Domtar
BMI presentation May 5, 2009
Doc Maiorino V.P. Sales Publication
Paper
Uncoated Freesheet
UFS Industry Statistics
• UFS demand was down -16.8% Q1 2009 vs. Q1 2008
• UFS mill inventory was at 42 days of supply at the end of
March, up 5 days from a year ago
• UFS imports were down by -23% Q1 2009 vs. Q1 2008
• UFS exports were down -20.5% Q1 2009 vs. Q1 2008
• UFS operating rates are at 88% Q1 2009
Source: PPPC
3
N.A. Demand for UFS has declined since 1999
17
Million of short tons
16
UFS demand has declined 3.9
million tons since 1999
15
14
13
12
11
10
9
8
95 96 97 98 99
•
•
0
1
2
3
4
5
6
7
8
9
10
The latest forecast from PPPC is a decline of -8.5% in 2009 and a drop of -1.5% in 2010
The RISI forecast for 2009 shows a decline of -7.8% and flat in 2010
Source: PPPC
4
N.A. Offset Industry Statistics
07 shipments
08 shipments
09 shipments
200,000
180,000
160,000
140,000
120,000
100,000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Note: Offset shipments consist of offset & reply card
•
Offset shipments dropped 11.1% in 2008 vs. 2007 and are down 30% in Q1 09 vs Q1 08
Source: PPPC
5
N.A. Opaque Industry Statistics
07 shipments
08 shipments
09 shipments
115,000
105,000
95,000
85,000
75,000
65,000
Jan
•
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Opaque shipments were down 8.6% in 2008 vs. 2007
Source: PPPC
6
Quarterly US Postal Service Mail Volumes
•
•
Pieces
Weight
Service Category
% chg Q4 ‘08 vs. ‘07
% chg Q4 ’08 vs. ’07
First Class Mail
-7.2%
-6.0%
Periodicals
-3.5%
-12.6%
Standard Mail
-5.5%
-8.7%
Total All Mail
-9.3%
-11.7%
In the US, 33% of all printing and writing paper flows through the postal service
Average weight per piece declined 2.7% quarter over quarter 2008
Source: USPS
7
N.A. UFS Imports & Exports
60,000
50,000
40,000
30,000
Mar. 09
Jan. 09
Nov. 08
Sept. 08
Jul. 08
May 08
Mar. 08
•
•
Jan. 08
Nov. 07
Sep. 07
Jul 07
May 07
Mar 07
Jan 07
Imports
Exports
Imports and exports of UFS are very close to being in balance at approximately 5% per year
Portucel will start production on a new UFS machine(550,000 tons/yr) in August 2009, it is
not clear how much of this will be sold into the North American market
Source: PPPC
8
N.A. UFS Producers (capacity in ‘000 tons)
GP 7%
Boise 10%
Appleton 2%
Glatfelter 5%
Evergreen 2%
IP 16%
Wausau 2%
Neenah 2%
Finch 2%
All Others 9%
Domtar 33%
Source: RISI 2008
9
List of UFS Mill Closures in 2008 & 2009
2007
Date
Company
Location
2008
Date
Company
Location
-350
Feb 2007
IP
Pensacola, FL
-100
Jan 2008
Wausau
Groveton, NH
-250
Feb 2007
Boise
Wallula, WA
-35
Feb 2008
Neenah
Urbana, OH
-70
June 2007
Dirigo
Gilman, VT
-35
April 2008
Fraser
Gorham, NH
-125
June 2007
Domtar
Woodland, ME
-130
June 2008
Domtar
Port Ed, WI
-120
July 2007
GP
Wauna, OR
-250
Sept 2008
IP
Bastrop, LA
-20
Oct 2007
Domtar
Hull, QC
-160
Nov 2008
Domtar
Dryden, ON
-35
Oct 2007
Fraser
Gorham, NH
-150
Nov 2008
IP
Franklin, VA
-150
Dec 2007
Domtar
Dryden, ON
Total: -1120
•
Total: -860
2009
Date
Company
Location
-200
Jan 2009
Boise
St. Helens, OR
-295
Jan 2009
Domtar
Plymouth, NC
As demand for UFS has fallen paper companies have permanently closed mills to
balance capacity with demand and maintain a more stable pricing environment
Source: RISI & PPPC
10
Magnitude of UFS Capacity Closures
over the past 9 years
North American UFS Capacity Reductions('000 tons)
1,400
1,200
1,000
800
600
400
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
thru
Feb
•
•
Since 2007 over 2.4 million tons of UFS capacity have been removed from the market
(19% of annual UFS demand)
Two closures have been announced through February 2009
Source: RISI
11
Operating rates %
Printing & Writing N.A.
