Global Tissue Market Outlook With a Specific Focus on Asia RISI Asian Conference Shanghai, China May 218 Esko Uutela Principal, Tissue Copyright 218 RISI, Inc. Proprietary Information
Esko Uutela Principal, Tissue euutela@risi.com Educational background in forestry, economics and business studies In consulting business and information services for the forest industry since 1976 Cooperating with RISI since 27 Developed global tissue databases and forecasting models Previous experience in graphic, packaging and recovered papers Assisted by RISI Asian, European and American colleagues and consultants Produced more than 2 single- and multi-client tissue studies Copyright 218 RISI, Inc. Proprietary Information 2
Agenda Recent Global Trends and Outlook North and Latin American Outlook Western and Eastern European Outlook Asian Outlook Concluding Remarks Copyright 218 RISI, Inc. Proprietary Information 3
RECENT GLOBAL TRENDS AND OUTLOOK Copyright 218 RISI, Inc. Proprietary Information 4
World Tissue Consumption by Region Market is dynamic: China has passed Western Europe in market size, while Asia Far East is and Eastern Europe soon will be larger than Japan. China has been the largest producer country since 215. E.Europe 5.5% Asia Far East 6.% Japan 5.5% N&M East 4.% Africa 2.1% Oceania 1.2% N. America 25.% L. America 11.1% W. Europe 18.3% China 21.3% Global Consumption: 36.4 Million Tonnes (216) Copyright 218 RISI, Inc. Proprietary Information 5
Thousand Tonnes Relative Growth, Percent per Year Growth in the Global Tissue Market Relatively stable growth until the Great Recession in 29, recent years have been strong 1,6 6 1,4 1,2 1, Volume Growth Relative Growth 5 4 8 3 6 4 2 2 1 21 23 25 27 29 211 213 215 Copyright 218 RISI, Inc. Proprietary Information 6
Thousand Tonnes Volume Growth of Tissue Consumption, 26-216 China accounted for 41% of growth, North and Latin America share second place 5, 4, 3, 2, 1, Total Global Growth: 1.5 Million Tonnes (1.5 Million Tonnes per Year) Copyright 218 RISI, Inc. Proprietary Information 7
Growth Rate, Percentage per Year Long-Term Growth Trends in the Global Tissue Market International trade in tissue shows a higher growth rate than tissue consumption, a clear sign of business globalization; parent roll trade has accelerated in recent years 6 5 4 3 2 1 Tissue Consumption Total Tissue Trade Parent Roll Trade Copyright 218 RISI, Inc. Proprietary Information 8
Thousand Tonnes Top 1 Global Tissue Producers in 26 and 216 After recent major investments, Indonesia and Turkey are now on the top producer list 1, 8, 26 216 6, 4, 2, China Japan Germany Mexico France Copyright 218 RISI, Inc. Proprietary Information 9
Thousand Tonnes Relative Growth, Percent per Year Anticipated Growth in the Global Tissue Market Tissue consumption benefitting from improving global economic growth, but there are also uncertainties ahead 1,8 1,6 1,4 1,2 1, 8 6 4 2 Volume Growth Relative Growth 6 5 4 3 2 1 Copyright 218 RISI, Inc. Proprietary Information 1
NORTH AND LATIN AMERICAN OUTLOOK Copyright 218 RISI, Inc. Proprietary Information 11
Growth Rate, Percent per Year The North American Tissue Business Was Strong in 215-216 The AfH sector in particular benefitted from the strong economy and low gasoline prices 4. 3. 2. 1.. -1. -2. Average growth accelerating from 1.5% to 1.75% per year Copyright 218 RISI, Inc. Proprietary Information 12
Million Tonnes Expected Growth in US Tissue Consumption by Business Sector At-Home retailer labels will show the strongest growth, while At- Home branded volume growth will remain moderate and AfH growth will rise above average At-Home growth 5. 4. 3. Minor growth of.4% Market Volume 21 211 212 213 214 215 216 217 218 219 Growth of 2.3% 2. Growth of 5.9% per 1.. AH Brands Retailer Labels AfH Copyright 218 RISI, Inc. Proprietary Information 13
