A Production-Protection Model for Sustainable Pulp & Paper ...
The Changing Structure of the Global Pulp and Paper Industries · But the changing location of...
Transcript of The Changing Structure of the Global Pulp and Paper Industries · But the changing location of...
HAWKINS WRIGHT
“This time it’s different”Changes in global pulp markets
AIAC, 16th May 2019
Pierre BACHM: +33 6 15 76 86 66E: [email protected]
www.hawkinswright.com
HAWKINS WRIGHT
We’re going to talk about…
• Cycles, and how this one is different• Marginal cost reversion• Producer stocks• Consolidation
• Demand drivers• China’s one-off price-inventory cycle• Price sensitivity of pulp and paper demand• National Sword
• The big picture is shifting• Integrated vs non-integrated paper production• Macro-economic headwinds• Fibre is king
www.hawkinswright.com
HAWKINS WRIGHT
0
200
400
600
800
1000
1200
1400
US$
/t
Benchmark pulp prices, CIF West Europe
NBSK
BEKP
• These price cycles have ensured that the supply-demand ratio is restored to 91-92% over time
• In short-term, prices are driven by inventory movements and expectations
• Prices invariably over-shoots in both directions
No cycle is the same, but we can learn from history
1
23 4
5
www.hawkinswright.com
HAWKINS WRIGHT
BHKP net price v marginal cost
And yet prices remain ~$100/t higher than marginal cost
0
100
200
300
400
500
600
700
800
900
1000
US$
/tonn
e
PriceMarginal cost
USACanada USA/China
12
3
4
5
www.hawkinswright.com
HAWKINS WRIGHT
W-20 producer stocks increased by ~1.8Mt since June 2018
15
25
35
45
55
65
75
Wor
ld-2
0 pr
oduc
er s
tock
s
BSKP
BHKP
Source: PPPC
World-20 Producer inventories, days of supply
12
3 45
www.hawkinswright.com
HAWKINS WRIGHT
30%
35%
40%
45%
50%
55%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Mar
ket s
hare
top
ten
prod
ucer
s
Market share of the top ten market pulp producers (BCP, UKP and BCTMP combined)
Consolidation is playing a major role…www.hawkinswright.com
HAWKINS WRIGHT
But supply glut is arguably more important…
• And production “normalised”, with no strike, no boiler problems, fires, extreme weather, or excessive maintenance…
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0
5
10
15
20
25
30
35
40
45 Annual change in capacity (million tonnes)
Tota
l cap
acity
(mill
ion
tonn
es)
Annual change in BCP capacity (RHS)BSKPBHKP
Record capacity growth 2015-2018 finally reaches its potential:
• Hardwood supply growth from Tres Lagoas II, APP OKI, Guaibarecovers, other incremental
• Softwood from SCA Ostrand, Metsa Aanekoski, Sodra Varo, and even Svetlogorsk starts to ramp up, other incremental (e.g. Skutskar, Steti)
• Less maintenance
www.hawkinswright.com
HAWKINS WRIGHT
…while price-sensitivity of pulp (and paper!) demand is being put to the test!
-500
-400
-300
-200
-100
0
100
200
300
400
Y-o-
Y gr
owth
, (00
0s t)
China
Rest of the World
-3
-2
-1
1
2
3
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mill
ion
tonn
es
China 10yr avg: +1.2Mt/yr
ROW 10yr avg: -0.1Mt/y
Tota
l BC
P de
man
dW
orld
-20
sam
ple
www.hawkinswright.com
HAWKINS WRIGHT
CWF and UWF paper prices, as an Index (Jan-15 = 100)
Testing the price sensitivity of paper demand?
