Outlook for the Asian Graphic  Paper Market Paper Market RISI’s Asia Conference, 2016

Dr. Li Meng Economist, Asian Graphic Paper

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Dr. Li Meng, Economist g, Asia Graphic Paper • Covers Asian graphic paper market C Ai hi k t • Works out of RISI’s Beijing office • Co‐author of the monthly Asian Pulp & Paper Monitor, the  Asian Graphic Paper 5‐Year Asian Graphic Paper 5 Year Forecast and the Asian Graphic  Forecast and the Asian Graphic Paper 15‐Year Forecast • Principal Principal author of China author of China'ss Influence on World Graphic Paper  Influence on World Graphic Paper Markets in the Coming Decade 2012 and The Chinese Graphic  Paper Market: Recent Trends and Future Prospects under  p p Changing Circumstances 2015, authored or contributed to the  Global Outlook for Cut Size Uncoated Freesheet Paper  Markets and several single‐ or multi‐clients studies. 2

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Asian Graphic Paper Demand by  p p y Grade, 2015

• Demand for woodfree p papers and  p newsprint accounts for about 90% of  total graphic paper apparent  consumption

Graphic Paper Demand Graphic Paper Demand  56.2 million tonnes (% of total)

Change 2014‐2015: ‐4.1% PW Uncoated  Mechanical 3 5% 2.9 mt ‐3.5%

Newsprint ‐14.8% 10.5 mt (19%)

(5%)

12.1 mt (21%)

2.8 mt (5%)

Uncoated  Woodfree +0 6% +0.6%

3

27.9 mt 27 9 mt (50%)

Coated  Woodfree ‐4.2%

• Demand for both printing & writing  paper and newsprint face heavy  competition from e‐media competition from e media

• Second year of negative growth in  P&W demand since the global  economic recession of 2009, mainly  i i f 2009 i l due to negative growth in Japan and  China P&W Coated  Mechanical ‐6.0%

• Uncoated woodfree is the only grade  to see a slight improvement in  demand, due to stable support from  school materials

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3

Regional per Capita Graphic Paper  Consumption in Asia, 2015 Kilograms per Capita Kilograms per Capita Japan Hong Kong Hong Kong Singapore South Korea Taiwan Malaysia China Thailand Indonesia Philippines India Other Countries Pakistan

69.16 

16.52 

P&W

0  4

23.85

10 

20 

30 

40 

50 

60 

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70 

80 

NW

90 

100  4

4

Asian Newsprint Demand Has Entered  p a State of Permanent Decline In Decline since 2008 In Decline since 2008 15

12% Volume (L) Volume (L)

14

Percent Change (R)

6%

13 Million Tonnes

9%

3%

12

0% 11

‐3%

10

‐6%

9

‐9%

8

‐12% 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 5

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5

More Asian Newsprint Markets Shift  p into Long‐Term Decline Total market dropped 7.4% in 2015 as countries accounting for 40% of  Total market dropped 7 4% in 2015 as countries accounting for 40% of demand suffered double‐digit losses 20,000

India Other Indonesia, Malaysia, Philipines, Pakistan, Thailand Japan, South Korea, Taiwan, Hong Kong, Singapore China

Thousaand Tonnes

15,000

10,000

5,000

0 2001 6

2003

2005

2007

2009

2011

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2013

2015

2017 6

6

Robust Economy and Events Made  y 2015 Indian Newsprint Demand  Growth Turn Positive h ii 3,000

25% Demand

Thoussand Tonnes

2,500

Percent Change (R) 

2,000

20% 15% 10% 5%

1,500

0%

1,000

‐5% ‐10%

500

‐15%

0

‐20%

7

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7

Indian Newsprint Imports by Source p p y The North American share dropped 2% in 2015, while the Western European  share climbed 5% 1,600 Rest of World

Asia

Western Europe

North America

1,400

Tho ousand Tonnes

1,200 1 000 1,000 800 600 400 200 0 2006 8

2007

2008

2009

2010

2011

2012

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2013

2014

2015 8

8

Newsprint Prices in Major Asian  p j Markets US D ll US Dollars per Tonne in Domestic Markets T i D ti M k t $1,000 India

$900

South Korea

$800

China Hong Kong

$700 $600 $500 Hong Kong 

$400 2011

2012

2013

2014

2015

2016

Note: a 17% of VAT is included in the Chinese prices © Copyright 2016 RISI, Inc. | Proprietary Information

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9

Asian P&W Paper Demand: Stagnant  p g Market Situations in 2016 and 2017 CWF papers will face more challenges especially in China CWF papers will face more challenges, especially in China 50000

12.0% 10.0%

45000

8.0% 40000

6.0%

35000

4.0%

30000

2.0% 0.0%

25000

‐2.0% 20000 15000

UWF 0.8%* UWF 0 8%* CWF ‐1.6%* Total Growth% ‐0.2%*

UMe ‐1.2%* UM 1 2%* CMe ‐3.0%*

‐4.0% ‐6.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 * Annual growth rate, 2016-2017 10

