RISI Global Tissue Market Outlook

RISI Global Tissue Market Outlook With a Focus on Europe What Is Going On? RISI European Conference, Barcelona, Spain March 2017 Esko Uutela Principal, Tissue Copyright 2018 RISI, Inc. Proprietary Information

Esko Uutela Principal, Tissue euutela@risi.com Educational background in forestry, economics and business studies In consulting business and information services for the forest industry since 1976 Cooperating with RISI since 2007 Developed global tissue databases and forecasting models Previous experience in graphic, packaging and recovered papers Assisted by RISI Asian, European and American colleagues and consultants Produced more than 200 single and multi client tissue studies Copyright 2018 RISI, Inc. Proprietary Information 2

Agenda Recent Global Trends and Outlook North and Latin American Outlook Asian Outlook Western and Eastern European Outlook Concluding Remarks Copyright 2018 RISI, Inc. Proprietary Information 3

RECENT GLOBAL TRENDS AND OUTLOOK Copyright 2018 RISI, Inc. Proprietary Information 4

World Tissue Consumption by Region Market is dynamic: China has passed Western Europe in market size, while Asia Far East is and Eastern Europe soon will be larger than Japan. China has been the largest producer country since 2015. E.Europe 5.4% N&M East 4.0% Africa 2.1% Oceania 1.2% Asia Far East 6.0% Japan 5.5% N. America 25.0% L. America 11.1% W. Europe 18.3% China 21.3% Global Consumption: 36.4 Million Tonnes (2016) Copyright 2018 RISI, Inc. Proprietary Information 5

Growth in the Global Tissue Market Relatively stable growth until the Great Recession in 2009, recent years strong Thousand Tonnes 1,600 Volume Growth 1,400 Relative Growth 1,200 1,000 800 600 400 200 6 5 4 3 2 1 Relative Growth, Percent per Year 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 Copyright 2018 RISI, Inc. Proprietary Information 6

Volume Growth of Tissue Consumption, 2006 2016 China accounted for 41% of growth, North and Latin America share second place Thousand Tonnes 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Total Global Growth: 10.5 Million Tonnes (1.05 Million Tonnes per Year) Copyright 2018 RISI, Inc. Proprietary Information 7

Long Term Growth Trends in the Global Tissue Market International trade in tissue shows higher growth rate than tissue consumption, a clear sign of business globalization. Parent roll trade has accelerated in recent years. 6 Growth Rate, Percentage per Year 5 4 3 2 1 0 Tissue Consumption Total Tissue Trade Parent Roll Trade Copyright 2018 RISI, Inc. Proprietary Information Copyright 2016 RISI, Inc. Proprietary Information 8

Anticipated Growth in the Global Tissue Market Tissue consumption benefitting from improving global economic growth, but there are also uncertainties ahead Thousand Tonnes 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Volume Growth Relative Growth 6 5 4 3 2 1 0 Relative Growth, Percent per Year Copyright 2018 RISI, Inc. Proprietary Information 9

NORTH AND LATIN AMERICAN OUTLOOK Copyright 2018 RISI, Inc. Proprietary Information 10

North American Tissue Business Strong in 2015 2016 The AfH sector in particular has benefitted from the strong economy and low gasoline prices Growth Rate, Percent per Year 4.0 3.0 2.0 1.0 0.0 1.0 Average growth accelerating from 1.5% to 1.75% per year 2.0 Copyright 2018 RISI, Inc. Proprietary Information 11

Expected Growth in US Tissue Consumption by Business Sector At Home retailer labels will show the strongest growth, while At Home branded volume growth will remain moderate and AfH growth will rise above average At Home growth Million Tonnes 5.0 4.0 3.0 2.0 1.0 Minor growth of 0.4% per year Market Volume 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Growth of 5.9% per year Growth of 2.3% per year 0.0 AH Brands Retailer Labels AfH Copyright 2018 RISI, Inc. Proprietary Information 12

Major Tissue Capacity Changes in North America, 2018 2020 2018 Sofidel America, Circleville, OH, USA (2 x NTT) 140,000 t/a Irving Consumer Products, Macon, GA, USA (TAD PM) 64,000 t/a First Quality Tissue, Anderson, SC, USA (TAD PM) 64,000 t/a 268,000 t/a 2019 Clearwater Paper, Shelby, NC, USA (NTT PM) 64,000 t/a First Quality Tissue, Lock Haven, PA, USA 64,000 t/a Kimberly Clark, Fullerton, CA, USA 60,000 t/a Sofidel America, Inola, OK, USA 30,000 t/a Georgia Pacific Corp., Palatka, FL, USA (TAD PM) 72,000 t/a 170,000 t/a Potential Projects First Quality Tissue, Anderson, SC, USA (ATMOS PM)??? 68,000 t/a Kruger Tissue, Memphis, TN or Canada (TAD PM) 65,000 t/a Resolute Forest Products, Calhoun, TN, USA (second NTT PM) 60,000 t/a 193,000 t/a Copyright 2018 RISI, Inc. Proprietary Information 13

