Global Graphic Paper Market Outlook

Global Graphic Paper Market Outlook Trade Battles, Rising Costs, Declining Demand RISI Latin American Conference São Paulo, Brazil August 2018 John Maine VP, Global Graphic Paper Copyright 2018 RISI, Inc. Proprietary Information

John Maine VP Global Graphic Papers jmaine@risi.com Co Founder of Resource Information Systems, Inc. With RISI for 39 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 Copyright 2018 RISI, Inc. Proprietary Information 2

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 (2000 lbs) Copyright 2018 RISI, Inc. Proprietary Information 3

Global Demand for Printing & Writing Papers Started Declining in 2008, Newsprint in 2001 120 115 2008 to 2020 Newsprint: 5.6% per year P&W: 1.5% per year 40 35 Million Tonnes 110 105 30 25 100 95 P&W Demand Newsprint Demand (R) 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 20 15 Copyright 2018 RISI, Inc. Proprietary Information 5

Global P&W Demand Declining Steadily, with the Largest Hit in the Mechanical Grades Percentage Change in Global Demand by Grade 2013 2014 2015 2016 2017 Average Coated Freesheet 1.0% 1.3% 2.3% 3.2% 1.0% 1.7% Coated Mechanical 6.1% 3.6% 5.2% 6.2% 1.6% 4.5% Uncoated Freesheet +0.2% 1.0% 0.7% 0.9% +0.4% 0.4% Uncoated Mechanical 0.7% 3.9% 5.8% 1.5% 4.7% 3.3% Printing & Writing 1.0% 1.8% 2.3% 2.2% 0.8% 1.8% Copyright 2018 RISI, Inc. Proprietary Information 6

P&W Demand in Emerging Markets to Partially Offset Decline in Developed World for 2018 2020 Thousand Tonnes, Percentage per Year 1,903 ( 3.4%) 109 (0.6%) 1,772 ( 3.3%) 84 (1.3%) 709 (0.5%) Three year Total Global Growth: 2.504 million tonnes Three year Average Percentage Change: 1.0% 224 (1.4%) 122 (1.7%) 87 ( 2.6%) 7 Copyright 2018 RISI, Inc. Proprietary Information 7

Global Newsprint Demand Dropping 1.2 Million Tonnes per Year Thousand Tonnes, Percentage per Year, 2018 2020 1,084 ( 7.6%) 226 ( 6.1%) 828 ( 10.2%) 27 ( 4.3%) 991 ( 3.5%) Three year Total Global Growth: 3.392 million tonnes Three year Average Percentage Change: 5.6% 83 ( 3.0%) 74 ( 5.3%) 79 ( 8.6%) 8 Copyright 2018 RISI, Inc. Proprietary Information 8

US P&W Demand Declined 7% in 2017, an Accelerated Drop from Prior Trends Apparent Consumption, Thousand Tons, Seasonally Adjusted Coated Freesheet Coated Mechanical Uncoated Freesheet Uncoated Mechanical 2015 4,190 2,885 8,590 3,384 % Change 2.5% 11.5% 0.3% 12.5% 2016 4,067 2,658 8,228 3,228 % Change 2.9% 7.9% 4.2% 4.6% 2017 % Change 3,828 5.9% 2,506 5.7% 7,716 6.2% 2,861 11.4% 2018, Six month % Change 5.4% 0.1% 0.8% 6.0% RISI Forecast for 2018 3,655 4.5% 2,442 2.6% Big Improvement in 2018 7,690 0.3% 2,653 7.3% Copyright 2018 RISI, Inc. Proprietary Information 9

North American Demand for Multi purpose Cut Size Business Papers 6,000 5,000 Trend since 2006: 3.3% Very poor demand in the last two years, big improvement in 2018 4% 2% Thousand Tonnes 4,000 3,000 2,000 1,000 0 North American Demand % Change (R) 0% 2% 4% 6% 8% 10% Copyright 2018 RISI, Inc. Proprietary Information 10

Combined North American Demand for UFS Offset and Uncoated Mechanical Superbright 32% of uncoated offset printing above 75 ISO brightness is now done on superbright uncoated mechanical papers Thousand Tonnes 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 UFS Offset UGW Superbright Superbright Share (R) Average Rate of Growth 1.3% Average Rate of Decline 6.1% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 40% 35% 30% 25% 20% 15% 10% 5% 0% Superbright Share Copyright 2018 RISI, Inc. Proprietary Information 11