Price inflation leads to re-stocking….leads to strong paper demand and production, leads to strong pulp demand
Chinese P&B producers hoped that a high pulp price would support paper prices, but ultimately paper price relates to supply and demand, not pulp price
Paper demand has fallen sharply due to price sensitivity of paper demand and slowing economy. Q1 2019 figures show
P&W (del) Tissue (prod)NA -13% -1%Europe -7% -3%
250
300
350
400
450
500
'12 '13 '14 '15 '16 '17 '18 '19
€pe
r ton
ne o
f pap
er
European converting margin: CWF
300
400
500
600
'12 '13 '14 '15 '16 '17 '18 '19
UWF
859095
100105110115120125130135140
Janu
ary
2015
=100
ChinaNorth AmericaEurope
UWF/CWF average index
www.hawkinswright.com
HAWKINS WRIGHT
Combined impact of National Sword and the inventory cycle
• P&B production falls by ~5 million tonnes in 2018
• Net exports of P&B fall by a similar amount…
-10%
-5%
0%
5%
10%
15%
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Chinese output of machine made P&BY-o-y % change (3 month moving average)
Source: National Bureau of Stats
2016: +3.4%
2017: +4.8%2015:
-1.7%2018: -5.8%
-2
-1
0
1
2
3
4
5
6
7
2010 2011 2012 2013 2014 2015 2016 2017 2018
Mill
ion
tonn
es
Chinese trade of unconverted P&B
Exports Imports Net exports
www.hawkinswright.com
HAWKINS WRIGHT
China is no longer the low-cost production base
• RCF imports have fallen by 12 million tonnes Total ban by 1st Jan 2021?
• Much of the RCF gas been diverted to other Asian countries (see below)
• US exports actually increased in 2018!
• RCF prices in USA and Europe have fallen, also promoting investment in packaging capacity
• Bottom line is that producing paper in China has become more costly! Chinese now investing in Malaysia, Vietnam, Taiwan, etc
US exports of RCF (full year 2018 v 2017)
0
500
1,000
1,500
2,000
2,500
3,000
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Office
ONP
Mixed
OCC
Chinese RCF imports (3mma)
-31%
+73%
+166% +95% +66%+27% +7%
+56%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Mill
ions
of t
onne
s
2017
2018
www.hawkinswright.com
HAWKINS WRIGHT
And capital starts to move offshore too Overseas investment from Chinese paper companies
Source: Hawkins Wright
Note: list is not exhaustive
Company Project/Target Location Grade Date
Nine Dragons Old Town ME, USA BHKP Oct-18
Paper Excellence Crofton, Alberni, Powell River Vancouver, Can NBSK Oct-18
Nine Dragons Fairmont WV, USA DIP Aug-18
Cheng Loong New PM Vietnam Linerboard Oct-18
Shanying Wickliffe KY, USA kraft pulp, packaging Aug-18
Shanying WPT Netherlands RCP Jul-18
RGE/APRIL Lwarcel SP, Brazil BEKP Jun-18
APRIL MNI Malaysia Newsprint Jun-18
Nine Dragons Rumford WI, USA kraft pulp, paper May-18
Nine Dragons Biron ME, USA fine paper May-18
Hengan Greenfield, Finnpulp Kuopio, Finland kraft pulp May-18
Shanying/CAMC/Silvi Brownfield, Boreal Bioref Kemijarvi, Finland Bio-refinery Apr-18
Sun Paper Greenfield Laos BHKP/DWP Mar-18
Paper Excellence Eldorado MGS, Brazil BEKP Sep-17
Nine Dragons New PMs Vietnam Linerboard Aug-17
Shanying Nordic Paper Sweden, Norway Packaging Jul-17
Lee & Man New PM Vietnam Linerboard Mar-17
Sun Paper Greenfield AR, USA fluff/DP/Liner? Apr-16
Tranlin Greenfield VA, USA Straw Jun-14
• Long Chen has cancelled some expansions in China
• Non-Chinese companies also investing heavily in renewable packaging through machine conversions (Stora Enso, Sappi, Metsa Board, Burgo, APP Indonesia) and new machines (Klabin, Ilim, West Rock)
• These will be integrated with pulp or recovered fibre
www.hawkinswright.com
HAWKINS WRIGHT
A crossroads for the Chinese paper industry?
