Global Graphic Paper Outlook

Transcription

1 Global Graphic Paper Outlook Declining Demand and Strong Dollar Spark Trade Issues North American Conference Seaport Hotel, Boston October 16 18, 2017 John Maine Vice President, World Graphic Paper

2 John Maine VP Global Graphic Papers Co Founder of Resource Information Systems, Inc. With RISI for 38 years Developed RISI P&W models Works with more than 200 graphic paper clients worldwide Assisted by local economists in RISI regional offices Directs numerous single and multi client studies on graphic paper 2

3 Some Definitions Graphic Paper Newsprint Uncoated Mechanical (Ume) Directories, paperback books, newspaper inserts, low end magazines/catalogs Uncoated Woodfree/Freesheet (UWF or UFS) Office copy paper, envelopes, offset printing, direct mail, books, forms, carbonless, tablets, stationery, specialties Coated Mechanical (Cme) Magazines, catalogs, newspaper inserts Coated Woodfree/Freesheet (CWF or CFS) High end magazines and catalogs, commercial printing, brochures, photo printing, menus, posters, displays, direct mail Tonnes = metric ton (2,205 lbs); tons = short ton (2,000 lbs) 3

4 4

5 Global Demand for Printing & Writing Papers Started Declining in 2008, Newsprint in Million Tonnes P&W Demand Newsprint Demand (Right Scale)

6 Global P&W Demand Declining Steadily, with the Largest Hit in the Mechanical Grades Percentage Change in Global Demand by Grade Coated Freesheet Coated Mechanical Uncoated Freesheet Uncoated Mechanical Printing & Writing Average -0.7% -1.1% -1.4% -3.4% -3.7% -2.1% -3.3% -6.1% -3.5% -5.4% -5.6% -4.8% -0.2% +0.1% -0.9% -0.7% -0.8% -0.5% -7.4% -0.7% -3.9% -5.8% -2.3% -4.0% -1.7% -1.1% -1.7% -2.6% -2.2% -1.9% 6

7 P&W Paper Demand Forecast for Shows Slow Decline, but Varies by Region Thousand Tonnes, Percent per Year 835 ( 2.4%) 1,554 ( 4.0%) 163 (1.4%) 4 (0.0%) 26 (0.6%) 39 (0.4%) 72 (1.5%) 37 ( 1.5%) Two year total growth in tonnes (Two year average % change) 7 Global 2,100 ( 1.1%) 7

8 Newsprint Demand Declining Across the Globe Thousand Tonnes, Percent per Year, ( 7.2%) 606 ( 5.6%) 88 ( 3.2%) 749 ( 3.7%) 13 ( 2.3%) 130 ( 1.7%) 14 ( 1.3%) 39 ( 4.8%) 2 year total growth in tonnes (2 year average % change) 8 Global: 2,112 ( 4.7%) 8

9 North American P&W Demand Declining at Steady Pace of % for the Last Three Years Apparent Consumption, Thousand Tonnes, Seasonally Adjusted Coated Freesheet Coated Mechanical Uncoated Freesheet Uncoated Mechanical ,190 2,785 8,344 3,272 % Change 2.8% 10.7% 0.2% 11.6% ,977 2,608 8,010 3,072 % Change 5.1% 6.4% 4.0% 6.1% RISI 8 Months % 3.5% 6.2% 11.2% RISI Forecast for 2017 RISI Forecast for % 2.4% 4.8% 4.3% 5.1% 1.8% 9.1% 3.1% 9

10 North American Newsprint Market Accelerating Downward But market in second half of 2017 getting tight due to capacity shuts, allowing for some recovery in price Demand Thousand Tonnes Newspapers Printers Total Operating Rate Prices $/Tonne, 45 gsm , ,658 $575 % Change 12.7% 2.4% 10.1% 92% 10.8% , ,411 $597 % Change 8.3% 2.5% 6.7% 92% +3.9% 8 Months % +3.9% 11.3% 91% +4.2% Forecast for 2017 Forecast for % 7.9% 93% 94% 10

11 11

12 First half 2017 total printed magazine circulation was up 1.2%! Subscriptions flat, single copy down 16%, non paid up 16% due to 44% jump in Costco connection to 12.6 million 420 6% Circulation Per Issue: Millions Circulation % Change (R) 1.1% 4% 2% 0% 2% 4% 6% 8% Source: Alliance for Audited Media & RISI; includes consumer, farm, religious, paid & verified and analyzed nonpaid, excludes digital

