Tighter competition in a globalised world: Threats and opportunities for the European pulp & paper industry

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1 Tighter competition in a globalised world: Threats and opportunities for the European pulp & paper industry International Meeting of Slovene Paper Industry Bled, 23 November 2011 Bernard Lombard, CEPI

Confederation of European Paper Industries Represents the European Paper Industry in Brussels, with National associations as members in 19 countries: Austria

2 Confederation of European Paper Industries Represents the European Paper Industry in Brussels, with National associations as members in 19 countries: Austria Belgium Czech Rep. Finland France Germany Hungary Italy Netherlands Norway Poland Portugal Romania Slovakia Slovenia Spain Sweden Switzerland United Kingdom 2

The European Pulp & Paper industry 96 Mt of Paper & Board and 13 Mt of market pulp produced in 2009-95% of the European production, 24% of the World production 700 companies,

3 The European Pulp & Paper industry 96 Mt of Paper & Board and 13 Mt of market pulp produced in % of the European production, 24% of the World production 700 companies, 1,000 mills Eur 81 Bn turnover, Eur 16 Bn added value, 3.6 Bn investments 225,000 jobs, 60% of direct & indirect jobs in rural areas, 1.8 million indirect jobs (excl. distribution) 3

CEPI s Goals To secure pulp and paper industries competitiveness towards EU policy makers To represent the paper industry with EU institutions and Brussels based

4 CEPI s Goals To secure pulp and paper industries competitiveness towards EU policy makers To represent the paper industry with EU institutions and Brussels based stakeholders To improve the image and visibility of the paper industry and other related industries To be the example of how competitiveness and sustainability can go hand in hand! 4

5 CEPI priority issues 2012 Climate Change & energy: ETS and carbon leakage status, level playing field with global competitors Raw materials: security of recovered paper availability at affordable prices, biomass supply policy, competition from energy sector Environmental policy: acknowledgement of industry s sustainability performance Food contact: food safety and mineral oils Transport: policy measures affecting transport costs Innovation: support from EU and funding in innovation and R&D projects related to the place of the industry in the EU bioeconomy Communication: outstanding image and reputation to support CEPI goals and targets 5

6 The Economic Context 6

7 Economic developments in major industrialised economies: gloomy prospects Output growth (%) f 2012f World EU US Japan China Russia Brazil India f : forecasts Global growth will be slower than expected. Forecasts, even for emerging countries, are less optimistic Forecasts for the EU have been revised downwards Unemployment rate EU f 2012f Millions In % Source: IMF, Sep. 2011, EU Commission, Autumn

8 EU Business indicators: lack of confidence Source: EU Commission, Oct

9 The current Situation of the European Paper Industry 9

10 GDP and Paper & Board consumption in Europe: an obvious decoupling Index 2000 = Graphic Papers Sanitary and Household Packaging Papers Total P&B GDP (Constant Price) Source: CEPI, Eurostat 10

11 CEPI production of market pulp and paper & board: not back to pre-crisis level Jan.-Aug.: 2011 / 2010 Paper & Board: -0.2% Market pulp: +5.3% Source: CEPI, Oct

12 Paper price developments: beyond the top Paper 1,5 1,0 0,5 0,0-0,5-1,0-1,5 EU27, % change on previous period Articles of paper 1,0 0,5 0,0-0,5-1,0 2005M M M M M M M M M M M M M M07 Source: Eurostat, Sep

13 European pulp & paper production capacities: supply/demand adjustments '000 tonnes Mills/machines rebuild (additional capacity) 13 '0 0 0 to n n e s New mills/machines started Closures completed Q Q Q3 Source: RISI, Sep Q4

14 EU industry production: all energy-intensive / ETS Sectors impacted Industry production index (monthly data) 2005 = M M M M M M M01 Manufacture of pulp, paper and paperboard Manufacturing Electric power generation, transmission and distribution Manufacture of basic metals Manufacture of glass and glass products Aluminium production Manufacture of lime and plaster Manufacture of cement Manufacture of ceramic tiles and flags Source: Eurostat, Nov

15 EU paper industry: orders relatively stable, close to pre-crisis level Monthly data index 2005 = M M M M M M M M M M M M M1 2011M7 Manufacture of paper and paper products Manufacturing MIG - Consumer Goods MIG - Intermediate Goods Source: Eurostat, Nov