Operating Rates 2008 vs. 2009
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
97%
96%
93%
88%
74%
Unc. Freesheet Unc. Mechanical
Q1 2008
•
95%
75%
Coated
Woodfree
69%
Coated
Mechanical
Q1 2009
The drop in operating rates (capacity versus shipments) for UFS are not as severe as the
other grades
Source: PPPC
12
UFS Operating Rates
94%
93%
92%
91%
90%
89%
88%
87%
86%
85%
84%
2003

2004
2005
2006
2007
2008
2009
2010
PPPC forecast UFS Operating Rates to decrease slightly over next 2 years as demand
declines
Source: PPPC
13
Top Three Producers Market Share
Europe vs. North American
80%
70%
60%
50%
40%
30%
20%
10%
0%
Unc. Freesheet
Unc. Mechanical
Europe
•
•
Ctd. Freesheet
Ctd. Mechanical
North America
In Europe the top 3 producers of UFS have 30% of the domestic market while in North
America the top 3 have almost 70% of their domestic market
Further consolidation of European companies may be required to maintain a healthy
supply and demand relationship in UFS
Source: RISI
14
Conclusions
• Demand for UFS in North America continues to decline
– Supply balanced by mill closures allowing for relatively steady prices
– Mill and merchant inventories for UFS have decline slightly
• Long-term survival will require a strong balance sheet today
– Timing of economic recovery?
– Will printed media rebound to pre-recession levels?
• Future consolidation/closures may be required as new demand
levels are established in our recovering economy.
15
Uncoated Mechanical
Total N.A. Demand for UGW+Newsprint
22
Demand has declined 5.1
million tons since 2000
Millions of short tons
20
18
16
14
12
10
8
95 96 97 98 99
•
0
1
2
3
4
5
6
7
8
9
10 11
The latest forecast from PPPC is a decline of -15% in 2009
Source: PPPC
17
Total N.A. Demand for UGW
7
Millions of short tons
6
5
4
3
2
1
0
95 96 97 98 99
•
0
1
2
3
4
5
6
7
8
9
10 11
The latest forecast from PPPC is a decline of -11% in 2009
Source: PPPC
18
Millions of short tons
Total N.A. Demand for Newsprint
15
14
13
12
11
10
9
8
7
6
5
Newsprint Demand has declined 5.8
million tons (-39%) since 2000
95 96 97 98 99 0
•
1
2
3
4
5
6
7
8
9 10 11
The latest forecast from PPPC is a decline of -18% in 2009
Source: PPPC
19
N.A. Super-Bright Industry Shipments
07 shipments
08 shipments
09 shipments
110,000
90,000
70,000
50,000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Note: Shipments include exports
•
Super-bright shipments increased 9.6% in 2008 vs. 2007 and are down 22.6%
in Q1 09 vs Q1 08
Source: PPPC
20
N.A. High-Bright Industry Shipments
07 shipments
08 shipments
09 shipments
110,000
90,000
70,000
50,000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Note: Shipments include exports
•
High-bright shipments increased 29.7% in 2008 vs. 2007 and are down 14.2%
in Q1 09 vs Q1 08
Source: PPPC
21
USA Book Printers Choosing Super-Bights
More Often for their Uncoated Needs
Annualized rate by quarter, thousand tons
Purchases of paper for use in books printed in the USA
900
Uncoated Freesheet
800
700
600
500
400
Uncoated Mechanical
300
200
0
1
2
3
4
5
6
7
8
9
22
N.A. Bulky Book Industry Shipments
07 shipments
08 shipments
09 shipments
45,000
40,000
35,000
30,000
25,000
20,000