Latin American Demand for Newsprint Continues to Fall, but Printing & Writing Stabilized in 2017 and Will Return to Growth Thousand Tonnes 6,100 5,900 5,700 5,500 5,300 5,100 4,900 4,700 4,500 +1.4%/year P&W Demand 3.0%/year Newsprint Demand (R) 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 Copyright 2018 RISI, Inc. Proprietary Information 13

Latin American Demand for Uncoated Freesheet Recovering 1 2% per Year Coated Freesheet Coated Mechanical Uncoated Freesheet Uncoated Mechanical Printing & Writing Demand by Grade Thousand Tonnes, Percentage Change 2015 2016 2017 2018 2019 2020 1,164 9% 696 6% 3,476 6% 237 17% 5,573 7% 1,042 10% 627 10% 3,401 2% 214 10% 5,283 5% 1,034 1% 619 1% 3,417 +1% 225 +6% 5,295 +0% 1,037 +0% 625 +1% 3,471 +2% 226 +0% 5,359 +1% 1,046 +1% 633 +1% 3,541 +2% 228 +1% 5,448 +2% 1,051 +0% 639 0% 3,601 +2% 229 +1% 5,520 +1% Copyright 2018 RISI, Inc. Proprietary Information 14

Printing & Writing Demand Declines in Brazil and Mexico Have Stopped, Growth Has Returned Thousand Tonnes 2,600 2,400 2,200 2,000 1,800 Brazil Mexico 1,600 1,400 1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Copyright 2018 RISI, Inc. Proprietary Information 15

Printing & Writing Demand in the Smaller Latin Countries Is Growing (Except Argentina and Venezuela) Thousand Tonnes 600 500 Other Latin America Argentina 400 300 Columbia Chile Peru 200 100 Venezuela Bolivia Ecuador 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Copyright 2018 RISI, Inc. Proprietary Information 16

Latin America Continues to Import a High Percentage of Its Demand Despite Low Costs and Ample Fiber 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Ctd. Freesheet Newsprint Net Imports as a Percentage of Demand Unc. Mechanical Ctd. Mechanical UWF Imports rising due to new capacity in Asia Unc. Freesheet 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Copyright 2018 RISI, Inc. Proprietary Information 17

Global Uncoated Freesheet Machine Startups, 2018 2020 Tonnes Company Mill Country Capacity Date Comments Ittihad Paper Abu Dhabi United Arab Emirates 325,000 Q3 2018 Non integrated machine Sun Paper Yanzhou, Shandong China 200,000 Q1 2018 Heavyweight grades including CFS and specialty Shandong Chenming Shouguang, Shandong China 510,000 Q3 2018 Voith PM9 to focus on cut size Shandong Chenming Shouguang, Shandong China 500,000 Q3 2018 Machine converted from newsprint, four cut size sheeting lines ordered Shandong Bohui Shandong China 500,000 Q3 2019 Previously announced containerboard machine, now capable of swinging to UWF, financing not approved Shandong Bohui Shandong China 600,000 2020 Financing not approved, project in question, 154,000 tons of capacity to be shut on 12 small machines Malaysia Newsprint Industries Mentakab Malaysia 250,000 Q1 2019 Conversion from newsprint machine Total 2,885,000 Copyright 2018 RISI, Inc. Proprietary Information 18

Global Uncoated Freesheet Machine Shuts/Conversions, 2018 2020 Tonnes Company Mill Country Capacity Date Comments Flambeau Park Falls USA 77,000 Q1 2018 PM3 shut PCA/Boise Wallula USA 70,000 Q2 2018 Convert PM3 to liner Georgia Pacific/Koch Camus USA 215,000 Q2 2018 PM20 shut International Paper Selma USA 213,000 Q2 2019 Convert to liner Copamex Anahuac Mexico 185,000 2019 Convert to packaging UPM Nordland Germany 200,000 Q3 2019 Convert to glassine paper Nippon Fuji Japan 86,000 2019 Shut PM2 and PM12 Nippon Yufutsu Japan 130,000 Q1 2020 Shut mill Total 1,176,000 Copyright 2018 RISI, Inc. Proprietary Information 19

Producers in the USA and Some 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 Copyright 2018 RISI, Inc. Proprietary Information 21

