The Changing World of Graphics
Alejandro Mata
Economist, European Forest Products
November 2015
1
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Alejandro Mata, Economist
European Forest Products
• Bachelor’s degree in Engineering,
MBA degree earned in 2007
• Worked in business and market
intelligence functions for one of
Europe’s leading paper producers
• Have been analyzing and forecasting
the industry since 2009
• Author of the Paper Trader and Paper
Packaging Monitor Europe, the
European Graphic and Packaging
Paper 5-Year and 15-Year Forecasts
2
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• Europe has averted Grexit
• But challenges remain
• Brexit is next….
• How will all of this impact
the graphics industry?
3
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European Graphic Paper Demand…
Is the Market in Decline?
15%
50.0
10%
Million Tonnes
40.0
5%
30.0
0%
20.0
-5%
10.0
-10%
Volume (L)
Percent Change (R)
-
-15%
97
4
99
01
03
05
07
09
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11
13
15
The Decline Is Mainly in Western Europe
15%
50.0
10%
Million Tonnes
40.0
5%
30.0
0%
20.0
-5%
10.0
-10%
Western Europe
Emerging Europe
Percent Change (R)
-
-15%
97
5
99
01
03
05
07
09
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11
13
15
Newsprint Is Declining Everywhere
Western Europe
Emerging Europe
3.5
10
3.0
Millions
12
2.5
8
2.0
6
1.5
4
2
UWF
Umec
CWF
Cmec
Newsprint
1.0
0.5
0
0.0
97 99 01 03 05 07 09 11 13 15
6
97 99 01 03 05 07 09 11 13 15 17
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Current
Conditions
Demand
Newsprint
Uncoated
Woodfree
Uncoated
Mechanical
Trade
S&D Balance
Profitability
7
Coated
Mechanical
Coated
Woodfree
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• US duties
• Industry cost
curve
• Cut size study
Capacity
Demand
Production
Newsprint – Western Europe
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
2010
8
2011
2012
2013
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2014
2015
2016
2017
Production Cost
Operating Rate
100%
Newsprint – Western Europe
€ 700
90%
€ 500
85%
€ 400
80%
€ 300
€ 200
2010
9
95%
€ 600
75%
70%
2011
2012
2013
2014
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2015
2016
2017
Newsprint – Western Europe
• Worse than originally thought; significantly
down this year (-8%), and not expected to
improve in the near future
• Exports rising (strong US dollar impacting North
America)
• Flat during the next two years due to capacity
closures and anemic demand in the world
• Strong demand drops and fewer capacity closures
• Flat exports not helping to offset EU market
• Profitability at historical lows
10
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Newsprint – Europe
Major Expansions in European Newsprint Industry,
2014-2016
Company
Mill
Country
Capacity
Year
Comments
Stora Enso
Kvarnsveden
Sweden
-200,000
2014
Shift to uncoated mechanical
SCA
Ortviken
Sweden
-140,000
2015
Shut PM2
Martland
Holdings
Aylesford
UK
-400,000
2015
Mill closure
UPM
Shotton
UK
-215,000
2015
PM1 shut
Norske Skog
Bruck
Austria
-125,000
2016
Shift to tissue
Volga
Balakhna
Russia
-295,000
2015
11
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Uncoated Mechanical – Western Europe
12
Capacity
Demand
Production
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2010
2011
2012
2013
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2014
2015
2016
2017
Uncoated Mechanical – Western Europe
13
Production Cost
Operating Rate
100%
€ 700
95%
€ 600
90%
€ 500
85%
€ 400
80%
€ 300
€ 200
2010
75%
70%
2011
2012
2013
2014
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2015
2016
2017
Uncoated Mechanical – Western Europe
