World Outlook for Book Publishing Papers John Maine Vice President April 2007.
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Transcript of World Outlook for Book Publishing Papers John Maine Vice President April 2007.
World Outlook for Book Publishing Papers
John MaineVice President
April 2007
2
U.S. Economy in the Middle of a 5 Quarter Slowdown that Began in Q2 2006
U.S. Economy Responding to– Rise in Interest Rates– Energy Price Shock– Weak Housing and a Decline in Mortgage Cash-Outs
So Far, No Recession in Sight– GDP Growth Below Average, but Remaining Around 2%-2.5%– Business Investment Strong
Economic Growth to Remain Below Trend Through Mid-2007
3
The U.S. Economy Holding Up Well to Negative Influences so Far in 2007
Real GDP Growth, Annualized Percent Change
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
96 97 98 99 00 01 02 03 04 05 06 07 08
Potential GDP Growth
4
Potential Recession?…Risk Assessment
Inverted Yield Curve Persists
Housing/Mortgage Collapse?
Fixing Global Imbalances May Require Much Weaker Dollar
Chinese Hard Landing?
5
1%
2%
3%
4%
5%
6%
7%
8%
9%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
`
U.S. Interest Rates
10-Year Bond Yield
Federal Funds Rate
Inverted Yield Curve
6
Overvalued U.S. Home Prices Beget Risky LoansType of Mortgage Loan for Purchase, % of Total
0%
10%
20%
30%
40%
50%
2000 2001 2002 2003 2004 2005
Negative amortization
Interest only
7
U.S. Foreclosures Have Spiked in Recent MonthsForeclosures Started During the Quarter – Mortgage Bankers Assn.
0.20%
0.25%
0.30%
0.35%
0.40%
0.45%
0.50%
0.55%
0.60%
90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6
8
Overinvestment Makes China Vulnerable
10%
20%
30%
40%
50%
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
China India S. KoreaThailand Malaysia
Investment as Percent of GDP
9
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9
US$ per Euro
Euro Will Remain Strong
10
$0
$10
$20
$30
$40
$50
$60
$70
$80
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9$0.60
$0.65
$0.70
$0.75
$0.80
$0.85
$0.90
$0.95
US$ per CN$ (R)
WTI Oil Price (L)
Falling Energy Prices Hold Canadian Dollar Below 90 Cents
(WTI Oil Price per Barrel and $U.S./$CN Exchange Rate)
11
World Printing & Writing Paper Demand Took Off Without North America in 2006
-10%
-5%
0%
5%
10%
15%
2000 2001 2002 2003 2004 2005 2006
N. AmericaEuropeL. AmericaAsiaOther
% Change in Apparent Consumption
12
World Demand Growth from 2000 to 2006 Shows Decreasing Importance of North America
-2
0
2
4
6
8
10
12
P&W Demand Growth From 2000 to 2006
Million Tonnes
N Amer. Europe L Amer. Asia Other World
13
World P&W Demand Growth Stuck in Low Gear by Stagnant North American Market
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
90 92 94 96 98 0 2 4 6 8
% Change in World Demand for P&W Paper
14
World P&W Demand by GradeMillion Tonnes, % Change
2005 2006 2007 2008
Ctd. Woodfree 28.7 29.7 30.5 31.8 %ch 3% 4% 2% 4%
Ctd. Mechanical 17.2 17.8 18.0 18.6 %ch 0% 3% 1% 4%
Unc. Woodfree 51.5 52.5 53.1 54.5 %ch 1% 2% 1% 3%
Unc. Mechanical 14.3 14.6 14.9 15.5 %ch -1% 2% 2% 4%
Total 111.8 114.6 116.4 120.4
%ch 0.8% 2.5% 1.6% 3.4%
World GDP %ch 4.7% 5.7% 4.6%5.1%
15
North American Market
Demand in Third Year of Stagnation or Decline– Started in 2005– Despite strong economy– Will Remain Weak in 2007
High Cost Domestic Capacity Shutting Down
Modest Demand Growth May Return in 2008– Stronger economy
16
Printer Inventories of Paper (Days of Supply, seasonally adjusted)
35
37
39
41
43
45
47
2003 2004 2005 2006 2007Data Source: Calculated by RISI from IDEAlliance data
Days
17
North America Grade Trends
Uncoated Freesheet Declining Since 1999– Further reductions expected
Coated Paper– Growth trend is close to 2% per year– But not in 2007 where demand will be down 1%-2%
Uncoated Mechanical Demand Is Robust– Competition with independent Telco directories– Switch to cheaper papers– Success of offset substitutes
18
North American P&W Demand by GradeMillion Tonnes, % Change
2005 2006 2007 2008
Ctd. Woodfree * 6.1 6.3 6.3 6.6 %ch -2% 3% 0% 4%
Ctd. Mechanical 5.8 6.0 5.9 6.1 %ch -3% 3% -2% 4%
Unc. Woodfree * 13.0 12.8 12.6 12.7 %ch -5% -1% -1% 1%
Unc. Mechanical 6.2 6.1 6.3 6.6 %ch 2% -1% 2% 5%
Total 31.1 31.2 31.1 32.0 %ch -3% 0% -1% 3%
U.S. GDP %ch 3.2% 3.3% 2.5%3.1%
*Includes bristols and cotton
19
Paper Purchased for Use in U.S. Books in Tons and as a % of U.S. Printing & Writing Demand
1,300
1,400
1,500
1,600
1,700
1,800
1,900
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Paper Used in Books Share of U.S. Demand (% )
000 tons % of P&W Demand
20
Paper Purchased for Usage in U.S. Books by Grade (000 tons)
0
100
200
300
400
500
600
CoatedMechanical
CoatedFreesheet
UncoatedMechanical
UncoatedFreesheet
2004 2005 2006
21
Update on U.S. Imports of Books Printed in Asia
China Sales of Books to the US jumped another 11% in 2006
– 550 Million Books per Year Now Imported From China– Dominated by Children’s Books
Asia Exported $1.4 billion in Books to the U.S. in 2006
– Equal to Nearly 5% of U.S. Publisher Net Sales of Books
22
Asia Now Exports $1.4 Billion in Books to the U.S. Market Compared With $0.6 Bill. in 1996
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
1996
2006 Other
Canada
China
Hong K.
