Lett Direct Symposium Paper Market Update

Transcription

1 Lett Direct Symposium Paper Market Update

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3 The Paper Market: Forces at Play Magazine ad pages were down 12.8% in Q4 and down 11.8% in 2016 Catalog circulation was down 1.5% in Q4 and down 2.1% in 2016 $2.00 price increase on all coated ground-wood effective November 1 st This increase has now been totally pulled back as of April 2017 Verso has fully emerged from bankruptcy. All Verso mills are operating as was the case pre-bankruptcy All new board many of which were New Page bond holders New CEO Announced Chris DiSantis. Not from the paper industry and a high level achiever Coated Free Sheet shipments and demand were down a modest 1.2% for 2016 Operating rates were 88% for the year Imports continue to have an effect on CFS Prices are at the lowest levels in over 10 years Coated Groundwood shipments were down 7.7% in 2016 while demand fell 6.2% Resolute and Kruger had very poor run ability in Q causing some delivery problems Mills are beginning to slow down and any increase implemented 1/1/17 has fallen apart The shut of PM 3 at Verso Androscoggin mill (200,000/tons) has not had any real impact to date SCA Demand was down 4.7% in 2016 North American shipments were down 12.4% for the year Imports were up 24.9% Prices remain weak and imports continue to rise due to the favorable exchange rates

4 The Paper Market: Forces at Play Uncoated Free Sheet operating rates are 93%. Demand is estimated to be down 3.5% for the year Non core mills continue to make offset causing problems for the core mills: Verso Appleton Catalyst Norpac West Linn Resolute Exchange rates continue to play a role in the north American Supply of paper The US Dollar has strengthened significantly while the Euro and Loonie have weakened Some costs are down for coated mills (wood and pulp). If the cost of raw materials starts to rise some mills will be forced to increase pricing as they are mostly running at cash cost or near the bottom.

5 US Economy and Print Indicators Forecast Year over Year % Change GDP 2.6% 1.6% 2.3% 2.4% Major Media Ad Spending 3.6% 4.4% 3.8% 3.5% Direct Mail Spending 0.5% -0.8% -1.2% -2.0% Magazine Ad Pages -11.7% -11.8% -5.9% -5.0% Catalog Circulation -3.5% -2.1% -2.7% -2.1% Commercial Print 1.8% -1.3% -1.2% -0.5% Sources: Consensus Economics, Zenith Optimedia, RISI 5

6 US Coated Industry Forecast Coated Freesheet Domestic Shipments (Y/Y % Change) -6.1% -4.1% -0.9% -1.7% Imports (Y/Y % Change) 3.7% -4.9% -1.9% 0.3% Apparent Consumption (Y/Y % Change) -2.5% -4.1% -0.6% -1.1% Operating Rate 86% 87% 89% 90% Coated Mechanical Domestic Shipments (Y/Y % Change) -15.4% -8.9% -5.7% -1.1% Imports (Y/Y % Change) 8.6% 3.0% -2.9% -8.3% Apparent Consumption (Y/Y % Change) -11.5% -5.8% -4.7% -4.0% Operating Rate 96% 95% 95% 95% Source: RISI 6

7 Historical Coated Paper Pricing $1,350 $1,300 $1,250 $1,200 $1,150 $1,100 $1,050 $1,000 $950 $900 $850 $800 $750 $700 $650 $600 Coated Paper Prices - $/ton Jan-94 Apr-94 Jul-94 Oct-94 Jan-95 Apr-95 Jul-95 Oct-95 Jan-96 Apr-96 Jul-96 Oct-96 Jan-97 Apr-97 Jul-97 Oct-97 Jan-98 Apr-98 Jul-98 Oct-98 Jan-99 Apr-99 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan lb #5 40-lb #5 50-lb #4 $/ton 60-lb #3 $/ton

8 US Major Media and Direct Mail Spending 300 $Billion Magazines Direct Mail Newspapers Television Radio Cinema Outdoor Internet Total Sources: Zenith Optimedia 8

9 Magazine Ad Pages -12.8% in Q4 16 vs Last Year Magazine Ad Pages 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 CQ1 10 CQ2 10 CQ3 10 CQ4 10 CQ1 11 CQ2 11 CQ3 11 CQ4 11 CQ1 12 CQ2 12 CQ3 12 CQ4 12 CQ1 13 CQ2 13 CQ3 13 CQ4 13 CQ1 14 CQ2 14 CQ3 14 CQ4 14 CQ1 15 CQ2 15 CQ3 15 CQ4 15 CQ1 16 CQ2 16 CQ3 16 Source: Publishers Information Bureau, RISI

10 Catalogs Mailed -1.5% in Q4 16 vs Last Year 5,100 4,600 4,100 3,600 3,100 2, Catalogs Circulated (millions) Calendar Year Source: RISI

11 Paper Mill Closures Q1/2017 Verso Androscoggin PM3 200,000 Tons CM 9/1/15 Catalyst Rumford PM ,000 Tons CM 8/20/15 Verso Androscoggin PM 2 150,000 Tons CM 8/20 /15 Verso Wickcliff, KY 280,000 Tons CF 3/25/15 FutureMark Manistique,MI 120,000 Tons CM 10/1/14 Verso Bucksport, ME 350,000 Tons CM 8/14/14 FutureMark Chicago, IL 135,000 Tons CM