Net Capacity Change* and Tissue Operating Rate in North America Last year and 2018 are looking good due to project delays and closures, but any new expansion adding to the committed capacity would change the current outlook from good to stable; additional closures likely to emerge Thousand Tonnes 400 300 200 100 0 100 200 A lot of new capacity coming on stream that will affect 2019 2020; utilization rate will head south if no further closures occur Capacity Change Capacity Utilization 100 98 96 94 92 90 88 86 84 82 80 Capacity Utilization, Percent *Based on committed projects only Copyright 2018 RISI, Inc. Proprietary Information

Main Latin American Tissue Markets, 2016 The five largest markets accounted for 77% of total consumption Costa Rica 2% Ecuador 2% Guatemala 2% Venezuela 4% Peru 4% Colombia 5% Chile 6% All Others 9% Brazil 31% Argentina 8% Mexico 27% Total Market Size: 4.0 Million Tonnes Copyright 2018 RISI, Inc. Proprietary Information 15

Latin American Tissue Market Shows Varying Annual Growth, Change to a More Positive Trend Expected Economic turbulence and political instability causing problems, disappointing growth in 2014 2016, Brazilian recession the main reason 12 Growth Rate, Percent per Year 10 8 6 4 2 0 2 Average Growth 4.4%/a 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Copyright 2018 RISI, Inc. Proprietary Information Copyright 2016 RISI, Inc. Proprietary Information 16

Recent Growth of Tissue Consumption in the Five Largest Latin American Markets Significant annual variation in annual growth rates of apparent consumption typical in every major country 10.0 8.0 6.0 4.0 2.0 Market Growth, Percentage from the Previous Year 0.0-2.0-4.0-6.0 Brazil Mexico Argentina Colombia Chile 2013 2014 2015 2016 Copyright 2017 RISI, Inc. Proprietary Information Copyright 2016 RISI, Inc. Proprietary Information 17

Expected Volume Growth of Latin American Tissue Demand by Main Country, 2016 2020 Brazil is projected to recover in 2017 2019 250 Thousand Tonnes 200 150 100 50 0??? Copyright 2018 RISI, Inc. Proprietary Information 18

Net Capacity Change* and Tissue Capacity Utilization in Latin America Project delays and stronger demand could help a lot, but the current outlook is not encouraging for new investments Thousand Tonnes 350 300 250 200 150 100 50 0 Capacity Change Capacity Utilization 100 95 90 85 80 75 70 65 60 Capacity Utilization, Percent * Based on committed projects only Copyright 2018 RISI, Inc. Proprietary Information 19

ASIAN OUTLOOK Copyright 2018 RISI, Inc. Proprietary Information 20

Recent Growth Rates of Chinese Tissue Consumption The Chinese tissue market has been in a very strong growth phase, but is now showing stronger growth than the economy Growth Rate, Percent per Year 14 12 10 8 6 4 2 0 7.9 Average growth: 8.0% per year 7.0 7.8 8.0 6.9 6.2 Recently, growth has been slowing, but 2015 was an exception 8.5 8.2 9.9 10.0 9.0 6.7 7.1 02/01 03/02 04/03 05/04 06/05 07/06 08/07 09/08 10/09 11/10 12/11 13/12 14/13 15/14 16/15 10.5 7.0 Copyright 2018 RISI, Inc. Proprietary Information 21

Chinese Investments Exploding, but Closures and Project Delays Expected There is a real investment peak with too much capacity being built, but currently also a wave of capacity closures in the industry Thousand Tonnes per Year 2,500 2,000 1,500 1,000 500 0 500 1,000 1,500 * PM start up/learning curves considered. Effective Capacity Change* New Projects Closures Net Capacity Change 2012 2013 2014 2015 2016 2017 2018 Copyright 2018 RISI, Inc. Proprietary Information 22

