Shifts in Regional Consumption for Pulp and Paper
Pat McCarthy
Chair, School of Economics
Director, Center for Paper
p Business and Industryy Studies ((CPBIS))
Georgia Institute of Technology
Atlanta, GA
Overview





2
Objective
Structure of the NA Industry
Regional Pulp and Paper Consumption
Regional Market Shares
Conclusions and Next Steps
TAPPI, November 2006
Objective
 Characterize the NA Industry
 Identify regional consumption and market shares
 Explore shifts and structural differences in the
context of regional consumption
 Next steps
3
TAPPI, November 2006
Objective
 Data Sources
 United Nations – Food and Agricultural Organization (FAO)
 Penn World Table
 Forest Products Laboratory
 US Bureau of Economic Analysis
 Geographic Regions
 Asia,
Asia Europe,
Europe North America,
America South America
  93% of world consumption
  93% of world production
4
TAPPI, November 2006
Objective
 Apparent Consumption
 Production + Imports – Exports
 Inventory data unavailable
 Consumption Categories
 Pulp
p and Paperboard
p
 Paper
 Newsprint, Printing & Writing, Household & Sanitary,
Wrapping & Packaging
5
TAPPI, November 2006
North American Industry
 The
Th North
N th A
American
i
P
Pulp
l and
dP
Paper iindustry
d t iis a mature
t
web
b
of businesses generally characterized by:







6
Hi h
Highest
per capita
i consumption
i iin world
ld across allll
grades
Slower growth than real GDP
High capital intensity
Cost and price based competition
Below cost of capital returns
An aging asset base
Cyclical pricing and profitability. . . . .
TAPPI, November 2006
North American Industry
 Number of US Mills and Companies, 1970 – 2000
7
1970
1975
1980
1985
1990
1995
2000
Number of mills
Paper only
Paperboard only
P l onlyl
Pulp
148
167
26
151
165
24
143
154
31
132
142
32
131
140
29
130
144
30
119
137
28
Number of companies
Percent of single mill companies
264
32.95
256
35.16
247
34.01
224
36.61
212
33.02
201
37.31
184
36.41
TAPPI, November 2006
North American Industry
 US Paper Capacity (tst), 1970 – 2000
Total Paper Capacity only
(in thousand short tons)
(% of total paper capacity)
Newsprint
Coated Free Sheet
Uncoated Free Sheet
Coated Groundwood
Uncoated Groundwood
Tissue and Sanitary paper
Packaging and Industrial Paper
8
1970
1975
1980
1985
1990
1995
2000
26,302
28,849
33,028
37,439
42,314
47,518
49,413
14.42
8.58
25.71
7.63
4.35
17.87
21.44
14.48
9.3
25.06
7.76
4.37
17.07
21.93
15.72
9.58
27.36
7.64
3.85
16.52
19.3
16.34
9.76
27.55
8.80
3.82
14.91
18.8
15.62
10.34
30.02
8.90
4.29
14.79
15.77
16
10.63
32.48
9.22
3.60
15.08
13
14.73
11.83
33.28
9.12
3.75
15.21
12.06
TAPPI, November 2006
North American Industry
 Return on Capital (%)
9
TAPPI, November 2006
North American Industry
 Pulp
p and Paper
p Sectors
Change in Capacity
((Tons/Tonnes))
2000-2004
2005-2010
1990-2004
20052010
-74
609
1.4%
1.0%
U.S. Containerboard
-1,292
1,516
1.7%
0.8%
NA Newsprint
p
-2,057
,
-2,328
,
-0.5%
-2.9%
NA Printing & Writing
-1,221
-51
1.7%
0.0%
800
131
2.1%
0.2%
-352
532
1.5%
0.5%
Grade Segment
NA Boxboard
NA Tissue
NA Market Pulp
10
Compound Annual Growth
Rate
TAPPI, November 2006
Industry Surveys
And Projections
Indicate That
Capacity Could
Begin To Grow
A i Between
Again
B t
2005 And 2010 –
But At A Much
Lower Than
Historic Rates And
From A Reduced
Base
North American Industry
 The
Th NA IIndustry
d t environment
i
t has
h stabilized
t bili d d
due tto a
combination of factors :






11
A weakening US dollar
Rebounding domestic demand
Improving returns
Weakening competitiveness of European producers
Moderating industry growth in developing regions
Better understanding by industry leaders of the role of
capacity and spending management
TAPPI, November 2006
North American Industry – Summary
 U.S. Pulp and Paper industry consumption peaked circa 2000
– closures will continue at a slower rate but best facilities will
remain strong
