1 / 51

“The outlook for market pulp supply and demand in a more challenging economic climate”

“The outlook for market pulp supply and demand in a more challenging economic climate” . September 2008 O.J.Lansdell Oliver.lansdell@hawkinswright.com. Themes. Year-to-date review of the pulp market Demand Prices Costs The economy Market pulp demand and recessions Supply & demand.

janus
Download Presentation

“The outlook for market pulp supply and demand in a more challenging economic climate”

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. “The outlook for market pulp supply and demand in a more challenging economic climate” September 2008 O.J.Lansdell Oliver.lansdell@hawkinswright.com

  2. Themes • Year-to-date review of the pulp market • Demand • Prices • Costs • The economy • Market pulp demand and recessions • Supply & demand

  3. Chemical market pulp demand, 000s t • World demand up 5% y-t-d • Softwood demand relatively unchanged y-t-d • Hardwood demand up 9% y-t-d • Chinese demand up 20% • North American demand -4% y-t-d (possibly overstated?)

  4. But is the party over?

  5. Pulp prices (PIX) in US dollars & other currencies Source: Hawkins Wright, OANDA, FOEX

  6. DISCLAIMER: not everyone was at the party

  7. DISCLAIMER: not everyone was at the party Source: Hawkins Wright

  8. Cost inflation: fibre • Typically account for 40-45% of total costs • Poor winter harvests in Europe • Increased competition for fibre from energy sector • Increased export duties on Russian fibre • Reduced supply of residual wood chips in North America

  9. Cost inflation: chemicals • Chemicals typically account for 10% of total costs • Strong demand for all chemicals • Weak supply of caustic soda….linked to subprime problems

  10. Cost inflation: energy • Energy typically account for 6% of total costs (although some mills sell energy) • Dollar hedge • Strong demand • Limited new supplies • Cost advantage for integrated producers over non-integrated producers • Encourages integrated producers to keep their pulp lines running

  11. Cost inflation: freight • Typically accounts for 10% of total costs • Globalisation • Higher fuel costs

  12. World weighted average costs of supply Source: Hawkins Wright

  13. The economy

  14. Economic update • Housing correction has intensified and spread

  15. US/UK house prices are still falling (fast)

  16. US market to bottom in 2010? • October 2010 represents the market trough of the forward curve

  17. Economic update • Housing correction has intensified and spread • Losses on sub-prime mortgages deepening.

  18. Capital infusion hasn’t matched write-downs

  19. Economic update • Housing correction has intensified and spread • Losses on sub-prime mortgages deepening. • Credit conditions remain tight.

  20. Economic outlook • Credit availability will continue to contract due heightened risk aversion among lenders and investors. • Credit likely to remain expensive as investors brace for an increase in defaults.

  21. EU Economic Sentiment Indicator

  22. US consumer confidence

  23. Economic outlook • Credit availability will continue to contract due heightened risk aversion among lenders and investors. • Credit likely to remain expensive as investors brace for an increase in defaults. • Prolonged period of economic weakness is likely, as housing downturn, credit contraction, and rising inflation significantly reduce consumer spending and threaten overall WORLD growth.

  24. What about China? • GDP slowing for 4 quarters in a row…10.1% in Q2 • 9.8% this year? (From 11.9% in 2007) • Inflation…. 12-year high 8.7% in Feb • Falling to 4.9% in August (food = 10%, goods = 2%) • Tighter monetary policy through 1st half has now be relaxed

  25. The ‘China’ factor • China’s exports grew from $325bn to $1.2 trillion during 2002-2007 • Exported goods packed in cartons/cases, protected with tissue accompanied by guarantees, instructions, labels, leaflets etc • Apparent consumption statistics overstate the end-use P&B use in China, and understate it in N. America and W. Europe • China’s P&B demand growth depends on export volumes • Western demand is waning and freight costs are offsetting some of the low cost advantage • China’s exports are slowing

  26. So where are we heading ? - GDP growth falling GDP remains the key driver for the pulp and paper industry, although the relationship is not as strong as before

  27. Tissue & paper production Global GDP vs. tissue and fine paper production Source: Hawkins Wright, IMF, FAO

  28. Recessions • Four recessions since 1973 • Each has affected both prices and volumes of market pulp and paper sales

  29. Pulp demand Source: Hawkins Wright

  30. Pulp demand & recessions Source: Hawkins Wright

  31. Pulp demand & recessions & prices Source: Hawkins Wright

  32. Short-term expectations • Pulp demand • Mature markets • China • Pulp supply

  33. US P&W support output index

  34. North American P&W market, 7 months ‘08 • One time boosts to demand in 2008 resulting from US elections and Olympics Source: PPPC

  35. Paper capacity closures, 2H-2008 USA New Page, Kimberly WI CFS Q3 -500 Katahdin Paper, Millincoket SCA Q3 -175 Wausau Paper, Maine SPEC Q4 -45 ITALY Burgo-Marachi, Chieti Scalo CFS Q3 -210 UK Curtis Fine Papers UFS Q3 -35 HOLLAND Sappi, Maastricht SPEC Q4 -60 FINLAND Stora-Enso, Anjala CM Q4 -155 UK M-real, New Thames UFS Q4 -230 SWEDEN Holmen, Hallstavik UM Q4 -110 Holmen, Wargon CM Q4 -145 -1665 Note: the above list is not exhaustive

  36. WE integration trends – fine papers Source: EMGE • Europe has over 4 million t of non-integrated coated woodfree capacity and over 3 million t of non-integrated uncoated woodfree capacity

  37. China Pulp Imports in 2008… BUT CHINESE PAPER & BOARD PRODUCTION UP JUST 7% y-t-d Source: Chinese customs data

  38. Tissue production & impact on mkt. pulp demand • More than 0.5 million tonnes of new capacity in 2H-2008

  39. BCP demand growth summary Downside risks for 2009 are growing Source: Hawkins Wright

  40. Supply • As demand falls, it creates a ‘false’ impression that supply is increasing • A few other considerations… • Integrated producers selling into the market • Mill restarts? • UNKNOWN – impact of Russian tax increase on capacity • Industrial action?

  41. Finnish imports of wood raw materials from Russia

  42. Short-term supply outlook Major projects during the next 18 months Source: Hawkins Wright, OANDA, FOEX

  43. Scenario analysis Source: Hawkins Wright

  44. A disruptive time of profound change • Exchange rates – weakening CND $/Euro will lower the industry cost curve • BUT FACED WITH A HIGHER COST ENVIRONMENT, AND WEAKER DEMAND CONDITIONS, MORE HIGH COST CAPACITY WILL HAVE TO CLOSE • More M&A activity

  45. Long term forecast

  46. Long-term supply demand balance - BSKP Source: Hawkins Wright

  47. Long-term supply demand balance - BHKP Source: Hawkins Wright

  48. Cost inflation: construction costs, iron/steel • Iron ore is the primary raw material in the manufacture of steel. Iron ore costs have increased by +65% during the past 12 months, the price of steel is up over 50%. • Construction costs for greenfield mills are rising! Source: IMF

  49. Forecasts – New China paper production Source: Hawkins Wright

More Related