13 Magazines Distributed for Single Copy Sales Are the Primary Source of Magazine Circulation Declines, and Fell 9.7% in 2016 and 4.9% in the First Quarter of 2017 Millions of Copies Distributed % % % % % Unit Draw %chya (R) 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Source: Magnet. Note that actual copies sold is only about 30% of copies distributed; data are for North America

14 The Decline in Magazine Ad Pages Is the Primary Factor Driving Down Paper Use Ad pages dropped 10.7% in 2016; horrible start to 2017 with pages down more than 15% in first half; worst performance in ad pages since the Great Recession 5.0% Percentage Change in PIB Magazine Ad Pages 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 Annual % % % % % 2013Q1 2014Q1 2017Q1 2016Q1 2015Q1 %Ch Year Ago 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Includes Sunday magazines and the effect of discontinued print editions 30.0% 14

15 US Catalog Mailing Declined Only 2.1% in 2016, but 2017 Started Weak with 5.7% Drop in the First Half 5% %Ch Year Ago Percentage Change in Catalogs Mailed 0% 5% 10% 15% 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 Annual % % % % % 2017Q1 20% 15

16 US Postal Mail Volumes Marketing mail declining moderately, but first half of 2017 down 3.5% (USPS Postal YTD boosted by increase from election in Q4 2016) USPS Forecast Pieces of Mail 2017 First Class -2.5% Marketing Mail +0.4% Periodicals -3.6% Total Mail -0.6% USPS Actual Postal Q YTD (Calendar Q2 2017) First Class -4.0% Marketing Mail -1.8% Periodicals -4.9% Total Mail -2.9% 16 Billion Pieces First Class Marketing Mail Periodicals (R) 2017* Postal Fiscal Years * 2017=USPS forecast from operating plan

17 Real Dollar Sales for US Commercial Printing Horrible start to 2017, helping to drive down paper demand Million Real 2003$ per Month 8,500 8,000 7,500 7,000 6,500 6,000 5,500 Recession Annual Growth % % % % % 2017 (6 mo) 7.1% 5,

18 Unit Sales of Printed Books Rose for the Third Year in a Row, Rising 3.3% in % 670 Unit Sales %ch (Right) 3.0% % % % % % % Source: Nielsen Bookscan Unit Sales (Thousands) 18 18

19 AAM Quarterly Print Newspaper Circulation Data US print newspaper circulation abysmal in first quarter of 2017, when demand from newspapers dropped 16% year over year Percent Change from Same Period Previous Year Year-over-Year Change in US Print Newspaper Circulation 0% -1% -2% -3% -4% -5% -6% -7% -8% -9% Old Series New Quarterly Series CHYA -10% Source: AAM, RISI 19 19

20 Advertising Trends Accelerating Down Newspaper advertising still sinking by double digits; includes non print advertising revenues 0% Year-over-Year Change in US Newspaper Advertising Revenues -5% -10% -15% -20% -25% Print Ad Revenues Reported by NAA -30% Total Ad Revenues from Sample of Publishers -35% Source: NAA, RISI, quarterly financial reports of public newspaper publishers

21 21

22 Recent Weakness in the Dollar Is Eroding Import Competitiveness Foreign Currency per US Dollar US Mills Have Advantage Zone of similar delivered costs for US/European mills European and Other Offshore Mills Have Advantage Zone of similar delivered costs for US/Canadian mills Canadian Dollar Euro

23 The Strong Dollar Makes US Markets Attractive, But the Gap Is Closing $250 Difference Between Paper Prices in the USA vs Europe LWC 40 lb. Cut Size Copy Paper Newsprint $150 US Dollars per Ton $50 $ $150 $250 23

24 Producers in the USA and Other Countries in Europe and Asia Resorting to Tariff Protection to Stem the Tide of Imports Anti dumping duties (ADD) For imports dumped into the US market at prices lower than the importer s home market Countervailing duties (CVD) Adjusts for government subsidies received by the importer 24

25 Key Graphic Paper Tariffs into the USA Coated Freesheet in Sheets from China and Indonesia In place since 2010 High CVD and ADD tariffs block imports, but only from specific mills and countries Other imports filled the gap along with increased sheeting in the USA SC Ume from Canada Ranges from 0% to 20% Prompted development and sale of non SC grades Increase in imports from Europe filled the gap Uncoated Freesheet Cut Size Paper Newsprint and Certain Other Ume from Canada In process 25