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10 10

Many Asian P&W Markets Are  y Growing, But the More Mature  M k Will S C i Markets Will See Continued Decline  d D li 20% 15% 10% 5% 0% ‐5% 5%

2005

2007

2009

2011

2013

2015

2017

‐10% ‐15% 15% India Other Indonesia, Malaysia, Philipines, Pakistan, Thailand J Japan, South Korea, Hong Kong, Singapore S th K H K Si China 11

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11 11

UWF Demand: Return to Modest  Growth in 2016 and 2017 After Two  Y Years of Stability f S bili 8% 38,000 

5%

6%

Thousaand Tonnes

33,000  4%

3% 3%

28,000  2%

23,000 

0%

18,000 

‐2%

13,000  8,000  10

11

12

Capacity

13

Demand

12

14

15

16

Production

17

‐1% ‐2%

‐4% 2012

2013

2014

2015

‐6%

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12 12

Asian UWF Market Imbalance Arose  Because of New PMs and Conversions,  with Little Response in Sight i h Li l R i Si h 2,000 Capacity Growth Demand Growth

Thousand d Tonnes

1,600 1,200 800 400 0 2010 13

2011

2012

2013

2014

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2015

2016

2017 13 13

Tho ousand Ton nnes

UWF Net Exports Fell in 2015 due to the  p US ADD/CVD Case, but Will Improve as  Chi China and Indonesia Will Gain Market  dI d i Will G i M k Shares in Other Regions Worldwide Shares in Other Regions Worldwide   2,200 2,000 1,800 1,600 1,400 1 200 1,200 1,000 800 600 400 200 0

Fell 382,000 Tonnes

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 © Copyright 2016 RISI, Inc. | Proprietary Information

14 14

The CVD and ADD Tariffs on Cut Size  Exports Final ADD and CVD Tariffs Final ADD and CVD Tariffs Country

Company

ADD Tariff 

CVD Tariff

Combined

Australia

Paper Australia

222.46%

0%

222.46%

A t li Australia

All Oth All Others

138 87% 138.87%

0%

138 87% 138.87%

Brazil

Suzano

22.16%

0%

22.16%

Brazil

International Paper  do Brasil

41.39%

0%

41.39%

Brazil

All Others

26.95%

0%

26.95%

China

Asia Symbol (APRIL  affiliate)

84.05%

7.23%

91%

China

UPM China

149.00%

176.75%

325.76%

China

Sun Paper China

149.00%

176.75%

325.76%

China

All Others

149.00%

7.23%

156.23%

Indonesia

APRIL

2.05%

21.22%

23.27%

Indonesia

p Great Champ

17.39%

104.00%

121.39%

Indonesia

APP (and  subsidiaries)

17.39%

109.15%

126.54%

Indonesia

All Others

2.05%

21.22%

23.27%

Portugal

Portucel and All  and All Other Producers

7.80%

0%

7.80%

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15 15

Chinese Cut Size Exports Were Down  p due to Weak Global Demand; the US  M k N l Sh i D Market Nearly Shut its Doors to  Chinese Suppliers Chinese Suppliers Thousand Tonnes

700 Down 22%

600

60

500

50

20%

400 40 30

Total Exports

300

Exports to USA

200

20

100

10

0

16

Apr‐‐16

Feb‐16

Dec‐15

Oct‐‐15

Aug‐15

Jun‐‐15

Apr‐‐15

Feb‐15

Dec‐14

Oct‐‐14

Aug‐14

Jun‐‐14

Apr‐‐14

Feb‐14

0

4%

54%

72%

2014

2015

Latin America USA Asia

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Oceania EU Africa

CA ME

16 16

Total Effects on Indonesian Cut Size  Paper Exports Were Minor as Rising  Sh Shares in Other Regions i Oh R i Thousand Tonnes

Down 2%

1,400

140

1,200

120

1,000

100

800

15%

6%

47%

53%

2014

2015

600

80 60

T t lE Total Exports t

400

40

Exports to USA

200 0

20 0

17

Latin America

Oceania

CA

USA

EU

ME

Asia

Africa

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17 17

UWF Offset Sheets Prices in Major  Asian Markets $1,800 Japan

South Korea

China

Hong Kong

$1,600 $1,400 $1,200 $1,000 $800 Hong Kong

$600 2009

2010

2011

2012

2013

2014

2015

2016

Note: a 17% of VAT is included in the Chinese prices

18

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18 18

Average UWF Sheets Cash Cost  g without Delivery for Major Supplying  C Countries to Hong Kong i H K US Dollars per Tonne, Balance Data 2016Q1, Cost Data 2015Q4 1,200  1,000  800 

