Outlook for the Global Dissolving Pulp Market

Overview World demand is continuing to grow But at a slower pace Due to more competition with cotton for viscose China will still generate most of the growth Investment has slowed significantly Lower prices and reduced rate of demand growth New capacity will be focused on low cost regions Viscose pulp prices moving upward Supported by high cotton linter prices Hi alpha pulp prices continue their slide in 2016 Copyright 2016 RISI, Inc. Proprietary Information 2

Viscose Staple Fiber Usage Limited by Big Drop in Cotton Prices VSF prices now higher than cotton in all markets Even in China where cotton prices have collapsed Cotton inventories shrinking but still massive Underlying growth in textile fiber market helping Viscose pulp usage to increase 5% annually Hi alpha (specialty) uses currently weak Due to problems in acetate market Drop in Chinese cigarette consumption Ethers should rebound along with general economies Copyright 2016 RISI, Inc. Proprietary Information 4

China Will Continue to Generate the Majority of Dissolving Pulp Demand China will account for 60% of world growth Dominance in textile fiber market Lower cotton and polyester prices are limiting factors Increasing production of acetates and ethers Other Asian countries will account 30% of world growth Led by India Cotton pricing will be major determinant Copyright 2016 RISI, Inc. Proprietary Information 6

Import Share of Demand Stabilizing Even though demand growth still focused on countries with limited fiber availability Dissolving pulp production is fiber intensive But is also a higher valued product Mills based on imported fiber could be alternative Especially in China Supported by Chinese tariffs Better option is distance integration Ownership of mills in low cost regions Copyright 2016 RISI, Inc. Proprietary Information 8

Investment in New Capacity Has Slowed Sharply Following the surge in 2011 2013 20 dissolving pulp expansions during that period Adding 50% to world capacity Capacity actually dropped in 2015 Declining pulp prices and profitability Shift to paper grade pulp Closures of Chinese cotton linter pulp mills Capacity expansion accelerating in 2016 Shift back to viscose pulp More conversions in China and Indonesia Copyright 2016 RISI, Inc. Proprietary Information 10

Global Operating Rates Stabilizing Viscose pulp operating rates jumped in 2013 2015 In response to sharp slowdown in investment Will slip again in 2016 2017 As capacity expansion accelerates Hi alpha pulp operating rates slumped in 2013 2015 Surge of investment in new capacity Weak acetate pulp demand Operating rates will improve modestly in 2016 2017 As demand accelerates, especially in ethers Copyright 2016 RISI, Inc. Proprietary Information 12

Viscose Pulp Prices Moving Upward Main support is high cotton linter prices Closures of Chinese cotton linter pulp capacity Slowdown of investment also helping No support from paper grade pulp prices Impact of anti dumping duties Near term pricing dependent on several factors Amount of new capacity hitting the market Path of cotton linter pricing Path of paper grade pulp pricing Copyright 2016 RISI, Inc. Proprietary Information 14

Hi Alpha Pulp Prices Still Declining Drop in 2016 makes third year in a row Weak demand, especially in acetate Viscose pulp producers moving up the food chain Legacy producers intent on keeping market share Historical average for hi alpha prices around $1,400/tonne Differential with viscose pulp about $400/tonne Copyright 2016 RISI, Inc. Proprietary Information 16

Risks to Forecast Demand Development of Chinese cotton inventories What is the longer term path for cotton pricing? Supply Will more Chinese cotton linter capacity close? How much capacity will be coming from low cost world regions? Prices Path of paper grade pulp prices Significant shift in world cost curve? Copyright 2016 RISI, Inc. Proprietary Information 18