Net Capacity Change* and Capacity Utilization in the Asian Tissue Industry Overcapacity is obvious, although project delays may help Thousand Tonnes 2,500 2,000 1,500 1,000 500 0 Capacity Change Capacity Utilization 100 95 90 85 80 75 70 Capacity Utilization, Percent *Based on committed projects only, learning curves considered. Copyright 2018 RISI, Inc. Proprietary Information 23

WESTERN AND EASTERN EUROPEAN OUTLOOK Copyright 2018 RISI, Inc. Proprietary Information 24

Western European Tissue Market Showed Positive Recovery in 2015, 2016 Disappointing Major variations in growth from year to year Growth Rate, Percentage per Year 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0.5 1.0 1.5 2.0 Recession over but no consistent return to past growth rates Copyright 2018 RISI, Inc. Proprietary Information 25

Volume Growth of Western European Tissue Markets by Main Country, 2006 2016 In the past 10 years, growth has been strongest in Germany, followed by the UK and France Thousand Tonnes 140 120 100 80 60 40 20 0 Copyright 2018 RISI, Inc. Proprietary Information Copyright 2016 RISI, Inc. Proprietary Information 26

Eastern European Tissue Market Growth Negatively Affected by the Political Tension The Russia Ukraine conflict has taken its toll also in the tissue sector, but 2016 was surprisingly strong, mainly thanks to Poland Growth Rate, Percentage per Year 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2.0 4.0 Growth in 2013 2015 weak and far from the trend line Copyright 2018 RISI, Inc. Proprietary Information 27

Volume Growth of Eastern European Tissue Markets by Main Country, 2006 2016 In the past 10 years, Russia and Poland have clearly been driving the growth, followed distantly by Romania and Ukraine 300 250 Thousand Tonnes 200 150 100 50 0 Russia Poland Romania Ukraine Czech Rep. Hungary Serbia Bulgaria Belarus Croatia All Others Copyright 2018 RISI, Inc. Proprietary Information Copyright 2016 RISI, Inc. Proprietary Information 28

Growth Rate of Western European Tissue Consumption, 2014 2020 We expect relatively slow growth to continue in the next years 3.0 Average Annual Percentage Growth 2.5 2.0 1.5 1.0 0.5 0.0 Forecast 2014 2015 2016 2017 2018 2019 2020 Copyright 2018 RISI, Inc. Proprietary Information 29

Volume Growth of Western European Tissue Markets by Main Country, 2016 2020 In the next five years, volume growth will be largest in the UK, Italy and Germany Thousand Tonnes 140 120 100 80 60 40 20 0 Copyright 2018 RISI, Inc. Proprietary Information Copyright 2016 RISI, Inc. Proprietary Information 30

Growth Rate of Eastern European Tissue Consumption, 2014 2020 The outlook is rather optimistic for tissue market growth in the next few years Average Annual Percentage Growth 8 7 6 5 4 3 2 1 0 Forecast 2014 2015 2016 2017 2018 2019 2020 Copyright 2018 RISI, Inc. Proprietary Information 31

Volume Growth of Eastern European Tissue Markets by Main Country, 2016 2020 In the next five years, volume growth will be largest in Russia, followed by Poland, Romania and Ukraine Thousand Tonnes 160 140 120 100 80 60 40 20 0 Russia Poland Romania Ukraine Hungary Czech Rep. Belarus Croatia Bulgaria Serbia All Others Copyright 2018 RISI, Inc. Proprietary Information Copyright 2016 RISI, Inc. Proprietary Information 32

Major Capacity Changes (>10,000 t/a) in the WE Tissue Industry, 2016 2017 2016 Cartiera del Borgo (Eurovast), Fabbriche di Vallico, Lucca, Italy 20,000 t/a SCA Hygiene Products, Mediona, Spain 45,000 t/a SCA France, Hondouville, France 21,000 t/a Several Rebuilds by Different Companies 33,000 t/a 13,000 t/a 2017 Paper Prime (Trevipapel), Vila Velho de Rodao, Portugal 32,000 t/a Renova, Torres Novas, Portugal (NTT) 35,000 t/a Ariete, Cava de Tirreni, Salerno, Italy 25,000 t/a Cartiere della Basilica, Botticino, Italy 15,000 t/a SCA, Stubbins, UK 20,000 t/a 87,000 t/a Copyright 2018 RISI, Inc. Proprietary Information Copyright 2014 RISI, Inc. All rights reserved. 33