Integrated Non‐integrated Reclyed Semi‐integrated 651 

600 600 

Price=US$730/tonne 597  398 

400 

308 

200 200  0  China

Japan

Indonesia

Thailand

Note: a 17% of VAT is included in the Chinese prices

19

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19 19

Th housand To Tonnes

CWF Demand: Negative Growth since  g 2014  18,000 

6%

16 000 16,000 

4%

14,000 

2%

12 000 12,000 

0%

10,000 

‐2%

8 000 8,000 

‐4%

6,000  ‐6% 4,000  10

11

12

13

14

15

16

17

‐8%

‐2% ‐3% 2012

‐5%

2013 2014 2015

Capacity

Demand

20

Production

‐10%

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20 20

No New CWF Projects, But Limited  Demand Growth Means Gap Will  Persist Thousand Tonnes 20,000  Demand 

17,500 

Supply

15,000  12 500 12,500  10,000  7,500  5,000  2009 21

2010

2011

2012

2013

2014

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2015

2016

2017 21 21

CWF Net Exports Increase Gradually  p y and Absorb Some of Regional Excess  S Supply l 1,800 1,600

Thousaand Tonnes

1,400 1,200 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 © Copyright 2016 RISI, Inc. | Proprietary Information

22 22

Export Patterns for Major Asian CWF  p j Producing Countries China and Japan aimed at Other Asian Countries; South Korea benefitted  China and Japan aimed at Other Asian Countries; South Korea benefitted more from North America and Europe 1,600 All Others

1,400

EU NA

1,000

Ai Asia

Thou usand Tonn nes

1,200

800 600 400 200 0 2012 2013 2014 2015 2012 2013 2014 2015 2012 2013 2014 2015 China h South Korea Japan

Note: Chinese CWF exports excluded Bristol

23

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23 23

CWF Prices in Major Asian Markets CWF Prices in Major Asian Markets $1 800 $1,800 Japan

South Korea

China

Hong Kong

$1,600 $1,400 $1,200 $1 000 $1,000 $800

Hong Kong

$600 2009

2010

2011

2012

2013

2014

2015

2016

Note: a 17% of VAT is included in the Chinese prices © Copyright 2016 RISI, Inc. | Proprietary Information

24 24

Average CWF Commodity Cash Costs  without Delivery for Major Supplying  Countries to Hong Kong Countries to Hong Kong US Dollars per Tonne, Balance Data 2016Q1, Cost Data 2015Q4 1,200  1,000 

Integrated Non‐integrated

Semi‐integrated Reclyed

Price=US$660/tonne

800  600 600 

1,032 

400  200 

780  466  521 

617 617 

624 

643  626 

531 

0  Chi China

S th K South Korea

J Japan

Note: a 17% of VAT is included in the Chinese prices © Copyright 2016 RISI, Inc. | Proprietary Information

25 25

Chinese Graphic Paper Demand by  Grade Million Tonnes, % Change Million Tonnes, % Change

26

2012

2013

2014

2015

Newsprint

3.93

3.62

3.21

2.82

%ch

1%

‐8%

‐11%

‐12%

Ctd. Woodfree

5.48

5.59

5.57

5.38

%ch

5%

2%

‐0.4% 0.4%

‐3% 3%

Ctd. Mechanical

0.63

0.58

0.51

0.55

%ch

‐19%

‐8%

‐13%

8%

Unc. Woodfree

15.17

15.33

15.13

15.03

%ch

2%

1%

‐1%

‐0.7%

Unc. Mechanical

1.80

1.81

1.75

1.74

%ch

2%

1%

‐3%

‐0.5%

Total

27.0

26.9

26.2

25.5

%ch % h GDP %ch

2% 7.7%

0 3% ‐0.3% 7.7%

2 9% ‐2.9% 7.3%

2 5% ‐2.5% 6.9%

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26 26

Chinese Graphic Paper Demand  p p Thousand Tonnes NW 7 3%* NW ‐7.3%*

CM 0 2%* CMe ‐0.2%*

CWF 1 8%* CWF ‐1.8%*

UMe ‐0.7%*

UWF 0.8%*

Total Growth% ‐0.8%*

30,000

5% 4%

25,000

3%

20 000 20,000

2% 1%

15,000

0%

10,000

‐1% ‐2%

5 000 5,000

‐3%

0

‐4% 2010

2011

2012

2013

2014

2015

2016

2017

* Annual growth rate, 2016‐2017

27

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27 27

China Will Remain a Modest Net  Exporter, Mostly of Woodfree Paper  G d Grades Net Exports, Thousand Tonnes 1,600  1,400 

UWF

UMe

CWF

2014

2015

2016

CMe

1,200  1,000  800 800  600  400  200  0  2010

2011

2012

2013

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2017 28 28

Thank you for your attention! y y For more information: Global Outlook for Cut Size Uncoated  Global Outlook for Cut Size Uncoated Freesheet Study www.risi.com/globalcutsize Asian Graphic Paper 5‐Year Forecast www.risi.com/AGP5 The Chinese Graphic Paper Markets:  The Chinese Graphic Paper Markets: Recent Trends and Future Prospects  under Changing Circumstances under Changing Circumstances www.risi.com/chinagraphic

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