0
10
20
30
40
50
60
70
80
90
100
110
120
thou
sand
tonn
es
"New" China
"Old" China
CPA estimates
21.0 21.5
10.1 10.72.8 3.0
25.717.0
29.030.4
0
20
40
60
80
100
120
2017 2018
mill
ion
tonn
es
Localwaste
Importedwaste
Non-wood
Local pulp
Importedpulp
www.hawkinswright.com
HAWKINS WRIGHT
0
50
100
150
200
250
300
350
400
Mill
ion
tonn
es
North America CEPI
Japan East Europe
Middle East & Africa Latin America
Other Far East China
Global P&P output has been fairly stagnant for 10 years
Source: Paper Industry Associations & Hawkins Wright China model
Global paper and board production Global pulp production
0
20
40
60
80
100
120
140
160
180
200
0
10
20
30
40
50
60
70
80
90
1990 1995 2000 2005 2010 2015
mill
ion
tonn
es
Total (right scale) North AmericaCEPI JapanChina & Indonesia LatamOther
www.hawkinswright.com
HAWKINS WRIGHT
But the changing location of production promotes market pulp demand over integrated
• Since 2007… Paper production falls in NA, Japan, Europe (integrated) And rises in China and other non-integrated countries
• This trend appears to be reversing, posing a threat to market pulp demand
Pulp production Pulp consumption
85%
57%76% 83% 64%
62% 34%0
10
20
30
40
50
60
70
NorthAmerica
CEPI Japan EastEurope
LatinAmerica
Asia China
milli
on to
nnes
72%
64%83% 64% 23%
83% 94%0
10
20
30
40
50
60
70
NorthAmerica
CEPI Japan EastEurope
LatinAmerica
Asia China
mill
ion
tonn
es
Integrated (inc. nonwood)
Market
www.hawkinswright.com
HAWKINS WRIGHT
It’s the economy…
• The price of most commodities rose through 2016 and 2017 as global economic growth accelerated and some emerging markets emerged from recession
• USD strength = EUR, RMB weakness on the buy-side (less purchasing power) & CAD, BRL, IDR, etc. on the sell-side (lower production costs)
• Softwood prices clearly over-shot and were always due a correction• Now further headwinds are emerging from US-China trade talks…
0
50
100
150
200
250
300
350
400
Inde
x, 2
005=
100
Pulp prices versus other commodities (index)
Economist commodity-price index
NBSK price (net cif China) index
BEKP price (net cif China) index
DWP price (CIF China) index
Source: Hawkins Wright, The Economist
6.00
6.10
6.20
6.30
6.40
6.50
6.60
6.70
6.80
6.90
7.00
ChinaExchange rate: RMB/USD
www.hawkinswright.com
HAWKINS WRIGHT
How sustainable is the Asian pulp wood trade?
0
5
10
15
20
25
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Milli
ons
of B
DM
T
Other BrazilChile VietnamThailand South AfricaIndonesia Australia
Hardwood chip exporters to Asia Pacific Rim (i.e. China, Japan, Taiwan, Korea)
• From 2020 chip exports from Chile and Australia will fall• Limited potential for growth elsewhere, meaning Asian pulp wood costs will rise further• At the same time, Indonesia becomes a net importer of wood chips…
www.hawkinswright.com
HAWKINS WRIGHT
What do we conclude?
• Cycles, and how this one is different• Marginal cost reversion• Producer stocks• Consolidation
• Demand drivers• China’s one-off price-inventory cycle• Price sensitivity of pulp and paper demand• National Sword
• The big picture is shifting• Integrated vs non-integrated paper production• Macro-economic headwinds• Fibre is king
• Inventory overhang will require time to clear, and although consolidation does increase scope for disciplined approach to supply, it should not overpower market forces!
• Demand is cyclical and price-sensitive!• Can we realistically expect another bumper year?
• The Chinese price-inventory cycle and National Sword program have accelerated a tectonic shift in global fibre flows and paper production.
• Macro-economic drivers are weakening, and are exacerbating pressure on prices due to near-term supply/demand fundamentals – macro drivers will continue to dominate.
• The hunt for fibre is on, in a world where reliable sources of good quality and affordable wood are getting rarer!
www.hawkinswright.com