Major Capacity Changes (>10,000 t/a) in the WE Tissue Industry, 2018 2020 2018 Lucart Tissue & Soaps, Aranguren, Bilbao, Spain (restart) 50,000 t/a SCA, Chesterfield, UK (TAD PM rebuild and restart) 28,000 t/a Goma Camps, Ejeo de Caballeros, Spain, Italy 34,000 t/a The Navigator Company, Cacia, Aveiro, Portugal 70,000 t/a Ibertissue (Sofidel), Bunuel, Spain 70,000 t/a ICT Iberica, El Burgo del Ebro, Zaragoza, Spain 70,000 t/a Klippans Bruk, Klippan, Sweden 30,000 t/a 352,000 t/a Potential Projects (2019 2020) Accrol Paper, Blackburn, Lancashire, UK 60,000 t/a Confidential, Central Europe 65,000 t/a Delipapier, Ingrandes, France 60,000 t/a 185,000 t/a Copyright 2014 RISI, Inc. All rights reserved. 34

Net Capacity Change* and Tissue Capacity Utilization in Western Europe until 2021 Capacity closures helped the industry in 2011 2013, but new projects thereafter cut the trend; outlook is not promising for 2018 2019 Thousand Tonnes 250 200 150 100 50 0 50 Capacity Change 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 * Based on committed projects only Capacity Utilization 94 93 92 91 90 89 88 87 86 85 84 Capacity Utilization, Percent Copyright 2018 RISI, Inc. Proprietary Information 35

Major Capacity Changes (>5,000 t/a) in the Eastern European Tissue Industry, 2016 2017 2016 Firma W. Lewandovski, Wloclawek, Poland (20,000 t/a 15,000 t/a) 5,000 t/a Syassky, Syasstroy, Russia 38,000 t/a Tissue Paper, Tbilisi, Georgia 7,000 t/a JSC Kohavian Paper Factory, Gnezdytchiv, Ukraine 5,000 t/a 55,000 t/a 2017 Novak Papir, Peruc, Slavatien, Czech Republic 10,000 t/a Drenik, Belgrade, Serbia 10,000 t/a Kostenets HHI, Kostenets, Bulgaria 26,000 t/a Kuban Papir, Krasnodar, Russia 8,000 t/a Pol Mak, Przemierovo, Poland 25,000 t/a WEPA Professional, Piechowice, Poland 32,000 t/a Delitissue (Sofidel), Ciechanow, Poland 70,000 t/a 129,000 t/a Copyright 2014 RISI, Inc. All rights reserved. 36

Major Capacity Changes (>5,000 t/a) in the Eastern European Tissue Industry, 2018 2019 2018 Velvet Care, Klucze, Poland 60,000 t/a Vajda Papir, Dunaföldvar, Hungary 32,000 t/a Arkhbum Tissue Group, Vorsino, Kaluga, Russia 70,000 t/a Drenik ND, Belgrade, Serbia 30,000 t/a Hayat Kimya Group, Alabuga, Tatarstan, Russia 70,000 t/a 202,000 t/a 2019 Higi Papersoft (Drenik), Szolnok, Hungary 30,000 t/a Copyright 2014 RISI, Inc. All rights reserved. 37

Net Capacity Change* and Tissue Capacity Utilization in Eastern Europe until 2021 New investments from late 2014 onward and slower demand growth caused capacity utilization to decline, which will continue in 2018 2019 Thousand Tonnes 200 180 160 140 120 100 80 60 40 20 0 Capacity Change 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 * Based on committed projects only Capacity Utilization 94 92 90 88 86 84 82 80 78 Capacity Utilization, Percent Copyright 2018 RISI, Inc. Proprietary Information 38

Concluding Remarks China will continue to be the main driving force of global tissue industry expansion, although overcapacity is a threat in nearly every region. Project delays will be common. North American developments will be characterized by steady and encouraging growth, but also ongoing battles between brands and private labels. The Western European tissue business is rather mature, and with population growth limited, growth will remain modest, helped only by some improvement in product penetration. Europe had a quiet expansion phase due to the recession, but capacity growth is picking up with investments in Southern and Eastern Europe. Eastern Europe still has a lot of potential to grow, and even though the Russian Ukrainian conflict in the Donbas region nowhere close to being solved yet, the overall outlook is improving. However, many investments are coming and more are reportedly planned, so no major improvement in capacity utilization can be expected in the next few years. Copyright 2018 RISI, Inc. Proprietary Information 39

Thank you for your attention! For more information: Outlook for World Tissue Business www.risi.com/owtb World Tissue Business Monitor www.risi.com/wtbm US Tissue Monthly Data www.risi.com/ustm Copyright 2018 RISI, Inc. Proprietary Information