g
 Will take years to reach 2000 levels again – if ever
 Pulp and paper not likely to be a source of growth for wood
consumption with current products
 However, complete replacement by offshore producers unlikely
due to U.S. wood resources and large absolute market
12
TAPPI, November 2006
North American Industry
 Consequently –
 The demand weakness and oversupply of the past
years have begun to reverse, and
 Producers have been generally successful
implementing price increases -- so far -- in this
environment
13
TAPPI, November 2006
R i
Regional
l Pulp
P l and
d Paper
P
Consumption
C
ti
Total Paper
p and Paperboard
p
Consumption
p
((mmt))
Europe
(4 5%)
(4.5%)
NA
(3.3% )
1970 – 54.4
1980 – 67.3
1990 – 86.9
2000 – 108.8
14
1970 – 3.5
1980 – 6.4
1990 – 7.7
2000 – 12.0
Asia
(14.7%)
1970 – 19.1
1980 – 32.7
32 7
1990 – 61.9
2000 – 103.3
Average Annual
A
A
l
Growth Rate
SA
(8.1%)
1970 – 38.3
1980 – 48.2
1990 – 65.2
2000 – 90.4
TAPPI, November 2006
R i
Regional
l Pulp
P l and
d Paper
P
Consumption
C
ti
Trade in Pulpp ((1980,, 2000)) mmt
% increase
NA with ROW (85.0%, 65.7%)
Imports – (4.0, 7.4) Exports – (10.8,17.9)
Asia with ROW (221.6%, 1137.5%)
Imports – (3.7,11.9) Exports – (0.16,1.98)
Europe with ROW (50.9%, 63.9%)
Imports – (11.6,17.5) Exports – (7.2,11.8)
SA with ROW (82.6%, 292.3%)
Pulp Demand (mmt)
Imports – (0.46,0.85) Exports – (1.3,5.1)
NA – (60.8, 75.02) Asia – (20.3, 48.8)
SA – (3.9,
(3 9 8.02)
8 02) Europe
E
– (35.6,
(35 6 53
53.2)
2)
15
TAPPI, November 2006
R i
Regional
l Pulp
P l and
d Paper
P
Consumption
C
ti
Trade in Paper
p and Paperboard
p
((1980,, 2000)) mmt
% increase
NA with ROW (154.5%, 81.2%)
Imports – (8.8, 22.4) Exports – (13.8, 25.0)
Asia with ROW (374.4%, 883.3%)
Imports
p
– ((4.3, 20.4)) Exports
p
– ((1.2, 11.8))
Europe with ROW (196.9%, 221.0%)
Imports – (16.2, 48.1) Exports – (18.1, 58.1)
SA with ROW (150.0%, 333.3%)
Imports – (1.2, 3.0) Exports – (0.3, 1.3)
16
TAPPI, November 2006
Regional Pulp and Paper Consumption
 Regional Pulp Consumption – Total (mmt)
Millions Mt
90
80
Asia
Europe
NAFTA
South America
70
60
50
40
30
20
10
0
1961
17
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
TAPPI, November 2006
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Regional Paper and Paperboard Consumption – Total (mmt)
Millions Mt
120
Asia
100
Europe
NAFTA
South America
80
60
40
20
0
1961
18
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
TAPPI, November 2006
1987
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Regional Newsprint Consumption (mmt)
Millions Mt
16
Asia
14
Europe
NAFTA
South America
12
10
8
6
4
2
0
1961
19
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
TAPPI, November 2006
1987
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Regional Share – Total
50%
40%
30%
20%
Asia
Europe
NAFTA
South America
10%
0%
1961
20
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
TAPPI, November 2006
1987
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Regional Share – Market Pulp
50%
40%
30%
20%
Asia
Europe
NAFTA
10%
South America
0%
1961
21
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
TAPPI, November 2006
1987
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Regional Share – Paper and Paperboard
50%
40%
30%
20%
Asia
Europe
NAFTA
South America
10%
0%
1961
22
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
TAPPI, November 2006
1987
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Regional Share –
Newsprint
50%
40%
30%
20%
Asia
Europe
NAFTA
10%
South America
0%
1961
23
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
TAPPI, November 2006
1987
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Regional Share – Printing and Writing Papers
50%
40%
30%
20%
Asia
Europe
NAFTA
S th America
South
A i
10%
0%
1961
24
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
TAPPI, November 2006
1987