15,000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Note: Shipments include exports
•
Bulking book shipments dropped 31.5% in 2008 vs. 2007 and are down 11.8%
in Q1 09 vs Q1 08
Source: PPPC
23
List of UGW Mill Closures
2007
Date
Company
Location
-160
Feb 2007
Abitibi-Consolidated
Fort William, ON
-100
June 2007
Bowater
Dolbeau, QC
-70
Sept 2007
Kruger
Wayagamack, QC
-80
Nov 2007
Kruger
Trois-Rivieres, QC
Total: -410
2008
Date
Company
Location
-280
Q1 2008
AbititbiBowater
Groveton, NH
-30
Q1 2008
AbititbiBowater
Urbana, OH
-180
Q1 2008
AbititbiBowater
Gorham, NH
-180
July 2008
Katahdin Paper
Port Ed, WI*
-120
Dec 2008
AbititbiBowater
Calhoun, TN*
Total: -790
* Idled capacity not permanent closures
Source: RISI & PPPC
24
Impact on the Book industry
Book Industry Paper Demand
Demand by Paper Grade ('000 tons)
Coated
Freesheet
32%
Uncoated
Freesheet
27%
Coated
Bristol
3%
Coated
Mechanical
14%
•
•
Uncoated
Mechanical
24%
In 2008 the Book industry used 1,76Million tons of Paper from all sources
(49% coated and 51% Uncoated)
It is projected that the demand for paper used in books will decrease by 2% in
2009
Source: GAPTRAC Q1 2009 report
26
Publishers Unit Sales (Millions of Books)
• Based on GAPTRAC projections the book industry remains relatively stable, with
unit declines of less than 1% over 4 years
Source: GAPTRAC – Poyry Consulting
27
Publishers Paper Demand
Source: GAPTRAC – Poyry Consulting
28
Paper Usage in Books Printed in the USA
Annual Rate by Quarter, Million Tons
2.2
2
1.8
1.6
1.4
1.2
-35%
1
0
1
2
3
4
5
6
7
8
9
29
Book Industry – Growth Opportunities
• Extend sales channels beyond bookstores, e.g., mass retailers,
Starbucks, Costco, WM Sonoma, etc.
• More specialization and customization, new genres and special
interest topics, new titles published increasing more than 3%
• Digital printing for short runs and reprints of out-of-print titles
and one-off books printed in store or ordered on-line
• Global markets: rapidly developing economies in India, China
and rest of Asia seeking books about science, medicine,
business, education, etc.
• People changing careers and taking courses
30
Book Industry – Threats to Growth
• Digital downloads and migration to digital editions
from printed books, Kindle and Sony Reader e-books
• Competing entertainment and media alternatives to
reading – Internet, blogs, movies, i-pods, podcasts,
video games, etc.
• Declining number of young readers
• Dwindling percentage of book-buying households
and fewer people reading books for enjoyment
• Content piracy in offshore countries and copyright
infringements, especially by Web search sites
• Fewer blockbuster best-sellers
31
Impacts on Paper Industry
• Green products, FSC, recycled pre consumer-post
consumer 10,20,30. what’s next?
• Product substitution, coated to uncoated GWD to
UFS.
• Bs. Wt. reduction, bulking capabilities.
• Make it better make it cheaper and make it in smaller
lots.
• Supply Chain efficiencies (Collaboration)
• Cash flow management, how do we all do more with
less.
32
Impact
• All that being said we are determined to
survive our current challenges and continue to
innovate and meet the needs of the Book
Industry and of the Publishing community for
many years to come.
33