16 About future Demand for Paper 16

17 Paper Demand in Europe through 2020: East more dynamic The demand for paper in Europe is projected to grow from 94 million tons in 2010 to 104 million tons by Eastern Europe (incl. Russia) is expected to account for most of the incremental demand in Europe, while the Western European paper market is expected to remain at the 2010 level. 120 Million tons Eastern Europe Western Europe Source: Poyry, March 2011

18 Paper Demand in Europe through 2020: packaging and tissue being ahead Graphic paper demand in Europe is expected to decline by 1 million tons during the current decade, while demand for tissue paper and packaging grades will continue to grow. 120 Million tons Packaging Tissue Graphic Source: Poyry, March 2011

19 Media reach & technology revolution, ICT: an accelerating trend Source: StepChange 19

20 Which paper applications are most likely to suffer from e-media? *according to a PRIMA survey carried out in 2010 ICT and paper are complementary. ICT is not carbon neutral! Source: StepChange 20

21 Long-Term Demand Growth in Western Europe through 2020 Demand for paper in Western Europe is expected to decline by 0.5%/a through 2020, calculated from the high 2008 level. The demand for graphic papers is relatively weak. 2 Demand growth, %/a 1 Tissue Containerboards Cartonboards 0 Sack paper Newsprint Uncoated mechanical Uncoated woodfree Coated mechanical Coated woodfree Average -0.5 %/a Other grades Share of consumption in 2008, % Source: Poyry, March

22 Long-Term Demand Growth in Eastern Europe through 2020 The rapid growth of the Eastern European markets is forecast to continue well into the future. Demand for coated woodfrees will increase relatively fast. 6 Demand growth, %/a 5 Tissue Containerboards Uncoated mechanical Newsprint Coated mechanical Uncoated woodfree Coated woodfree Sack paper Average 3.1 %/a Cartonboards Other grades Share of consumption in 2008, % Source: Poyry, March

23 Paper & Board consumption per capita: huge potential in the emerging countries Unites States Japan CEPI countries China Brazil South Africa Russia India European industry should benefit from this potential growth! Source: RISI 23

Paper demand forecasts 2010-2015 by main

24 Paper demand forecasts by main regions: Asia in the driving seat Better market access has to be secured through WTO and bilateral trade agreements. Source: RISI, Vision Hunters 24

25 About Competitiveness and Profitability 25

26 Profitability of the European pulp & paper industry : too low level Less dynamic markets and economic crisis, tighter competition from foreign countries, higher input prices, overcapacities, stricter environmental requirements have a cumulative effect on profitability. Source: Poyry 26

Cash manufacturing costs structure of the European pulp & paper industry - 2010 Billion euros 4.5 6.0 3.7 6.5 8.

27 Cash manufacturing costs structure of the European pulp & paper industry Billion euros Fibres account for 50% and total raw materials two thirds, energy 18%, labour 10%. Source: RISI 27

28 Pulpwood prices developments: the upward trend Pine price - local currency Birch price - local currency Index 100: :2 2007:2 2008:2 2009:2 2010:2 2011:2 Sweden (SEK/CM) Finland (Euro/CM) Austria (Euro/CM) Index 100: :2 2007:2 2008:2 2009:2 2010:2 2011:2 Sweden (SEK/CM) Finland (Euro/CM) Price delivered at road side Wood mobilisation is crucial and access to foreign markets key (Russia). Source: RISI, Sep

29 Wood pellets price development: competition from energy sector has to be fair Industrial wood pellets (ENDEX) CIF Amsterdam / Rotterdam / Antwerp Euros/Mwh Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Industrial wood pellets PIX Pellet Nordic index CIF Baltic Sea or North Sea port Wood pellets Germany (residential grade) bulk delivered Wood pellets Austria (residential grade) bulk delivered The competition on wood for energy is growing. Sustainability criteria is a must. Subsidies have a distorting impact. Source: Hawkins Wright, July

30 Pulp prices: down from record levels NBSK (EUR) - Western Europe NBSK (USD) - Western Europe Eucalyptus (EUR) - Western Europe Euros / USD per tonne Eucalyptus (USD) - Western Europe Jan 1995 Jan 1996 Jan 1997 Jan 1998 Jan 1999 Jan 2000 Jan 2001 Jan 2002 Jan 2003 Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Source: RISI, Oct. 2011