Major Tissue Capacity Changes in North America, 218-22 218 Georgia-Pacific, Augusta, Georgia -31, t/a Sofidel America, Circleville, OH, USA (2 x NTT) 14, t/a Irving Consumer Products, Macon, GA, USA (TAD PM) 64, t/a First Quality Tissue, Anderson, SC, USA (TAD PM) 64, t/a 237, t/a 219 Clearwater Paper, Shelby, NC, USA (NTT PM) 64, t/a First Quality Tissue, Lock Haven, PA, USA 64, t/a Kimberly-Clark, Fullerton, CA, USA -6, t/a Sofidel America, Inola, OK, USA 3, t/a Georgia-Pacific Corp., Palatka, FL, USA (TAD PM) 72, t/a 17, t/a Potential Projects First Quality Tissue, Anderson, SC, USA (ATMOS PM)??? 68, t/a Kruger Tissue, Memphis, TN or Canada (TAD PM) 65, t/a Resolute Forest Products, Calhoun, TN, USA (second NTT PM) 6, t/a 193, t/a Copyright 218 RISI, Inc. Proprietary Information 14
Thousand Tonnes Capacity Utilization, Percent Net Capacity Change* and Tissue Operating Rate in North America Last year and 218 are looking good due to project delays and closures, but any new expansion adding to the committed capacity would change the current outlook from good to stable; additional closures likely to emerge 4 3 2 A lot of new capacity coming on stream that will affect 219-22; utilization rate will head south if no further closures occur 1 95 1 9-1 85-2 Capacity Change Capacity Utilization 8 *Based on committed projects only Copyright 218 RISI, Inc. Proprietary Information 15
Main Latin American Tissue Markets, 216 The five largest markets accounted for 77% of total consumption Ecuador 2% Guatemala 2% Venezuela 3% Peru 4% Colombia 5% Chile 6% Argentina 8% Costa Rica 2% All Others 9% Mexico 28% Brazil 31% Total Market Size: 4. Million Tonnes Copyright 218 RISI, Inc. Proprietary Information 16
Growth Rate, Percent per Year Latin American Tissue Market Shows Varying Annual Growth, Change to a More Positive Trend Expected Economic turbulence and political instability caused problems, disappointing growth in 214-216, Brazilian recession the main reason, 217 preliminarily more positive 12 1 8 6 4 2 Average Growth 4.4%/a 22 24 26 28 21 212 214 216 Copyright 218 RISI, Inc. Proprietary Information Copyright 218 RISI, Inc. Proprietary Information 17
Thousand Tonnes Expected Volume Growth of Latin American Tissue Demand by Main Country, 216-22 Brazil is projected to recover in 217-219 3 25 2 15 1 5-5??? Copyright 218 RISI, Inc. Proprietary Information 18
Thousand Tonnes Capacity Utilization, Percent Net Capacity Change* and Tissue Capacity Utilization in Latin America Project delays and stronger demand could help a lot, but the current outlook is not encouraging for new investments 35 3 25 2 15 1 5 Capacity Change Capacity Utilization 1 95 9 85 8 75 7 65 6 * Based on committed projects only Copyright 218 RISI, Inc. Proprietary Information 19
WESTERN AND EASTERN EUROPEAN OUTLOOK Copyright 218 RISI, Inc. Proprietary Information 2
Growth Rate, Percent per Year Western European Tissue Market Showed Positive Recovery in 215, 216 Disappointing Major variations in growth from year to year 4. 3.5 3. 2.5 2. 1.5 1..5. -.5-1. -1.5-2. Recession over, but no consistent return to past growth rates Copyright 218 RISI, Inc. Proprietary Information 21
Growth Rate, Percent per Year Eastern European Tissue Market Growth Negatively Affected by the Political Tension The Russia-Ukraine conflict has taken its toll on the tissue sector as well, but 216 was surprisingly strong, mainly thanks to Poland 15. 1. 5.. -5. -1. Growth in 213-215 weak and far from the trend line Copyright 218 RISI, Inc. Proprietary Information 22
Average Annual Percentage Growth Growth Rate of Western European Tissue Consumption, 214-22 We expect relatively slow growth to continue in the next years 3. 2.5 2. Forecast 1.5 1..5. 214 215 216 217 218 219 22 Copyright 218 RISI, Inc. Proprietary Information 23