Sing.
Other Asia
Value of Books Imported into the U.S., Million $
23
China Becomes Dominant Exporter of Printed Books to the U.S.
0
100
200
300
400
500
600
Canada China HongKong
UK Mexico Sing. S.Korea
1996 2006
U.S. imports of printed books, millions of books
24
U.S. Imports of Printed Products from China
$0$100$200$300$400$500$600$700$800$900
90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6
Books including Children's Greeting Cards all other
Million Real 2006 Dollars
25
CVD Duty Announced on Asian CFS Paper at the End of March
CVD (Countervailing Duty)– Due to Asian Governments Subsidizing Paper mills
• Principal subsidy is income tax abatement for investment in new mills, free from income tax for 2 Years, followed by 3 Years of 50% abatement
– Resulted in Duties of 10%-20% on Chinese and Indonesia CFS• But less than 2% of Korean CFS
• APP hit hard with some of the top duties
• All producers affected
• Applies to both sheets and rolls of CFS, but not coated board
• Importer of record now has to put up bond that will be escrowed until the fall when a final determination on the duty is made
• At that time, funds could be distributed to New Page and other affected parties
26
Antidumping Duty (ADD) Ruling Due at The End of May
Could Result In Additional Tariffs– Must prove the mills are selling below costs or below prices in
their home market– Prices are cheap in China,so this is not an issue, but the US
has declared China prices irrelevant because China is not a market economy
– DOC has chosen India as a substitute home market and prices in India are higher than in China
– Korea could get hit with ADD if DOC considers freight and mill net prices
27
Implications of CVD on Asian CFS Paper
Affects About 350,000 tons of Coated Freesheet (mostly sheets) Coming from China (300,000 tons) and Indonesia (50,000 tons)– Korea Basically Wiggled off the Hook (450,000 tons)– Up to 90% of Some Western CFS Sheet Markets are Supplied
by Asia, so the Impact Will be Very Regional– When ADD is Announced in Late May, Korea Could Come
Back into the Picture
What Will Change– Prices Will Likely go up Again by About 5%– Korean and European Suppliers Will Fill in for Lost Chinese
and Indonesian Tonnage– U.S. Producers to Increase Sheeter Utilization
28
Coated Freesheet + Coated Bristol Imports Into the U.S. by Month (tonnes)
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2003 2004 2005 2006 2007
Asia
Europe
29
Coated Freesheet + Coated Bristol Imports Into the U.S. by Month (tonnes)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2003 2004 2005 2006 2007
china
korea
Japan
30
Coated Freesheet + Coated Bristol Imports Into the U.S. by Month (tonnes)
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
2002 2003 2004 2005 2006 2007
sheets
rolls
31
N.A. Paper Mill/Machine Closures (tonnes)
CFS CGW UFS
2006 Cascades Thunder Bay 28,000 135,000
St. Jerome 9,000
Domtar Ottawa 27,000 31,000
Cornwall 114,000 124,000
New West. 120,000
Glatfelter Neenah 112,000
Weyco Prince Alb. 250,000
Bowater Dryden 140,000
Benton Harbor 77,000
IP Pensacola 318,000
NewPage Luke 90,000
GP Wauna 100,000
Boise Wallula 220,000
2007 Totals 379,000 212,000 1,304,000
32
European Paper Mill/Machine Closures (tonnes)CFS CGW SC
2006 Burgo Marzabotto 70,000
UPM Voikka 400,000
Kymi 150,000