31 Commodities price volatility: pulp is not an exception 300 Commodity Metals Price Index Monthly Price 250 NBSK pulp Index 2005 = Commodity Price Index Monthly Price Commodity Industrial Inputs Price Index Monthly Price 0 Crude Oil (petroleum), Price index Monthly Price Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Commodity Agricultural Raw Materials Index Monthly Price Source: IMF, RISI, Sep

32 Recovered paper domestic prices: record levels First 10 months 2011: utilisation increased by 0.2% in Europe Germany and the Netherlands: Free-delivered prices Source: CEPI, Nov

33 Recovered paper prices: China s impact First 7 months 2011: exports increased by 1.1%, to China: +8% Source: GTIS, CEPI, Nov

34 Chemicals and non-fibrous raw materials: the upward trend Euros / tonne Titanium dioxyde - Laminates Titanium dioxyde - Rutile Latex SA Latex SB Potato starch Wheat starch 500 Corn starch - Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Starch: Euros/metric tonne CIF; Latex: Euros/dry metric tonne Free-delivered Source: PaperChem, Sep

35 Energy price developments: a boost for higher efficiency and renewable energy sources Euros/MWh and USD/barrel Jan 2008 Jul 2008 Jan 2009 Jul 2009 Jan 2010 Jul 2010 Jan 2011 Jul 2011 Amsterdam Coal CIF ARA (average next month future) (EEX), Euros/MWh Crude oil Brent Index (ICE), USD/barrel Crude oil Brent Index (ICE), Euros/MWh UK natural gas index (ICE), Euros/MWh Source: ICE, EEX, Sep

China has improved its labour efficiency substantially.

36 Labour productivity in the pulp & paper industry: skilled people availability is key Japan and Europe are leading, but China has improved its labour efficiency substantially. Attracting young talents remain a challenge Source: RISI, Sep

37 Road transport price in Europe: the need for more efficient transport modes Source: Cap Gemini Consulting and Transporeon, Aug Higher weight & dimensions limits for trucks are needed. European Modular System should be promoted. Rail freight services remain of poor quality. Liberalisation has not materialised yet 37

38 CO2 emission price: the climate change challenge In Euros per tonne Sep Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 CO2 emissions have to go down by 20% in Europe by The paper industry has to reduce its carbon footprint or face higher carbon price in the future. Source: Blue Next (spot market) 38

39 About Investments and Level playing field 39

40 Investments in new paper & board production capacities : China, China, China Million tonnes China CEPI area India Indonesia Japan Brazil Russia US South Korea Canada Source: RISI Anti-dumping and anti-subsidy measures were adopted by the EU against the fine paper imports from China into Europe in

41 Average capacity / age of paper machines: new investments make the difference Average capacity of paper machines (tonnes) EU27+Norway+Switzerland Asia-Pacific China Latin America Africa Other Europe North America Average technical age of paper machines (years) Bubble size: total paper capacity of the area / country Source: RISI 41

42 Pulp & paper industry average cash manufacturing cost structure benchmark - 4th quarter Maintenance 500 Labour EUR / Tonne EU RU CN JP ID BR US CA Electricity Fuels Chemicals Market Pulp Recovered Paper Wood Russia and Brazil are below other countries but capital costs and business environment matters as well. Source: RISI 42

43 CEPI countries trade flows: paper to Asia and other European countries, Brazilian and North American pulp to Europe Level playing field should be the rule of the game! Source: CEPI 43

is imported 18% of the CEPI paper production is exported Able

44 European paper industry: remains strong on domestic markets and exports Only 5% of the paper consumption in the CEPI area is imported 18% of the CEPI paper production is exported Able to keep these strong positions in the future? Source: CEPI 44

45 Paper is not the only application for wood fibre: more value to be created Source: UPM 45

46 The 2050 Roadmap: Unfold the future! In a broad sector scope the forest fibre sector 80% less fossil CO2 50% more value 40 years from now 46

47 Thank you! Hvala! For more information: Bernard Lombard Trade & Competitiveness Director

Pulp and paper markets and forecasts. Bernard de Galembert

Pulp and paper markets and forecasts Bernard de Galembert Top pulp producers - 2006 Mt 06/05 Mt 06/05 World 192.3 +1.9% Indonesia 5.7 +3.7% USA 53.2 +0.5% Chile 3.6 +6.5% Canada 23.7-7.2% India 3.2-3.0%