Pulp and paper markets and forecasts. Bernard de Galembert

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1 Pulp and paper markets and forecasts Bernard de Galembert

2 Top pulp producers Mt 06/05 Mt 06/05 World % Indonesia % USA % Chile % Canada % India % China % Germany % Finland % France % Sweden % S. Africa % Brazil % Norway % Japan % Portugal % Russia % Spain % Source: RISI, CEPI

3 Top paper producers Mt 06/05 Mt 06/05 World % Italy % USA % France % China % Indonesia % Japan % Brazil % Germany % Russia % Canada % India % Finland % Spain % Sweden % UK % South Korea % Austria % Source: RISI, CEPI

4 Paper consumption Mt 06/05 Mt 06/05 World % Spain % USA % Brazil % China % India % Japan % Canada % Germany % Mexico % UK % Russia % Italy % Indonesia % France % Taiwan % S. Korea % Thailand % Source: RISI, CEPI

5 Graphic papers World capacity growth Source: EMGE

6 Graphic papers Net capacity increase by region Source: EMGE

7 Graphic papers Demand forecast by region Source: EMGE

8 Containerboard Main trends and drivers Global consumption was approximately 98 Mt in 2006 The US has been the single largest consumer of containerboard, accounting for over 25% of the consumption China s consumption will continue to grow and is expected to overtake that of the US in the coming years Drivers and trends: food & beverage consumption, home delivery of products from increased on-line shopping, economic and industry activity

9 Containerboard Western Europe capacity development Yearly increase

10 Paper production by grade Cartonboard Mt 06/05 Total P&B Mt 06/05 World % World % Asia % Asia % Europe % Europe % N. America % N. America % S. America % S. America % Africa % Africa % Australasia % Australasia % Source: RISI

11 Cartonboard Main markets and drivers Food packaging accounted for largest share: 18 Mt in 2006 Single biggest sector is pharmaceutical industry (10%), followed by dry foods, frozen foods and tobacco Consumption would rise by a yearly average of 5% through 2012 based largely on growing demand in nonfood sector Drivers and trends: retailers behaviour towards sustainability and certification, multimedia, shorter brandlife constant need for new designs and graphics

12 Wood Pulp Europe Production and Consumption mt Production Consumption

13 Wood Pulp Europe Imports and Exports mt Imports Expor ts

14 Wood Pulp North America Production and Consumption mt Production Consumption

15 Wood Pulp North America Imports and Exports mt Imports Exports

16 Wood Pulp Russian Federation Production and Consumption mt Production Consumption

17 Wood Pulp Russian Federation Imports and Exports mt Im ports Exports

18 Trade Flows of Pulp to and from CEPI Countries in 2006 '000 Tonnes Other Europe: Exports to 515 Imports from 503 North America: Exports to 197 Imports from 3,394 Asia: Exports to 1,320 Imports from 166 Latin America: Exports to 23 Imports from 3,089 Rest of the World: Exports to 154 Imports from 405

19 Paper Production and Consumption in CEPI Countries Paper Production Trend in Paper Production Paper Consumption Trend in Paper Consumption Million Tonnes % +2.6 %

Trade Flows of PaperP to and from CEPI Countries in 2006 '000 Tonnes North America: Exports to 2,973 Imports from 1,513 Other Europe: Exports to 6,200

20 Trade Flows of PaperP to and from CEPI Countries in 2006 '000 Tonnes North America: Exports to 2,973 Imports from 1,513 Other Europe: Exports to 6,200 Imports from 1,727 Asia: Exports to 4,675 Imports from 365 Latin America: Exports to 1,455 Imports from 439 Rest of the World: Exports to 2,363 Imports from 368

21 Paper and paperboard Europe Imports and Exports mt Imports Exports

22 Raw Materials in Papermaking in CEPI Countries 2006 Non-Fibrous Materials 14.4% Woodpulp 42.1% Recovered Paper 42.4% Total: Million Tonnes Pulp Other than Wood 1.1%

23 Wood consumption for pulp manufacturing in CEPI Countries 2006 Total: 158 Million Cubic metres in 2006 / +28% over last 10 years % % Softwood Hardwood % %

24 Paper and paperboard North America Production and Consumption mt Production Consumption

25 Paper and paperboard North America Imports and Exports mt Im ports Exports

26 Paper and paperboard Russian Federation - Production & Consumption mt Production Consumption

27 Paper and paperboard Russian Federation Imports and Exports mt Imports Exports

Trade Flows of Recovered Paper to and from CEPI Countries in 2006 '000 Tonnes North America: Exports to 24 Imports from 230 Other Europe: Exports to

