price policy for e books is hampering its growth Magazines and newspaper inserts are leading the collapse Printing & Writing Paper Demand Sliding 1 2% per year globally and accelerated downward in 2015 and 2016 Supply and Trade Oversupply leading to pressure for increased exports and numerous tariff actions to protect local supply 4

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6 Paper & Board Markets Global Graphic Paper Is Buffering Growth in Packaging and Tissue Printing & Writing 1.5 % per year Paper and Board Demand 409 million tonnes (% of total) Newsprint 4 % per year 102 mt 25% 24 mt 6% Tissue +3.5 % per year 35 mt 9% 92 mt 23% Cartonboard/ Other +2 % per year Paper and board demand has been sluggish over the past five years, growing less than 1% per year compared to global GDP growth of 3.4% per year in Global GDP is expected to expand at a pace of 3% in before beginning to accelerate in 2018, while paper and board demand will remain slow. Printing and writing is at 25% of global demand, but declining 156 mt 39% Containerboard +3 % per year 6 6

7 Global P&W Demand Declining Steadily, with the Largest Hit in the Mechanical Grades Percentage Change in Global Demand by Grade Coated Freesheet Coated Mechanical Uncoated Freesheet Uncoated Mechanical Printing & Writing Prelim Average -0.3% -0.7% -1.1% -1.6% -3.6% -1.5% -3.8% -3.2% -6.1% -3.5% -5.7% -4.4% +1.0% -0.2% +0.1% -0.7% -0.7% -0.1% -3.9% -7.4% -0.7% -3.9% -5.9% -4.4% -0.7% -1.7% -1.1% -1.7% -2.7% -1.7% 7

8 P&W Paper Demand Forecast for Shows Slow Decline, but Varies by Region Thousand Tonnes, Percent per Year 1,514 ( 2.8%) 1,834 ( 3.1%) 147 (0.8%) 103 (0.1%) 94 (1.5%) 90 ( 0.5%) 96 (1.4%) 51 ( 1.3%) Three year total growth in tonnes (Three year average % change) 8 Global 3,049 ( 1.0%) 8

9 World Uncoated Freesheet Demand Million Tonnes, Percent Change North America %ch 0% 5% 0% 3% 3% 2% Western Europe %ch 3% 1% 2% 2% 2% 1% Eastern Europe %ch 1% 0% 1% 1% 1% 1% Far East %ch 1% 0% 1% 1% 1% 1% Latin America %ch 0% 2% 6% 3% 0% 1% Middle East, Africa, Oceania %ch 4% 2% 5% 1% 1% 2% Total %ch 0% 1% 1% 0% 0% 0% 9

10 World Coated Freesheet Demand Million Tonnes, Percent Change North America %ch 1% 0% 3% 3% 1% 2% Western Europe %ch 5% 1% 4% 4% 4% 3% Eastern Europe %ch 3% 1% 10% 0% 1% 2% Far East %ch 1% 1% 2% 2% 1% 0% Latin America %ch 7% 3% 9% 3% 0% 1% Middle East, Africa, Oceania %ch 3% 13% 2% 1% 1% 0% Total %ch 1% 2% 4% 2% 2% 1% 10

11 World Coated Mechanical Demand Million Tonnes, Percent Change North America %ch 8% 7% 11% 10% 4% 3% Western Europe %ch 8% 3% 5% 5% 5% 5% Eastern Europe %ch 6% 2% 6% 0% 1% 2% Far East %ch 3% 4% 2% 2% 4% 2% Latin America %ch 5% 5% 7% 2% 1% 2% Middle East, Africa, Oceania %ch 3% 4% 3% 1% 1% 2% Total %ch 6% 3% 6% 4% 3% 3% 11

12 World Uncoated Mechanical Demand Million Tonnes, Percent Change North America %ch 4% 6% 12% 5% 2% 2% Western Europe %ch 4% 5% 2% 2% 3% 2% Eastern Europe %ch 4% 0% 9% 1% 2% 2% Far East %ch 2% 3% 2% 0% 1% 0% Latin America %ch 0% 4% 17% 5% 1% 0% Middle East, Africa, Oceania %ch 4% 2% 11% 1% 1% 1% Total %ch 1% 4% 6% 2% 2% 1% 12

13 Paper & Board Markets N America Printing & Writing 3% Per year Paper and Board Demand 77 million tonnes (% of total) Newsprint 7% Per year 19 mt 25% 4 mt 5% Tissue 9 mt 12% 30 mt 39% +2% Per year 16 mt 21% Cartonboard/ Other +2% Per year Graphic paper demand remains challenged by the ongoing decline of print publishing. P&W declines of 5% annually in past two years are below average and exacerbated by unusual cuts in newsstand/single-copy sales of magazines, newspaper inserts and the demise of print directories. Rates of decline should abate now that major cuts in threatened markets (e.g., directories) are done. We expect North American P&W demand to decline 3% annually. Containerboard +2% Per year 13