• Demand still dropping, although each year by
a smaller amount (except 2017)
14
• Fewer conversions to LWC going forward
• Although relatively flat from a year ago, exports to
North America are expected to start rising soon due
to the large price difference and relatively low
operating rates; US tariffs to Canada also helping
• Operating rates recovering from 3-4 years of
relatively low levels; recovery mainly driven by
exports
• Closures of PMs at Chapelle and Jamsankoski
helping
• Margins also at historical lows, although they are
predicted to start increasing, driven by the recovery
in operating rates
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Uncoated Mechanical – Europe
Major Expansions in European Uncoated Mechanical Industry,
2014-2016
15
Company
Mill
Country
Capacity
Year
Comments
Kama
Krasnokamsk
Russia
-29,000
2014
Shut PM1
Stora Enso
Kvarnsveden
Sweden
200,000
2014
Shift to uncoated mechanical
UPM
Jamsankoski
Finland
-235,000
2015
Shut PM5
UPM
Chapelle
France
-130,000
2015
Shut PM3
Arctic Paper
Mochenwangen
Germany
-40,000
2015-2016
Heinzel
Laakirchen
Austria
-260,000
2017
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PM3 shift to packaging
Shift PM10 to packaging
Coated Mechanical – Western Europe
Capacity
Production
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2010
16
Demand
2011
2012
2013
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2014
2015
2016
2017
Coated Mechanical – Western Europe
17
Production Cost
Operating Rate
100%
€ 700
95%
€ 600
90%
85%
€ 500
80%
€ 400
75%
€ 300
2010
70%
2011
2012
2013
2014
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2015
2016
2017
Coated Mechanical – Western Europe
18
• Demand dropping fast due to grade’s exposure
to magazines (general interest and popular
magazines)
• Improving due to weak euro and demand dropping
less in North America
• Net exports to flatten out during the last two years
due partly to conversions in Europe
• Improving thanks to the recovery in net exports and
capacity changes observed throughout the year
• Conversions to packaging will help keep rates high
• Margins have started to improve
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Coated Mechanical – Europe
Major Expansions in European Coated Mechanical Industry,
2013-2016
19
Company
Mill
Country
Capacity
Year
Metsa-Board
Husum
Sweden
-120,000
2013-2014
Stora Enso
Corbehem
France
-330,000
2014
Mill closure
Stora Enso
Veitsiluoto
Finland
-190,000
2014
PM1 closure
UPM
Kaukas
Finland
-225,000
2015
PM2 closure
Metsa-Board
Husum
Sweden
-200,000
2015
Shift to packaging
Kotkamills
Kotka
Finland
-180,000
2016
Shift to packaging
Burgo
Duino &
Verzuolo
Italy
-200,000
2015
Shift reduction (Verzuolo)
Shut PM2 (Duino)
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Comments
Shift to packaging grades
Coated Woodfree – Western Europe
Capacity
Production
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2010
20
Demand
2011
2012
2013
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2014
2015
2016
2017
Coated Woodfree – Western Europe
21
Production Cost
Operating Rate
100%
€ 700
95%
€ 600
90%
85%
€ 500
80%
€ 400
75%
€ 300
2010
70%
2011
2012
2013
2014
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2015
2016
2017
Coated Woodfree – Western Europe
22
• Demand dropping twice as fast as last year.
However, demand drivers not showing a
significant deterioration.
• Overall net exports stable. Gains in North America
and Latin America offset by fewer exports to
Emerging Europe.
• Increased competition from Asian producers
• Still rising due to previous closures (Avezzano,
Nijmegen, Lenningen, etc.)