Thousand Tonnes Volume Growth of Western European Tissue Markets by Main Country, 216-22 In the next five years, volume growth will be largest in the UK, Italy and Germany 14 12 1 8 6 4 2 Copyright 218 RISI, Inc. Proprietary Information 24
Average Annual Percent Growth Growth Rate of Eastern European Tissue Consumption, 214-22 The outlook is rather optimistic for tissue market growth in the next few years 8 7 6 5 4 3 2 1 Forecast 214 215 216 217 218 219 22 Copyright 218 RISI, Inc. Proprietary Information 25
Thousand Tonnes Volume Growth of Eastern European Tissue Markets by Main Country, 216-22 In the next five years, volume growth will be largest in Russia, followed by Poland, Romania and Ukraine 16 14 12 1 8 6 4 2 Copyright 218 RISI, Inc. Proprietary Information 26
Thousand Tonnes Capacity Utilization, Percent Net Capacity Change* and Tissue Capacity Utilization in Western and Eastern Europe until 221 Capacity closures helped the industry in 211-213, but new projects thereafter cut the trend; outlook is not too promising for 218-219 4 3 2 1 Capacity Change Capacity Utilization 94 92 9 88 86 84 * Based on committed projects only Copyright 218 RISI, Inc. Proprietary Information 27
ASIAN OUTLOOK Copyright 218 RISI, Inc. Proprietary Information 28
Main Asian Tissue Markets, 216 China dominant, Asia Far East now larger than Japan Japan 15% N&M East 11% Asia Far East 16% China 58% Total Market Size: 13.4 Million Tonnes Copyright 218 RISI, Inc. Proprietary Information 29
Growth Rate, Percent per Year Recent Growth Rates of Chinese Tissue Consumption The Chinese tissue market has been in a very strong growth phase and is now showing stronger growth than the economy 14 12 1 8 6 Average growth: 8.% per year 7.8 8. 7. 6.9 6.2 Recently, growth has been slowing, but 215 was an exception 9.9 1. 1.5 9. 8.5 8.2 6.7 7.1 7. 8.1 4 2 Copyright 218 RISI, Inc. Proprietary Information 3
Tissue Exports, Thousand Tonnes Chinese Tissue Export Growth, 21-217 Chinese tissue exports exploded in 211-214 and went to nearly every corner of the world with Asia Far East, North America and Japan being the largest buyers, followed by Oceania. Growth waned in 215, but resumed in 216-217 to more than 9, tonnes. 1, 9 8 7 6 5 4 3 2 1 Average growth rate, 211-217: +1.8%/a 21 211 212 213 214 215 216 217 Asia Far East North America Japan Oceania Middle East Western Europe Africa Latin America Eastern Europe Copyright 218 RISI, Inc. Proprietary Information 31
Chinese Tissue Exports in 217 The Belt and Road countries are important export destinations for Chinese tissue suppliers Other World 4% Belt and Road Countries 35% USA 25% Total Exports: 913, Tonnes Copyright 218 RISI, Inc. Proprietary Information 32
Thousand Tonnes Volume Growth of Asian Tissue Markets by Sub-Region, 216-22 In the next few years, China will account for about 74% of the volume growth, while the Middle East and Asia are expected to record rather similar growth 3, 2,5 2, 1,5 1, 5 Copyright 218 RISI, Inc. Proprietary Information China Japan Middle East Asia Far East Copyright 218 RISI, Inc. Proprietary Information 33
Thousand Tonnes Volume Growth of Tissue Markets in Main Asian Countries Other than China and Japan, 216-22 Turkey, Saudi Arabia and Iran are expected to grow more than South Korea or Indonesia 25 2 15 1 5 Copyright 218 RISI, Inc. Proprietary Information 34
Renaissance of the Ancient Silk Road? Strategy initiated by President Xi Jinping in autumn 213 underlining China's push to take a larger role in global affairs with a China-centered trading network Copyright 218 RISI, Inc. Proprietary Information 35
