Market pulp Outlook, and impact of India
Utipulp meeting
Barcelona, 18th September 2014
HAWKINS WRIGHT
Pulp prices versus other commodities
BEKP and NBSK price indices against other commodity indices
(2005=100)
250
Economist commodityprice index
Index, 2005=100
200
150
100
50
IMF commodity price
index
NBSK price (CIF
Europe) index
BEKP price (CIF
Europe) index
0
HAWKINS WRIGHT
NBSK v BHKP list price differential
European PIX
250
200
US$/t
150
100
50
0
-50
Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: FOEX, Hawkins Wright
HAWKINS WRIGHT
Current problem is demand, rather than supply
World-20 BCP Shipments, by region, 7 months 2014 v 2013
thousand tonnes and %
+0.9%
TOTAL
North America
West Europe
-1.4%
-0.5%
Other Asia
includes India, Thailand, Indonesia,
Vietnam. Also Korea, Taiwan. And
Turkey
-0..3%
Latin America
+0.4%
Africa
Oceania
Japan
-0.7%
East Europe
+14.2%
China
-100
+3.9%
-50
0
50
100
150
200
250
(thousand tonnes)
Demand averages 1.2 million tpa over past ten years, but
has slowed over past 2 years
HAWKINS WRIGHT
Chinese monthly import
1.6
1.4
million tonnes
1.2
+5% v 2013= 0.4Mt in 7 months
Russia +38%
Indonesia +7%
Brazil +33%
1.0
0.8
0.6
0.4
0.2
Indian imports
July 2014
0.0
HAWKINS WRIGHT
•
•
Net capacity additions average 1.4 million tpa for next five years. Mostly BHKP
Recent closures of Huelva and Old Town reduce the surplus for 2014 and 2015, but
further closures will be necessary to restore balance
Capacity surplus based on current plans:
Oversupply
2,500
2,000
1,500
000's t
1,000
Where? When? Who?
500
0
-500
-1,000
Forecast
Undersupply
-1,500
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
HAWKINS WRIGHT
Impact of exchange rates - softwood
1200
NBSK prices (US$/t)
800
600
400
NBSK price ($)
200
€/$ exchange rate
0
euro/dollar exchange rate
1000
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
HAWKINS WRIGHT
Impact of exchange rates - hardwood
1000
600
400
200
BHKP price ($)
€/$ exchange rate
0
euro/dollar exchange rate
BHKP prices (US$/t)
800
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
HAWKINS WRIGHT
Impact of exchange rates
PIX indices for NBSK and BHKP, in €
900
850
Euro/tonne cif NW Europe
800
750
700
650
600
550
500
450
400
350
300
250
BHKP €/tonne
NBSK €/tonne
200
Source: FOEX, HAwkins Wright
•
•
Since January, NBSK PIX has risen by $24 but €55
European dollar denominated costs are falling with weaker euro…
HAWKINS WRIGHT
Defining the Indian market for Pulp & Paper
•
Hawkins Wright published mullticlient report on India in 2008 and
2013
 Similar approach to China
research…
•
Market remains relatively small in
absolute terms, but has been
developing steadily
•
Furthermore, analysis is useful in
understanding the drivers of China
and other emerging markets
HAWKINS WRIGHT
Comparisons with China…population
India v China population, 1990-2019(f)
1,600
•
Indian population is only 31%
urbanised compared to 45% in
China, 44% Indonesia, 78% in
Mexico, 87% in Brazil.
•
Urbanisation should further boost
economic growth, but lack of
investment in infrastructure such as
transport, housing, and basic
sanitation is a major problem.
•
Of the 1 billion people in the world
who have no toilet, India accounts
for nearly 600m.
•
Problem is partly economic, partly
cultural.
1,400
1,200
1,000
800
600
China
400
India
200
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014F
2016
2018
0
HAWKINS WRIGHT
Comparisons with China…GDP
India v China GDP, 1990-2012
16000
14.0
14000
12.0
12000
10.0
10000
Million US$ (PPP)
16.0
8.0
6.0
4.0
China
India
8000
6000
4000
China
2000
2.0
India
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014F
0
0.0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014F
percent change
India v China GDP growth, 1990-2014(f)
HAWKINS WRIGHT
India is world’s 3rd largest economy by PPP
(10th in absolute dollar terms)
GDP compared, 2012 (PPP basis):
20,000
In 2013, IMF estimates China $13.4 trillion and
India $5.1 trillion
Other
$ trillion
15,000
Household final consumption
10,000
5,000
0
Brazil
Canada
China
Germany
India
Japan
USA
Other components of GDP include investment, government spending, net trade, inventory +/-
HAWKINS WRIGHT
So, why is paper production lagging??
Paper production, 2013
80
70
80
Other
70
Mixed furnish
60
International standard
60
Cartonboard
50
Containerboard
million tonnes
million tonnes
Tissue
Printing & Writing
40
Newsprint
30
50
40
30
20
20
10
10
0
0
India
China
India
Indian tissue demand <150,000tpa compared to 6 million t in China
China
HAWKINS WRIGHT
Importance of China’s export sector
•
India runs a current account deficit of -1.99 per cent of GDP in 2013,
whilst China has a surplus of +2.06 per cent.