Update of Key Graphic Paper Tariffs into the USA Coated Freesheet in Sheets from China and Indonesia, 2010 In place since 2010, no recent changes SC Ume from Canada, 2015 US DOC announced that all Canadian SC tariffs set back to zero and refunded retroactively back to August 2015 ($60 million for Resolute) after petition by Verso, the sole US producer, to drop the tariffs. Verso to receive $42 million from Canadian mills in the settlement. WTO ruling in favor of Canadian mills also announced, but did not cause the DOC to drop tariffs. Uncoated Freesheet Cut Size Paper, 2015 Suzano and April saw cuts in their tariff with March 2018 review Otherwise no changes since 2015 Newsprint and Certain Other Ume from Canada, 2018 Final tariffs reduced August 3 rd, to 20.3% for Catalyst, 9.8% for Resolute, 9.6% for Kruger, 0.8% for White Birch, and 8.5% for all others, down from previous peak levels of 28 32%. Harm determination due in September. Copyright 2018 RISI, Inc. Proprietary Information 22

Tariffs on US Imports of Coated Sheets from China and Indonesia Since 2010 CVD ADD Combined APP Indonesia 17.94% 20.13% 38.07% APP China 19.46% 7.6% 27.06% Sun Paper China 202.84% 135.83% 338.67% All Other China 19.46% 135.83% 155.29% Copyright 2018 RISI, Inc. Proprietary Information 23

Global ADD/CVD Duties on Cut Size Copy Paper Brazil is facing tariffs on exports to USA, Australia, Mexico and Pakistan ADD Dates Status Australia Austria 21.6% 2018 Preliminary Finland 16.9% 2018 Preliminary Russia 4.2% 2018 Preliminary Slovakia 17.4% 2018 Preliminary South Korea 34.2% 2018 Preliminary China 3.1% to 34.4% 2017 In place Indonesia 12.6% to 45.1% 2017 In place Brazil 2.9% 2017 In place Thailand 13.4% to 23.2% 2017 In place Pakistan Japan 39.1% 2018 In place Brazil 35.9% 2018 In place China 21.9% 2018 In place Thailand 2% 2018 In place Indonesia 10.62% to 20.66% 2018 In place ADD CVD Dates Status USA Australia Paper 222% 2015 In place Suzano 17% 2015 In place Portucel 8% 2015 In place APRIL Indonesia 2% 4% 2015 In place APP Indonesia 17% 109% 2015 In place Asia Symbol 84% 7% 2015 In place APP China 149% 7% 2015 In place UPM China 149% 177% 2015 In place Sun Paper China 149% 177% 2015 In place India Indonesia n/a Under investigation Thailand n/a Under investigation Singapore n/a Under investigation Mexico Brazil 38% 2013 Copyright 2018 RISI, Inc. Proprietary Information 24

US Imports of Cut Size Copy Paper from Five Tariff Target Countries Imports, Thousand Tonnes 900 800 700 600 500 400 300 200 100 Portugal Indonesia China/Hong Kong Brazil Australia Five Country Import Share 25% 20% 15% 10% 5% Import Share of Demand 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 * 0% * Estimated from five months of actual data. Copyright 2018 RISI, Inc. Proprietary Information 25

US Imports of Cut Size Copy Paper from Non Tariff Target Countries Imports, Thousand Tonnes 200 180 160 140 120 100 80 60 40 20 0 All Others Israel Germany Finland Thailand France Import Share 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* * Estimated from five months of actual data. 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Import Share of Demand Copyright 2018 RISI, Inc. Proprietary Information 26

North American Demand for Cut Size Copy Paper Import share stable at 13 14% compared with 24% peak before tariffs Thousand Tons per Month 450 400 350 300 250 200 150 100 50 0 Import Domestic Import Share (R) 30% 25% 20% 15% 10% 5% 0% Import Share, Percent 27 Copyright 2018 RISI, Inc. Proprietary Information 27

Announced Major North American P&W Shuts, 2018 2019 Mill Date of Closure Capacity in Tonnes Coated Kruger, Wayagamack, Quebec 2018/2019 Shift part of PM4 to packaging SAPPI, Somerset, Maine 2018 150,000 CFS/Shift to packaging UPM/Blandin, Grand Rapids, MI January 2018 116,000 CME Uncoated PCA, Wallula, WA Q2 2018 70,000 UFS to specialties Flambeau, Park Falls, WI Jan 2018 77,000 UFS Georgia Pacific, Camas, WA Q2 2018 215,000 UFS International Paper, Selma, AL Q2 2019 213,000 UFS to white top liner Copyright 2018 RISI, Inc. Proprietary Information 29