12 Paper Market Summary Coated Freesheet will be a struggle again this year unless some capacity is taken out. We expect demand to be down 2%. Coated Groundwood will be slightly stronger than the past few years. We expect demand to fall an additional 5.4%. With the shut of the Verso machine the market should remain moderately stable for the first half of We expect more closures in 2017 and 2018 for coated grades while the mills try to keep up with declining demand. Average Coated Free Sheet pricing has fallen below uncoated free sheet. This would have been unthinkable prior to 8 years ago when the uncoated free sheet manufacturers took control of NA supply and price.

13 The Effectiveness of Direct Mail Overall volume of direct mail went down in 2016 to billion, but direct mail as a percentage of all mail was up slightly from 2015 Direct mail response rates for a house file was 5.3% in 2016, 2.9% for a prospect list 9.8 billion catalogs were mailed in 2016, down from 2015 Over million U.S. adults made a catalog purchase in % of seniors and 41% of millennials read catalogs Source: DMA Statistical Fact Book, 2017

14 The Effectiveness of Direct Mail Print isn t just for an older market. All age groups are interested in receiving and responding to mail. For ages response rates doubled in % of direct mail is opened 82% of direct mail is read for a minute or more 56% of consumers who responded to direct mail went online or visited the physical store 62% of consumers who responded to direct mail in the past three months made a purchase Source: ** Direct Mail: Integral to the Marketing Mix in 2016 What They Think, January 2016

15 The Effectiveness of Catalogs 30% of people polled reported that a catalog recently drove them online to shop* 75% of marketers reported they plan to prospect using a catalog in the coming 12 months 85% plan to maintain or increase circulation, and 88% of those plan to maintain or increase page counts. ** People found catalogs the most interesting type of standard mail, surpassing newspapers and magazines by 31%.*** There has been a 4.5% decrease in catalogs mailed but a 23% increase in overall response due to better targeting, less prospecting and a tendency towards both branding and selling within a catalog.**** * Quad Graphics Customer Focus ** Multichannel Merchant *** USPS Household Diary Study **** DMA & USPS Household Diary Study

16 Check-Off Campaigns

17 The paper industry voted overwhelmingly to create a paper and paper-based packaging promotion program. This was announced in a news release on November 15 th, 2013 by the U.S. Department of Agriculture (USDA). In the United States, a commodity check-off program collects funds, though a mechanism called check-off dollars, from producers of a particular commodity. Then uses these funds to promote and do research on that particular commodity. The organizations must promote their commodity in a generic way, without reference to a particular producer. Check-off programs attempt to improve the market position of the covered commodity by expanding markets, increasing demand, and developing new uses and markets. There have been a number of similar programs for products such as milk, cheese, beef, mangos, peanuts, blueberries, cotton, honey, lamb, watermelons and soybeans. Most are familiar with these successful campaigns: Got Milk, Milk Does a Body Good, "The Incredible, Edible Egg, Ahh, the Power of Cheese, Beef, it s what s for Dinner, and Pork, the Other White Meat. Why a Paper Check-off? The intent is to improve public perceptions of paper products while increasing the sales of paper-based packaging and slowing the decline in demand for printing and writing grades. The Facts - Research shows that sustainability messaging can impact consumer confidence in paper: Prefer paper bags over plastic - up 16%, Prefer printing on paper - up 20%, Prefer printed magazine over digital - up 17%, Prefer paper-based packaging - up 48%. The Paper Check-off initiative covers four segments of the paper industry: Printing and Writing, Kraft Packaging, Containerboard, and Paperboard. Newsprint and Carbonless papers are not included in this program. Like with these other USDA check-off campaigns, the Paper Check-Off campaign will pool advertising dollars from manufacturers and importers. The program will be funded by an assessment of 35 cents per short ton on companies producing or importing 100,000 short tons or more annually of the covered grades. It is estimated to generate $25 million per year, to spend on consumer advertising that informs and educates the general population on the sustainability benefits our products provide. The program will be administered by an independent 12-member board of directors. The USDA is conducting a final solicitation for the board of directors to ensure eligible industry members are aware of the opportunity to be nominated. Board members are expected to be named shortly. For the purpose of ascertaining whether manufacturers and importers favor continuation of the program, a vote is conducted every seven years. For additional information, go to or to view the actual referendum on the Federal Register, go to

18 Paper+Packaging Board Update: How Life Unfolds Highlights in Product Relevance Category: Even as technology becomes more advanced, paper continues to play an important role in our lives: increased from 73% to 86% Paper-based product packaging is an essential part of everyday life: increased from 56% to 68% Highlights in Product Quality Category: Products that come in paper-based product packaging tend to feel more premium: increased from 52% to 66% When a company decides to package its products in paper-based packaging I think more highly of that company: increased from 44% to 63% Results from Aug 15 May 16 Attitude & Usage Survey*

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