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Regional Share – Other Paper and Paperboard
50%
40%
30%
20%
Asia
Europe
NAFTA
10%
S th America
South
A i
0%
1961
25
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
TAPPI, November 2006
1987
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Regional Share – Household and Sanitary Papers
90%
80%
Asia
Europe
70%
NAFTA
60%
South America
50%
40%
30%
20%
10%
0%
1961
26
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
TAPPI, November 2006
1987
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Regional Share – Wrapping and Packaging Paper and Paperboard
90%
80%
Asia
70%
Europe
60%
NAFTA
South America
50%
40%
30%
20%
10%
0%
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
-10%
27
TAPPI, November 2006
1987
1989
1991
1993
1995
1997
1999
2001
Regional Pulp and Paper Consumption
 Consumption (kg) and GDP (US $) Per Capita - Total
500
450
d em an d p er ca p ita (kg )
400
350
300
250
200
Asia
Europe
North Am Free Trade Agr
g
South America
150
100
50
0
0
5000
10000
15000
real GDP per capita (dollar)
28
TAPPI, November 2006
20000
25000
30000
Regional Pulp and Paper Consumption
 Demand (kg) and GDP (US $) Per Capita - Total
29
TAPPI, November 2006
Regional Pulp and Paper Consumption
 Consumption
C
ti (k
(kg)) andd GDP (US $) Per
P Capita
C it - Pulp
P l
d em an d p er ccap ita (kg )
250
200
150
100
Asia
Europe
North Am Free Trade Agr
South America
50
0
0
5000
10000
15000
real GDP per capita (dollar)
30
TAPPI, November 2006
20000
25000
30000
Regional Pulp and Paper Consumption
 Consumption (kg) and GDP (US $) Per Capita – Paper and Paperboard
demand per capita (kg)
d
300
2 0
250
200
150
Asia
Europe
North Am Free Trade Agr
South America
100
50
0
0
5000
10000
15000
20000
reall GDP per capita
it (dollar)
(d ll )
31
TAPPI, November 2006
25000
30000
Regional Pulp and Paper Consumption
 Consumption (kg) and GDP (US $) Per Capita - Newsprint
45
40
demand pe
er capita (kg)
35
30
25
20
15
Asia
Europe
North Am Free Trade Agr
South America
North Am-Canada &Mexico
10
5
0
0
5000
10000
15000
real GDP per capita (dollar)
32
TAPPI, November 2006
20000
25000
30000
Regional Pulp and Paper Consumption
 Consumption (kg) and GDP (US $) Per Capita –
Printing and Writing Papers
90
80
d em
m an d p er cap itta (kg )
70
60
50
40
Asia
Europe
N th A
North
Am FFree TTrade
d A
Agr
South America
North Am-Canada &Mexico
30
20
10
0
0
33
5000
10000
15000
real GDP per capita (dollar)
TAPPI, November 2006
20000
25000
30000
Regional Pulp and Paper Consumption
 Consumption (kg) and GDP (US $) Per Capita –
Other Paper and Paperboard
180
160
d em
m an d p e r cap itta (kg )
140
120
100
80
60
Asia
Europe
North Am Free Trade Agr
South America
North Am-Canada &Mexico
40
20
0
0
5000
10000
15000
real GDP per capita (dollar)
34
TAPPI, November 2006
20000
25000
30000
Regional Pulp and Paper Consumption
 Consumption (kg) and GDP (US $) Per Capita –
Household and Sanitary Papers
20
18
d e m an d p er cap itaa (kg )
16
14
12
10
8
Asia
Europe
North Am Free Trade Agr
South America
North Am-Canada &Mexico
6
4
2
0
0
5000
10000
15000
real GDP per capita (dollar)
35
TAPPI, November 2006
20000
25000
30000
Regional Pulp and Paper Consumption
 Consumption
p
((kg)
g) and GDP ((US $) Per Capita
p – Wrapping
pp g and
Packaging Paper and Paperboard
140
120
d em
m an d p er cap itaa (kg )
100
80
60
Asia
Europe
N th A
North
Am F
Free Trade
T d Agr
A
South America
North Am-Canada &Mexico
40
20
0
0
36
5000
10000
15000
real GDP per capita (dollar)
TAPPI, November 2006
20000
25000
30000
Regional Pulp and Paper Consumption
 Real Price – Paper and Paperboard: 1970 - 2001
Index 1.0=100; 1990 $
1.4
1.2
1.0
0.8
0.6
Asia
Europe
0.4
NAFTA
South America
0.2
0.0
1970
37
1972
1974
1976
1978
1980
1982
1984
1986
1988
TAPPI, November 2006
1990
1992
1994
1996
1998
2000
Regional Pulp and Paper Consumption
Real GDP Growth By Region
2002
2003
2004
2005
US
1.9%