Stora Enso Corbeham 250,000
Varkaus 100,000
Scheufelen Scheufelen 15,000
Klippan Molndal 45,000
2007 UPM Jamsankoski 110,000
M-Real Sittingbourne 210,000
Gohrsmuhle 100,000
Myllykoski Dachau 230,000
Stora Enso Reizholz 215,000
Totals 620,000 1,060,000 215,000
33
European Paper Mill/Machine Closures (tonnes)
UFS
2006 SAPPI Nash 35,000
Cran Cran-Gervrier 35,000
Paperalia Legorreta 90,000
IP Maresquel 70,000
2007 M-Real Wifsta 175,000
Stora Enso Berghuizer 235,000
Totals 640,000
34
Major Capacity Changes in Asia, 2006–2009 Thousand Tonnes
Woodfree Paper
Hankuk, Ohsan S. Korea 200 Q1 2006 UWFGold Huasheng, China 120 Q1 2006 UWF, CWFTjiwi Kimia, Indonesia 120 Q1 2006 UWF, CWFSiam Paper, Thailand 100 2006 UWF, CWFHenan Xinxiang, China 100 Q4 2006 UWFShandong Tralin (#22) China 100 Q1 2007 CWFShandong Tralin (#23) China 100 Q2 2007 CWFShandong Tralin (#24) China 100 Q4 2007 CWFApril, Kerinci, Indonesia 415 Q1 2007 UWFPackages, Pakistan 120 Q1 2007 UWFSun Paper, Shandong China 250 Q1 2007 UWF, CWFHubei Maxleaf Xiangfan China 100 Q2 2007 CWFNippon, Japan -340 Q4 2007 CWF, UWFAbhishek, India 100 2007 UWF
35
Major Capacity Changes in Asia, 2006–2009 Thousand Tonnes
Woodfree Paper (continued)
Siam Paper, Thailand 200 Q1 2008 UWF
Ballapur Bhigwan PM 2, India 140 Q2 2008 CWF
ITC, India 200 Q4 2008 CWF
Hokuetsu, Niigata, Japan 350 End 2008 CWFITC, India 100 Q2 2008 UWFWest Coast Paper, India 100 Q4 2008 UWFWhitefield Paper, India 200 Q4 2008 CWF, UWFShandong Chenming, China 150 Q3 2008 CWFBallapur Bhigwan PM 3, India 160 08/09 CWF
Tamil Nadu, Kagithapuram India 150 Q1 2009 CWF/UWF
Oji/Nantong Jiangsu China 400 End 2009 CWFTatau Pulp, Bintulu Malaysia 750 Q3 2009 CWF/UWF
36
Major Capacity Changes in Asia, 2006–2009 Thousand Tonnes
Coated Mechanical
Henan Xinxiang, China 200 Q1 2007 LWCDaio Paper, Japan 290 Q3 2007 LWCNippon, Ishinomaki, Japan 350 Q4 2007 LWCPuyang Longfeng, China 275 H1 2008 LWCOji Tomioka, Japan 350 End 2008 LWC
Uncoated Mechanical
Stora Enso/Huatai, China 200 Q4 2007 SCYueyang Paper, Hunan China 400 2008 SC
37
Asian Net Export Growth Shifting Back to Emphasis on UWF in 2007–2008
-1,600
-1,200
-800
-400
0
400
800
95 96 97 98 99 0 1 2 3 4 5 6 7 8
CWF - AsiaUWF - AsiaCme - AsiaUme - Asia
Net Imports (exports) 000 Tonnes
38
75%
80%
85%
90%
95%
100%
0 1 2 3 4 5 6 7 8
Europe
N. Amer.
CWF Operating Rates Finally Move Above 90% in Europe Due to Closures in 2007
Operating Rates
39
78%
82%
86%
90%
94%
98%
0 1 2 3 4 5 6 7 8
Europe
N. Amer.
Ctd. Mechanical Markets Very Weak in Early 2007, But Will Get Tighter as Europe Closes Capacity
Operating Rates (adjusted in 2005 for lockouts in Finland and Miramichi)
40
80%
82%
84%
86%
88%
90%
92%
94%
0 1 2 3 4 5 6 7 8
Europe
N. Amer.
Capacity Closures Keep Uncoated Freesheet Operating Rates Above 90%
Operating Rates
41
U.S. Publishing Paper Pricing by Quarter ($/short ton)
$550
$600
$650
$700
$750
$800
$850
$900
$950
0 1 2 3 4 5 6 7
Ctd. No. 3 60 lb. Ctd. No. 4 50 lb. Ctd. No. 5 40 lb.
SC-35 lb 50 Lb UFS Offset
42
Average Profitability for U.S. Printing and Writing Paper Producers by Grade
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
0 1 2 3 4 5 6 7 8 9
Profitability defined as (price-cost)/cost. Costs are total costs including depreciation, interest, SG&A, and delivery.
LWC
Uncoated Freesheet
Coated Freesheet