14 Overall US P&W Demand Down Sharply in First Seven Months of 2016 US Apparent Consumption, Thousand Tonnes, Seasonally Adjusted Coated Freesheet Coated Mechanical Uncoated Freesheet Uncoated Mechanical ,432 2,617 7,568 3,070 % Change -3.1% -11.5% -0.1% -12.5% 7 Months ,964 1,360 4,290 1,647 % Change -4.3% -12.5% -3.7% -7.6% RISI Forecast for % -10.9% -3.6% -6.4% RISI Forecast for 2017/ % -4.1% -2.6% -2.2% 14

15 North American UFS Demand by Grade Million Tonnes, % Change Offset & Opaque %ch 9% 2% 2% 5% 4% Business (Cut Size) %ch 2% 1% 5% 2% 1% Envelope %ch 5% 4% 1% 4% 3% Cover & Text %ch 10% 7% 12% 4% 4% Formbond %ch 9% 9% 2% 7% 4% Carbonless %ch 16% 8% 8% 5% 5% All Other * %ch 8% 4% 3% 3% 3% Total %ch 5% 0% 3% 3% 2% * Includes cotton and bristol. 15

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17 Circulation of Printed Magazines in N. America Declined 1% in 2015, 1.3% in First Half % Circulation Per Issue: Millions Circulation % Change (R) 1.0% 4% 2% 0% 2% 4% 6% 8% Source: Alliance for Audited Media & RISI; includes consumer, farm, religious, paid & verified and analyzed nonpaid, excludes digital

18 Magazines Distributed for Single Copy Sales Are the Primary Source of Magazine Circulation Declines Millions of Copies Distributed % % % % % Unit Draw %chya (R) 2011Q1 Q2 Q3 Q4 2012Q1 Q2 Q3 Q4 2013Q1 Q2 Q3 Q4 2014Q1 Q2 Q3 Q4 2015Q1 Q2 Q3 Q4 2016Q1 Q2 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Source: Magnet. Note that actual copies sold is only about 30% of copies distributed; data are for North America

19 The Decline in Magazine Ad Pages Is the Primary Factor Driving Down Paper Use and the Slide Is Continuing in % Percentage Change in PIB Magazine Ad Pages 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 Annual % % % % % % 2013Q1 2014Q1 2015Q1 %Ch Year Ago 2016Q1 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Includes Sunday magazines and the effect of discontinued print editions 30.0% 19

20 US Catalog Mailing Declined 3.5% in 2015, Showing Moderate Declines in First Half % %Ch Year Ago Percentage Change in Catalogs Mailed 0% -5% -10% -15% 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 Annual % % % % % -20% 20

21 US Postal Mail Volumes Standard mail advertising falling modestly USPS Forecast Pieces of Mail 2016 First Class -3.2% Standard -1.6% Mail Periodicals -5.1% Total Mail -2.1% Billion Pieces * 2016=USPS forecast from operating plan First Class Std A Mail Periodicals (R) 2016* Postal Fiscal Years

22 Real Dollar Sales for US Commercial Printing Recent growth coming from digital and services 8,500 Million Real 2003$ per Month 8,000 7,500 7,000 6,500 6,000 Recession Annual Growth % % % % 2016H1 +0.2% 5,

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24 Tariffs Popping Up Globally as P&W Trade Soars Declining demand and oversupply prompting producers to search for export demand The USA is an obvious target Strong dollar leads to high prices in USA Large buyers in financial stress looking to save money Large, well defined and open market (before tariffs) Many mill closures open the door for shift in supply sources 24

25 Three Key Areas Currently Subject to Import Tariffs into the USA Coated sheet imports from China and Indonesia since 2010 Five year review affirmed continuation of CVD tariffs on China of 19% to 203% and on Indonesia of 18% ADD duties also remain in place at 8% to 136% for major China producers and 20% for Indonesia Canadian SC producers paying 18 20% tariff since mid 2015 Expedited review underway for two non respondents caught in the net CVD or ADD tariffs now in place for copy paper imports from all major current offshore suppliers 25

26 US Market Share for Coated Sheets by Source of Supply Chinese/Indonesian shares dropped from 25% to near 0% Europe and other Asian producers filled the gap Resulted in very little market share gain for North American producers 70% 60% 50% 40% 30% 20% 10% 0% Percent N. America Europe China/Indonesia Other Asia Tariffs Applied to China/Indonesia 26

27 Mill Cash Costs for SC Paper Delivered to the US Market Europe goes from high cost in 2013 to low cost in 2016 US Dollars per Ton $800 $700 $600 $500 $400 $300 $200 $100 $0 Price Range in 2013 Q1 2013, 0.99 USD/CAD, 1.32 USD/EUR Price Range in 2016 Europe Canada USA Europe Canada USA Mill Costs Delivery to Chicago Tariff Source of cost data: RISI Cornerstone Cost Benchmarking Service Q1 2016, 0.73 USD/CAD, 1.10 USD/EUR 27 27