•
China exported $2.2 TRILLION (=$2,200,000 MILLION) in last twelve
months…textiles, footwear, furniture, toys, electronics. i.e. Mostly
packaged goods. (Spanish GDP is $1.3 trillion. German GDP $3.6trn).
 China exports ~17 million tonnes of P&B in converted form
•
India exported $320 MILLION. Mostly engineering goods, gems and
jewellery, chemicals, agricultural products and textiles (9%)….this
sector is not a driver of P&B demand
HAWKINS WRIGHT
Services account for 56 per cent of the Indian economy (43 per cent in
China), whilst industry accounts for just 26 per cent (47 per cent in China).
Composition of GDP, India
Composition of GDP, China
60.0
60.0
50.0
50.0
Agriculture
40.0
30.0
Agriculture
30.0
Industry
Services
20.0
20.0
10.0
10.0
0.0
0.0
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Services
% of GDP
Industry
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
% of GDP
40.0
These differences explain the different scale and structure of the paper industries….
e.g. Packaging grades account for two thirds of Chinese consumption, compared to only 40% in
India.
HAWKINS WRIGHT
16
Paper consumption is related to spending
(rather than population or GDP)
GDP compared, 2012 (PPP basis):
20,000
Other
$ trillion
15,000
Household final consumption
10,000
5,000
0
Brazil
Canada
China
Germany
India
Japan
USA
Other components of GDP include investment, government spending, net trade, inventory +/-
HAWKINS WRIGHT
Paper consumption is related to spending
(rather than population or GDP)
Spend ~$115,000 to generate 1 tonne of paper demand, and the “yield” is falling
30.0
Japan
Paper demand, million tonnes
25.0
Germany
20.0
15.0
India
Italy
Indonesia
10.0
Russia
Mexico
UK
Brazil
France
Canada
5.0
Turkey
Spain
0.0
0.0
0.5
1.0
1.5
2.0
2.5
Private consumption, $ trillion
3.0
3.5
4.0
HAWKINS WRIGHT
Paper consumption is related to spending
(rather than population or GDP)
120.0
China, per CPA
Paper demand, million tonnes
100.0
80.0
60.0
USA
Thailand
Indonesia
40.0
India
20.0
Germany
Japan
France
0.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Private consumption, $ trillion
8.0
9.0
10.0
11.0
HAWKINS WRIGHT
Geography & Industry fragmentation
(China development was concentrated in coastal provinces)
•
•
•
•
•
•
17 Indian companies have annual
capacity >100,000t/y. Combined
output is 4.6 million t/y.
Remaining 6 million tonnes of
production is very small scale and
impossible to measure output
accurately
Largest paper machines are
200,000t/y or less
Average order size = 1/3 container
Lack of merchants and intermediaries.
Difficult to build brand
Geographically dispersed across 35
locations (opposite)

Average distance for BILT CWF:
1200km
HAWKINS WRIGHT
Fibre demand, 2013
12
•
Forestry – Industrial plantations are
prohibited. Farm forestry schemes
with local farmers.
•
Even so, BILT, JK Paper, ITC, Century,
West coast have installed 1 million t/y
pulp capacity since 2009. Most pursue
a strategy of integration
•
Fibre deficit…wood chip imports are
expected to reach 1 million BDMT in
2014.
•
Low wastepaper recovery rate (<30%)
RCF import
million tonnes
10
RCF local
8
6
Non-wood pulp
4
Pulp import
2
Domestic wood & bamboo
0
2013
HAWKINS WRIGHT
Pulp imports
1.0
UKP
•
BCTMP
•
0.9
0.8
million tonnes
0.7
0.6
Other BHKP
Indonesia
0.5
BSKP
0.4
•
•
BSKP imported from North
America, Nordic, and Chile
APRIL controls BHKP market. BILT
brings in tied volume from
Malaysia
BEKP import ~50,000t/y
Limited opportunity to displace
local non-wood and wood pulp
(less than in China)
0.3
0.2
0.1
0.0
HAWKINS WRIGHT
Opportunities and challenges
⁺
⁺
⁺
India’s population is young and growing, and less urbanised
Income per capita remains very low even compared to China, Indonesia
Positive economic outlook
⁻
Investment in infrastructure is crucial. Roads, ports, warehouses. Also power generation and
network, drainage & sanitation. Access to capital?
Restrictive labour laws and bureaucracy discourage industry and labour intensive
manufacturing…bold reforms required
Land reform (plantation ownership)
Fragmentation, opportunities for consolidation are limited
⁻
⁻
⁻
Big things are expected of Mr Modi…GDP has started to rise, rupee has stabilised, and BSE
is at record highs.
Can he deliver?
HAWKINS WRIGHT
Outlook
•
•
P&B grew by 7% 2007-2012 = 3.2Mt in 5 years
Pulp imports grew by 0.4Mt
•
Assuming Indian paper demand grows by 0.8 million tpa, how is this achieved?
 What percentage of P&B growth taken by imports? (over-supply globally)
 Of local P&B production, what percentage of fibre is virgin v recycled?
 Of virgin fibre, what proportion is imported pulp v local pulp; local plantations v imported
chips and logs?
•
Outside of China, India remains an important emerging market for pulp. However,
fundamentals of population, geography, culture, and economy suggest a very
different path to China. Slow and steady rather than explosive?
HAWKINS WRIGHT