28 Trade Flows of Recovered Paper to and from CEPI Countries in 2006 '000 Tonnes North America: Exports to 24 Imports from 230 Other Europe: Exports to 340 Imports from 762 Asia: Exports to 7,655 Imports from 0 Latin America: Exports to 1 Imports from 8 Rest of the the World: Exports to 180 Imports from 6

29 China s dependence on imported fibre Wood pulp consumption Fibre consumption Recovered paper consumption Recovered paper account for more than 50% of the total fibre consumption, around 40% is imported The share of non-wood pulp is declining Source: Poyry

Paper production forecast - 2020 40% of the global production located in Asia China taking up

30 Paper production forecast % of the global production located in Asia China taking up 60% of the growth in new capacity Link between local demand and local supply disrupted Source: Poyry

Papermaking fibre furnish in the world - 2020 About 370 Mt of fibre used in the world in 2005 Recovered paper

31 Papermaking fibre furnish in the world About 370 Mt of fibre used in the world in 2005 Recovered paper share to increase from 50% today to 56% China utilisation of recovered paper from 35 Mt to 66 Mt Source: Poyry

32 The big challenge ahead: bioenergy Political context Climate change considerations Implications managing the transition to a low carbon economy Strong international actions to reduce climate change, e.g., CO 2 abatement Strong push for renewable energy sources for power and heat - 20 % + 13 % 20% Strong push for energy efficiency - 20 % Higher relevance of security of energy supply Growth of biomass for power and heat production Emergence of biofuels for transportation 10% Changing competitive landscape for traditional users of wood and RP

33 Will wood supply match demand? CEPI-16, wood supply and demand; million m 3 (under bark); 2020 Supply Demand ~380 Current forest biomass supply Mobilization Net imports Recovered wood Estimated supply Estimated gap Estimated demand Non-traditional demand (energy) Traditional demand PPI WPI Source: McKinsey/Pöyry team analysis

34 Possible future scenarios No mismatch between demand and supply of wood biomass Increased biomass supply Other RES technologies Some cost increase (regional mismatches/transportation) Limited impact on PPI Rough costs involved Increasing supply of energy crops billion EUR/year Non-biomass RES: 4-6 X Today: ~6% RES Current policies and technology expectations Mismatch between demand and supply of wood biomass Current subsidy levels and structure Significant increase in cost of biomass (incl. pulpwood and logs) Some risk to paper industry competitiveness Significant risk of bio-energy not being fully produced (240 TWh or 8% of RES target) Source: McKinsey/Pöyry team analysis Enforcing RES target without closing demand-supply gap Large increases in wood cost (energy-content pricing) Significant part of EU PPI (and wood products) globally uncompetitive Rough cost of additional bio-energy incentives: 8-11 x

35 The pulp and paper industry is not the problem it is part of the SOLUTION The PPI is already a substantial participant in bio-energy production and can be a key enabler for reaching future RES targets SR FI BE SE PT CZ AT Share of country primary bio-energy production Percent; Mtoe 3.3 ES PL FR DE UK NL IT The paper industry has: The infrastructure Biomass generation and sourcing organization in place (both RP and fresh fiber) The locations Network of installed assets that can be used for power, heat, and fuel The efficiency Very high efficiency in generating (and using) heat Source: CEPI bio-energy survey; SBB; McKinsey/Pöyry team analysis

36 There are solutions to relief pressure Close to home Continued aggressive energy-efficiency measures in PPI, e.g., replacing old recovery and multifuel boilers Potential effect 2020 Million m 3 ~10 Additional mobilization of round wood and residue Other measures, e.g., Lobby for removing existing export tariffs Decrease landfill of recovered wood 5 10 Import more biofuels; efficient use of land for first generation biofuels Free up additional land to grow more energy crops (estimated 6 million ha) Outside PPI Up to 310

37 Ways forward: focus on value creation Pöyry Forest Industry Consulting Oy & Foreco Oy

38 Ways forward: focus on keeping jobs Pöyry Forest Industry Consulting Oy & Foreco Oy

Bio-energy and the European pulp and paper industry an impact assessment

Document Date Bio-energy and the European pulp and paper industry an impact assessment Summary of a study conducted by McKinsey & Company and Pöyry Forest Industry Consulting Our key message The Forest