28 Strong Dollar, Tariffs on Canadian SC and Madison Mill Shut Will All Lead to a Rise in SC Imports as European Mills Increase Share of North American Demand from 16% in 2015 to 23% by 2017 SC Imports into North America Imports Share of Demand % 21% 19% 17% 15% 13% Import Share of Demand 28

29 North American Demand for Ume SC Is Declining Rapidly in 2015/2016 as Market Share Gains from LWC Become Limited Thousand Tons 3,500 3,000 2,500 2,000 1,500 1, North American SC Demand SC Demand Growth % % % % %

30 Final Tariffs in Place for All Major Offshore Suppliers of Cut Size Copy Paper to USA ADD CVD Combined Australia Paper 222% 222% Suzano 22% 22% Portucel 8% 8% April Indonesia 2% 21% 23% APP Indonesia 17% 109% 126% Asia Symbol (China) 84% 7% 91% APP China 149% 7% 156% UPM China 149% 177% 326% Sun Paper China 149% 177% 326% Two of these suppliers remained in the market throughout A third supplier returned to the market in January 2016 after lower final rates announced 30

31 US Imports of Cut Size Copy Paper from Five Tariff Target Countries Imports, Thousand Tonnes Portugal Indonesia China/HK Brazil Australia Five Country Import Share mo 2016 annualized estimate from seven months of data 25% 20% 15% 10% 5% 0% Import Share of Demand 31

32 US Imports of Cut Size Copy Paper from Non Tariff Target Countries Imports, Thousand Tonnes All Others Israel Germany Finland Thailand France Import Share mo 2016 annualized estimate from seven months of data 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Import Share of Demand 32

33 New 8½ x 11 Sheeters Coming on Line in September to December 2016 in Non Tariff Countries Indicates Intention to Sell More in USA and Canada Carvajal, Colombia Hankuk, Onsan Mill, South Korea Taiwan Pulp and Paper, Hsin Ying Mill, Taiwan Thai Paper, Ban Pong Mill, Thailand 33

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35 Global Printing & Writing Capacity Is Shrinking, but Not Fast Enough to Push Global Operating Rates Back Above 90% Recent operating rates of 88% indicate weak global market Change in Global Capacity (%) 1.0% 0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Change in Capacity Operating Rate (%) 93% 92% 91% 90% 89% 88% 87% 86% 85% 84% 83% Global P&W Operating Rate (%) 35

36 North American Coated Paper Operating Rates Big drop in the second quarter of 2016 indicates weak market and likelihood of upcoming shuts 100% 98% 96% 94% 92% 90% 88% 86% 84% Coated Freesheet Coated Mechanical

37 North American Uncoated Paper Operating Rates UFS market tighter due to import tariff and capacity shuts 100.0% 98.0% 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% Uncoated Mechanical Uncoated Freesheet

38 Industry Financial Outlook 38

39 Mill Cash Costs Began Rising in Mid 2016, but Will Still Decline on an Annual Basis Outsized slide in Ume costs driven by falling Canadian dollar 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% Percent Change in Mill Cash Costs in US Dollars for Average of All Existing North American Mills UFS Cut Size CFS Offset Ume Excludes tariff costs for Canadian mills, which may offset cost decline in

40 US Prices Are Persistently and Unprecedentedly Far Above European Prices Due to the Strong Dollar, Which Is Limiting Opportunity for US Price Hikes and Drawing in More Imports from Europe Price of 20 lb. Copy Paper US Dollars per Ton $1,250 $1,150 $1,050 $950 $850 $750 $650 USA Europe (A4B) Europe (in Euros) $62.5 $57.5 $52.5 $47.5 $42.5 $37.5 $32.5 US Dollars per CWT 40

41 Similar Story for Coated Papers $1,000 $950 $900 USA Europe Europe (in Euros) $50.0 $47.5 $45.0 Price of 40 lb. LWC US Dollars per Ton $850 $800 $750 $700 $650 $600 $550 $42.5 $40.0 $37.5 $35.0 $32.5 $30.0 $27.5 US Dollars per CWT 41

42 Publishing Paper Prices Coated looking cheap relative to uncoated US$/cwt $54 $50 $46 $42 SC A Ctd. No lb Ctd. No lb. Unc. Offset 50 lb. $38 $

43 Price to Mill Cash Cost Margins Average for all existing North American mills Price/Mill Cash Costs UFS Copy Paper Forecast Ume SC A Newsprint CFS 60 lb. rolls Cme/LWC 40 lb SC margin is before impact of tariff on Canadian mills 43

44 Thank you for your attention! For more information: World Graphic Paper 5 Year Forecast Global Cut Size Uncoated Freesheet Study China s Influence on World Graphic Paper Markets in the Coming Decade 44