Uncoated Freesheet Capacity Closures Picking Up Speed in North America Thousand Tonnes, Percentage Change 0 50 100 150 200 250 300 350 400 Tons Percentage Change 2015 2016 2017 2018 2019 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Copyright 2018 RISI, Inc. Proprietary Information 30

Uncoated Freesheet Operating Rates Conversions and shuts already announced for 2018 2019 will keep North American operating rates at 92 93%; major Asian capacity expansions will keep operating rates there low despite demand growth 99% 97% 95% 93% 91% 89% 87% 85% 83% 81% 79% 77% 75% N. America W. Europe Asia Brazil 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 31 Copyright 2018 RISI, Inc. Proprietary Information 31

Coated Woodfree Operating Rates North American market tightens after massive capacity shuts 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% 80% N. America W. Europe Asia Brazil 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 32 Copyright 2018 RISI, Inc. Proprietary Information 32

Coated Mechanical Operating Rates US operating rates at 100% through first half of 2018 99% 97% 95% 93% 91% 89% 87% 85% 83% 81% 79% 77% 75% N. America W. Europe Asia 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 33 Copyright 2018 RISI, Inc. Proprietary Information 33

Global Increase in Market Pulp Costs Is Squeezing Non Integrated Paper Mills US Dollars per Tonne (US List Price, China Pre discount Price) $1,450 $1,350 $1,250 $1,150 $1,050 $950 $850 $750 $650 $550 $450 NBSK, USA MBHK, USA NBSK, China BEK, China 2015 2016 2017 2018 +45% +44% +54% +63% Copyright 2018 RISI, Inc. Proprietary Information 35

Five Year Trend of Declining Costs in North America Has Reversed 6% 5% 4% 3% 2% 1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Percentage Change in Mill Cash Costs in US Dollars for Average of All Existing North American Mills 2012 2013 2014 2015 2016 2017 2018 2019 2020 Note: Excludes any tariff costs for Canadian mills. UFS Offset CFS Rolls Ume 36 Copyright 2018 RISI, Inc. Proprietary Information 36

US Prices to Remain Higher Than Rest of World, but the Gap Is Narrowing US Dollars per Ton $250 $200 $150 $100 $50 $0 $50 $100 $150 Difference Between Paper Prices in the USA vs Europe $200 LWC 40 lb. Cut Size Copy Paper Newsprint $250 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Copyright 2018 RISI, Inc. Proprietary Information 37

20 lb/75 gsm Copy Paper Prices Prices rising globally but still below past peaks; Brazilian price in Reals has doubled since 2012 US Dollars per Tonne $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 USA Europe Brazil in USD/Tonne Brazil in BRL/Tonne (R) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 BRL per Tonne Copyright 2018 RISI, Inc. Proprietary Information 38

US Graphic Paper Prices Prices approaching previous peaks due to rising costs and tight markets USD/cwt $58 $56 $54 $52 $50 $48 $46 $44 $42 $40 $38 $36 $34 SC A Ctd. No. 5 40 lb Ctd. No. 3 60 lb. Unc. Offset 50 lb. Cut Size Copy 2011 2012 2013 2014 2015 2016 2017 2018 Copyright 2018 RISI, Inc. Proprietary Information 39

Price to Mill Cash Cost Margins Average for all existing North American mills; profits are near their peak and will decline over the coming two years Price/Mill Cash Costs 1.7 1.6 1.5 1.4 1.3 1.2 1.1 UFS Copy Paper Ume SC A Newsprint (excludes tariffs) CFS 60 lb. rolls Cme/LWC 40 lb 1.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Note: SC, UME and newsprint margins before impact of tariffs on Canadian mills. Copyright 2018 RISI, Inc. Proprietary Information 40

Thank you for your attention! For more information: World Graphic Paper 5 Year Forecast www.risi.com/worldgraphic Global Cut Size Uncoated Freesheet Study www.risi.com/cutsize Outlook for India s Paper and Packaging Markets www.risi.com/indiapaper Copyright 2018 RISI, Inc. Proprietary Information 41