26 Tariffs on Imports of Cut Size Copy Paper to USA Range from 8% to 326% ADD CVD Combined Australia Paper 222% 222% Suzano 22% 22% Portucel 8% 8% APRIL Indonesia 2% 21% 23% APP Indonesia 17% 109% 126% Asia Symbol (China) 84% 7% 91% APP China 149% 7% 156% UPM China 149% 177% 326% Sun Paper China 149% 177% 326% Effect of tariff is waning as US operating rates decline and imports from non tariff countries explode At best, the tariff prevented a further explosive surge in imports, but did not make the imports go away 26

27 US Imports of Cut Size Copy Paper from Five Tariff Target Countries Imports, Thousand Tonnes Portugal Indonesia China/Hong Kong Brazil Australia Five Country Import Share 25% 20% 15% 10% 5% 0% Import Share of Demand * Estimated from six months of actual data 27

28 US Imports of Cut Size Copy Paper from Non Tariff Target Countries Imports, Thousand Tonnes All Others Israel Germany Finland Thailand France Import Share 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Import Share of Demand * Estimated from six months of actual data 28

29 Proposed Tariff on Newsprint and Certain Other Uncoated Mechanical Paper from Canada Could Have Big Impact on US Availability and Prices Estimated US Market Share in 2017 Newsprint SC Ume Directory Ume Other Ume US Domestic 43% 22% 0% 40% Canada 60% 57% 98% 58% Europe 0% 21% 2% 2% Note: Market shares for Other Ume are estimated after the shut of two PMs at Calhoun in September

30 30

31 Announced Net Changes in World Graphic Paper Capacity, Thousand Tonnes CFS Cme Uwf Ume News Graphic Asia 178 1, Europe ,835 Latin America North America ,113 2,195 Middle East Global ,567 1,165 2,

32 Uncoated Woodfree Operating Rates Asia remains oversupplied, Brazil struggling due to weak demand but showing some improvement in 2016/2017, while operating rates in North America are sliding due to lack of capacity shuts 97% 95% 93% 91% N. America W. Europe Asia Brazil 89% 87% 85% 83%

33 Coated Woodfree Operating Rates Operating rates have been dropping globally due to weak demand, but massive shuts in US threaten availability 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% 80% N. America W. Europe Asia

34 Coated Mechanical Operating Rates North America staying tight due to capacity shuts 99% 97% 95% 93% 91% 89% 87% 85% 83% 81% 79% 77% 75% N. America W. Europe Asia

35 Uncoated Mechanical Operating Rates Accelerating capacity shuts will tighten the market 96% 94% 92% 90% 88% 86% 84% 82% 80% N. America W. Europe

36 Newsprint Operating Rates Moving in a narrow range since the recession as shuts offset large decline in demand 98% 96% 94% 92% 90% 88% 86% 84% 82% 80% N. America W. Europe Asia

37 Industry Financial Outlook 37

38 North American Mill Cash Costs to Rise 1 2% in 2017 and 2018 Ending a five year trend of declining costs 10% 5% Percentage Change in Mill Cash Costs in US Dollars for Average of All Existing North American Mills UFS Cut Size CFS Rolls Ume 0% % 10% Excludes tariff costs for Canadian mills, which may offset cost decline in

39 20 lb/75 gsm Copy Paper Prices Can the US maintain a premium in prices? Currency shifts have helped drive up Brazilian prices $1,400 4,500 $1,300 4,000 US Dollars per Tonne $1,200 $1,100 $1,000 $900 $800 $700 USA Europe Brazil in USD/Tonne Brazil in BRL/Tonne (R) 3,500 3,000 2,500 2,000 1,500 1,000 BRL per Tonne 39

40 US Publishing Paper Prices Prices still trending down, but recovery predicted for late 2017 to 2019 based on rising costs and mill shuts US$/cwt $54 $50 $46 $42 SC A Ctd. No lb Ctd. No lb. Unc. Offset 50 lb. $38 $

41 US Newsprint Prices Recovery of 2016 stalled in 2017, but weaker dollar, capacity shuts and rising costs are pushing on the door, and could be followed by tariffs in 2018 $850 $800 US 45 gsm Newsprint Prices US Dollars per Tonne $750 $700 $650 $600 $550 $500 $450 US East US West

42 Price to Mill Cash Cost Margins Average for all existing North American mills Price/Mill Cash Costs UFS Copy Paper Ume SC A Newsprint CFS 60 lb. rolls Cme/LWC 40 lb SC margin is before impact of tariff on Canadian mills 42

43 Thank you for your attention! For more information: World Graphic Paper 5 Year Forecast Global Cut Size Uncoated Freesheet Study China s Influence on World Graphic Paper Markets in the Coming Decade 43