3.0%
4.4%
3.4%
Euro Area
0.8%
0.5%
2.2%
2.2%
-0.3%
0 3%
2 5%
2.5%
4 4%
4.4%
2 3%
2.3%
UK
1.8%
2.2%
3.4%
2.5%
Canada
3.4%
2.0%
2.9%
3.1%
Other Advanced Economies
3.6%
2.4%
4.3%
3.5%
Newly Industrialized Asian
Economies
5.0%
3.0%
5.5%
4.0%
4.8%
6.1%
6.6%
5.9%
Africa
3.5%
4.3%
4.5%
5.4%
Central and Eastern Europe
4.4%
4.5%
5.5%
4.8%
Commonwealth of Independent
States
5.4%
7.8%
8.0%
6.6%
D
Developing
l i Asia
A i
6 6%
6.6%
7 7%
7.7%
7 6%
7.6%
6 9%
6.9%
Middle East
4.3%
6.0%
5.1%
4.8%
1.8%
4.6%
3.6%
Advanced Economies
Japan
Other Emerging Markets
38
Latin America
-0.1% 2006
TAPPI, November
Regional Pulp and Paper Consumption
Regional Consumption GDP Elasticities
Total
Pulp
Paper/
Paperboard
(a)
(b)
(c)
(d)
(e)
(f)
(g)
NAFTA
0.44
0.41
0.45
0.31
0.56
-0.24
0.02
Europe
0.86
0.70
0.95
0.77
1.05
3.02
1.68
Asia
1.06
0.84
1.17
0.88
1.04
1.53
1.30
South
America
1.54
1.68
1.40
0.24
1.36
2.62
2.85
Region
39
NewsNewsprint
Printing/
g
Writing
Household/
Sanitary
Wrapping/
g
Packaging
TAPPI, November 2006
North American Industry
 Real Output
Real Output Index
1987 - 2003
Indexx (2000 = 1000)
Paper products
All industries
110
100
90
80
70
60
50
40
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
40
TAPPI, November 2006
North American Industry
 US Mills and Integrated Capacity, 1970 – 2000
41
1970
1975
1980
1985
1990
1995
2000
Integrated Paper mills
139
136
135
136
137
129
132
Integrated Paperboard mills
59
60
57
57
54
57
56
Integrated Paper and Paperboard mills
234
232
229
229
228
220
213
Integrated Paper and Paperboard Capacity
( % of total paper and paperboard capacity)
73 53
73.53
82 18
82.18
76 2
76.2
77 19
77.19
77 24
77.24
75 71
75.71
75 37
75.37
TAPPI, November 2006
North American Industry
 US Wood Pulping Capacity, 1970 – 2000
1970
Total Wood Pulping Capacity
(in thousand short tons)
(% of total wood pulping capacity)
Mechanical
Chemical
Dissolving Alpha
Semi-Chemical
42
1975
1980
1985
1990
1995
2000
43155.21 47957.92 54253.06 59977.45 66127.21 74672.72 76127.8
12.67
75.29
3.66
8.38
12.38
75.62
3.36
8.64
12.93
77.05
2.83
7.19
TAPPI, November 2006
13.92
77.13
2.55
6.40
14.01
77.98
2.31
5.70
11.95
81.13
1.92
4.99
12.35
81.31
1.34
5.00
North American Industry

NA Sectors That Directly Drive Pulp & Paper Demand and GDP
Economic Indicator
Industry Segment
Impacted
199019901995
199519952000
200020002004
2005
200620062010
Real GDP
All
2.5%
4.1%
2.5%
3.4%
3.0%
Implicit
p
Price Deflator
All
2.4%
1.6%
1.9%
3.6%
2.2%
Personal Consumption Expenditures
All
2.6%
4.4%
3.2%
3.1%
2.8%
Industrial Production
All
3.5%
6.0%
0.1%
3.7%
2.5%
Indust. Prod. - Non
Non--Durables
Containerboard
1.8%
1.3%
-0.6%
2.2%
0.9%
Indust. Prod. - Durables
Packaging
4.9%
9.5%
0.7%
5.7%
5.3%
Food & Beverage Sales
Boxboard
1.9%
3.2%
3.6%
5.0%
3.1%
Food services and drinking places
Tissue
4.8%
5.5%
6.3%
7.4%
2.9%
Computer & Peripheral Sales
P&W Papers
21.6%
5.2%
2.0%
15.0%
4.6%
Professional Employment & Business
Services
P&W Papers, Tissue
3.4%
5.3%
-0.4%
3.4%
2.7%
US Households
Tissue, Building
Products
1.2%
1.1%
0.2%
1.0%
1.0%
Housing Starts
Tissue Building
Tissue,
Products
2.5%
2.9%
5.5%
1.0%
-2.0%
43
TAPPI, November 2006
Conclusions and Next Steps
 Robust world consumption for paper and paperboard
 Elasticities differ by region and product category
 Shifting regional demands
 NAFTA Region Losing Market Shares Across All Product
Categories
 Structural differences between NAFTA and other regions
 Industry downsizing in NAFTA
 Capacity
 Cost of capital
 ‘core business’
44
TAPPI, November 2006
Conclusions and Next Steps
 Need more research on the industry to understand
 Role of prices, exchange rates, and transportation costs
 How information technologies affect shifts in demand and
market shares
 Outsourcing and the NA industry
 The relationship between GDP and consumption
 China’s increasing influence on the NA industry
45
TAPPI, November 2006