• Lack of further closures and stagnating demand will
bring operating rates down in 2017
• Margins are recovering thanks to the improved
market supply and demand balances
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Coated Woodfree – Europe
Major Expansions in European Coated Woodfree Industry,
2014-2016
23
Company
Mill
Country
Capacity
Year
Lecta
Zaragoza/Motril
Spain
-100,000
2014-2015
Burgo
Avezzano
Italy
-180,000
2014
Mill stop
SAPPI
Nijmegen
Netherlands
-240,000
2014
Mill sold, shift to
packaging
Paper Excellence
Lenningen
Germany
-160,000
2014
Shut PM6
Arjowiggins
Wizernes (AA)
France
-170,000
2015
Mill sale or closure
Metsa-Board
Husum
Sweden
-60,000
2015
Shift to packaging
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Comments
Shit to packaging
Uncoated Woodfree – Western Europe
Capacity
Production
10,000
9,000
8,000
7,000
6,000
2010
24
Demand
2011
2012
2013
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2014
2015
2016
2017
Uncoated Woodfree – Western Europe
25
Production Cost
Operating Rate
100%
€ 800
95%
€ 700
90%
€ 600
85%
€ 500
80%
€ 400
€ 300
2010
75%
70%
2011
2012
2013
2014
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2015
2016
2017
Uncoated Woodfree – Western Europe
• Demand dropping again after a surprisingly
strong 2014.
26
• High unemployment and next economical
downturn in 2017 bringing demand down
• Exports booming, mainly to North America due to
capacity closures and positive exchange rate effects
• Net exports to come down again with the conversion
of Husum and Varkaus during the next two years
• Operating rates high due to healthy demand
• Conversions to packaging to push operating rates
further up next year
• Profitability improving
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Uncoated Woodfree – Europe
Major Expansions in European Uncoated Woodfree Industry,
2014-2016
27
Company
Mill
Country
Capacity
Year
Comments
Lecta
Several
Spain
15,000
2014
New PM7 & some mill closures
Radece Papir
Radece
Slovenia
36,000
2014
Mill restart
Pabianicka
Pabianicka
Poland
53,000
2014
Start second-hand PM
UPM
Docelles
France
-160,000
2014
Mill closure
Meerssen
Meerssen
NL
-32,000
2015
Mill closure
Papeteries des
Chatelles
Raon
France
-45,000
2015
Mill closure
Tullis Russell
Markinich
UK
-60,000
2015
Mill closure
Stora Enso
Varkaus
Finland
-285,000
2015
Shift to containerboard
Metsa-Board
Husum
Sweden
-420,000
2015-2016
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Shift to packaging
Import Duties in North America
Offshore imports to the USA
declining
• To almost zero from China and Hong Kong
• Less than 90% from Indonesia
Imports from Europe
increase
• Except Portugal
USA remains a very
attractive market…
• For overseas suppliers, due to
strong US dollar
28
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European exports
at risk due to
displaced Asian
exports
• Emerging Europe,
Africa, Middle East
North America
Capacity
Demand
• North America became a
net importer in 2014
Production
11,000
10,000
9,000
• Latin America also runs a
trade deficit
8,000
7,000
2010
2011
2012
2013
2014
2015
2016
2017
Asia
Capacity
Demand
• China remains the largest
threat to European
exports due to:
Production
36,000
34,000
32,000
30,000
 Asian Overcapacity
28,000
26,000
 Cost positioning
24,000
22,000
 US ADD duties
20,000
2010
29
2011
2012
2013
2014
2015
2016
2017
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Conversions
30
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Packaging vs. Graphics
Profitability: Prices/Total Cost
1.75
Kraftliner
Testliner
Boxboard
CWF
Newsprint
1.50
1.25
1.00
0.75
2001
31
2003
2005
2007
2009
2011
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2013
2015
“Significant overcapacity in
the newsprint market”
400,000 tonnes of newsprint
• Demand in secular decline
• Margins at historically low levels
• Despite capacity closures, supply
and demand balances are not
improving
32
UK, Benelux and Austrian
operations down
Issues with liquidity and credit
risks
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Is the Grass Greener on the Other Side?
• Margins are higher
• Demand for packaging grades is still growing
• Capacity management is important in packaging too
• That is why virgin grades have higher margins
• Global markets are more competitive
• Conversions need to be done properly
33
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Questions
34
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Thank you for your attention!
For more information:
World Graphic Paper
5-Year Forecast
www.risi.com/worldgraphic
Global Woodfree Risk
of Closure Study
www.risi.com/woodfreerisk
China’s Influence on World
Graphic Paper Markets in the
Coming Decade
www.risi.com/chinagraphic
35
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