The Silk Road and Maritime Silk Road Copyright 218 RISI, Inc. Proprietary Information 36
The Belt and Road Countries The list includes about 7 countries, covering 65% of the global population and 7% of GDP; the list of countries is open to changes. Asia Pacific: Afghanistan, Bangladesh, Bhutan, Brunei, Cambodia, India, Indonesia, Kazakhstan, Kyrgyzstan, Laos, Malaysia, Maledives, Mongolia, Myanmar, Nepal, New Zealand, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Tajikistan, Thailand, Timor-Leste, Turkmenistan, Uzbekistan and Vietnam. Near and Middle East: Armenia, Azerbaijan, Bahrain, Cyprus, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Palestine, Qatar, Saudi Arabia, Syria, Turkey, UAE and Yemen. Europe: Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine. Africa: Egypt, Ethiopia, Madagascar, Morocco and South Africa Latin America: Panama Copyright 218 RISI, Inc. Proprietary Information 37
Thousand Tonnes Relative Growth, Percent per Year Expected Growth in the Belt and Road Tissue Markets, 216-22 8, 7, Volume Growth Relative Growth 8 7 6, 6 5, 5 4, 4 3, 3 2, 2 1, 1 216 217 218 219 22 Copyright 218 RISI, Inc. Proprietary Information 38
Thousand Tonnes Chinese Tissue Exports to the Belt and Road Countries, 212-217 For China, the Asian-Pacific Belt and Road countries offer the best export potential and exports have steadily increased to these countries 35 3 25 2 15 1 5 Tissue Exports Average 5-year growth rate, 212-217: +19.3%/a 212 213 214 215 216 217 Asia-Pacific Near & Middle East Africa Europe Other Copyright 218 RISI, Inc. Proprietary Information 39
Thousand Tonnes per Year Chinese Investments Exploding, but Closures and Project Delays Expected There is a real investment peak with too much capacity being built, but currently also a wave of capacity closures in the industry as much as 1.3 million tonnes in 217! 4, 3, 2, 1, New Projects Closures Net Capacity Change Capacity Change* -1, 215 216 217 218 219-2, * PM start-up/learning curves not considered. Copyright 218 RISI, Inc. Proprietary Information 4
Thousand Tonnes Capacity Utilization, Percent Net Capacity Change* and Capacity Utilization in the Asian Tissue Industry Overcapacity is obvious, although project delays may help 1,8 1,6 1,4 1,2 1, 8 6 4 2 Capacity Change Capacity Utilization 1 95 9 85 8 75 7 *Based on committed projects only, learning curves considered. Copyright 218 RISI, Inc. Proprietary Information 41
Concluding Remarks China will continue to be the main driving force of global tissue industry expansion, although overcapacity is a threat in nearly every region. Project delays will be common. North American developments will be characterized by steady and encouraging growth, but also ongoing battles between brands and private labels. Latin America is in a recovery phase. The Western European tissue business is rather mature, and with population growth limited, growth will remain modest, helped only by some improvement in product penetration. Europe had a quiet expansion phase due to the recession, but capacity growth is picking up with investments in Southern and Eastern Europe. Tissue consumption is in a good growth phase in most of the Belt and Road countries, and this development is expected to continue and even accelerate in a number of countries. China is a major tissue supplier to the Belt and Road countries, and exports to this region have experienced rapid growth. We see the best opportunities for Chinese export expansion in the Asia-Pacific region. Copyright 218 RISI, Inc. Proprietary Information 42
Thank you for your attention! For more information: Outlook for World Tissue Business www.risi.com/owtb World Tissue Business Monitor www.risi.com/wtbm US Tissue Monthly Data www.risi.com/ustm Copyright 218 RISI, Inc. Proprietary Information 43