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Outlook for Book Publishing Papers
John Maine, VP World Graphic PaperBMI Management Conference
April, 2013
1
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US Economy Gaining Some MomentumQuarterly Real GDP and Personal Consumption Growth, Annualized Percent Change
1Q
05
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
GDP
Consumption
GDP Annual
2011 1.8%
2012 2.2%
2013 2.2%
2014 3.2%
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2011 2012 2013 2014 2015 2016 2017 2018
GDP, Bil. 2005 $ 13,300 13,594 13,887 14,338 14,832 15,250 15,372 15,827
Real % Ch 1.8 2.2 2.2 3.3 3.4 2.8 0.8 3.0
Consumption, Bil. 2005 $ 9,429 9,603 9,796 10,097 10,446 10,769 10,861 11,161
Real % Ch 2.5 1.8 2.0 3.1 3.5 3.1 0.8 2.8
Ind. Production, % Ch 4.1 3.8 3.1 4.7 4.8 3.5 0.7 3.5
Housing Starts, Mil. Units 0.61 0.76 0.94 1.24 1.48 1.47 1.28 1.42
Trade Account, Bil. $ -560 -540 -494 -491 -538 -597 -565 -530
Consumer Prices, % Ch 3.1 2.1 2.2 2.4 3.0 3.1 2.4 2.6
Producer Prices, % Ch 6.0 1.9 2.5 4.8 5.4 4.3 -0.5 3.6
West Texas Int. Oil Price, $/BBL 95 94 94 112 122 114 96 107
Natural Gas, Henry Hub, $/Mbtu 4.00 2.75 3.98 4.29 4.53 5.03 4.98 5.53
Fed. Funds Interest Rate, % 0.19 0.19 0.20 0.20 1.63 3.19 3.37 3.94
Prime Rate, % 3.19 3.19 3.20 3.20 4.63 6.19 6.37 6.94
10-Yr T-Bond Yield, % 2.78 1.81 1.97 2.78 3.81 4.79 4.92 5.33
U.S. Economic Outlook
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Media Tablet Ownership Expanding Rapidly, Could Reach 40% of Adults by 2014Percent of Adults Who Own Tablet Computers and E-readers
Apr-09 Sep-09
May-10
Sep-10
Nov-10
May-11
Aug-11
Dec-11
Jan-12 Dec-12
Jan-130%
5%
10%
15%
20%
25%
30%
35%
2%3%
4%5%
6%
12%
9%10%
19%
24%26%
3%4%
5%
8%10% 10%
19%
29%31%e-Readers
Tablets
Source: pewinternet.org
4
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Adult Trade Book Sales by FormatBillion US Dollars
Hardcover Softcover Mass-market Paperback
E-Book$0
$1
$2
$3
$4
$5
$6
2009 2010
2011 2012
Source: BISG and some RISI Estimates5
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North American P&W Demand by GradeMillion Tonnes
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
5
10
15
20
25
30
35
Coated Woodfree
Uncoated Woodfree
Coated Mechanical
Uncoated Mechanical
Average Annual Growth 2013-2014CWF -2.9%UWF -3.2%Cmec -5.2%Umec -0.9%
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Projected Change in North American P&W Demand by GradePercent
2013 2014-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
UWF
CWF
Cmec
Umec
P&W Total
7
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Total Paper Usage in US Books Declining (000 tons)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Change in Book Paper Demand
2009 -20%2010 -14%2011 -6% -8%-17 -3 to -4% per year
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Book Publishers Moving Toward Coated Freesheet (much of which is imported) and Uncoated Mechanical (substituting for more expensive uncoated freesheet)
CFS15%
Cmec18%
UFS45%
Umec23%
2000
9
CFS23%
Cmec18%
UFS25%
Umec34%
2012
US Consumption of Paper by Grade in Book Publishing (percentage)
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Uncoated Mechanical Bulky Book Market Cut in Half by Decline of Mass-Market Paperback(N. American Shipments to all End-Uses,000 tonnes)
0
50
100
150
200
250
300
350
400
450
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Bulky Book
Source: PPPC
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Combined North American Demand for Uncoated Freesheet Offset and Uncoated Mechanical Superbrite – Trends towards substitution of cheaper papers plateaus
2004 2005 2006 2007 2008 2009 2010 2011 20120
500100015002000250030003500400045005000
0%
5%
10%
15%
20%
25%
30%
35%
UFS Offset UGW SuperbrightSuperbright Share
Superbrite Share000 tonnes
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North American Imports of Printed Books – Trending Down As Asia Loses its Appeal
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11 12$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Asia Europe Other Total
Million Real 2012 Dollars
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U.S. Imports of Printed Products from China – Printing Of Books in China Has Abated For Environmental and Economic Reasons
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11 12$0
$200
$400
$600
$800
$1,000
$1,200
Books including Children's Greeting Cards all other
Million Real 2012 Dollars
18
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North American Demand for Coated Woodfree Started Trending Down in 2007
78
80
82
84
86
88
90
92
94
96
98
0 2 4 6 8 10
12
14
0
1
2
3
4
5
6
7
Average Decline:
2007 to 2012 -6.2%2013 to 2014 -3.0%
Million Tonnes
14
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US Market for Coated Woodfree Sheets versus Rolls
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Sheets
Rolls
US Demand, Thousand Short Tons
Includes coated bristols and imports of coated mechanical sheets
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US Market Share for Coated Sheets by Source of Supply – Imports Are Critical
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120%
10%
20%
30%
40%
50%
60%
70%
North America
Europe
China/Indonesia
Other Asia
------Post Tariff Era------
Tariff applied to China and Indonesia in 2010
Note: Includes coated bristol sheets and coated mechanical sheet imports
16
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US Market Share for Coated Rolls by Source of Supply – Imports Actually Lost Share
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
North America
Europe
China/Indonesia
Other Asia
Note: Includes coated bristol
17
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Supply and Trade Trendsfor Printing & Writing Papers
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Announced Net Capacity Changes for 2013-2014 vs RISI Forecast of Demand Growth for the Same Period
Europe N. America Asia Global-400
-200
0
200
400
600
800
1,000
1,200 Coated Woodfree
Capacity Growth
Demand Growth
Th
ou
sa
nd
To
nn
es
19
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Coated Woodfree Operating RatesLack of announced capacity expansion to cause operating rates to improve in 2013-2014
2008 2009 2010 2011 2012 2013 201475%
77%
79%
81%
83%
85%
87%
89%
91%
93%
95%
N. America
W. Europe
Asia
20
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Announced Net Capacity Changes for 2013-2014 vs RISI Forecast of Demand Growth for the Same Period
Europe N. America Asia Latin America Global-500
-400
-300
-200
-100
0
100
200
300
400Coated Mechanical
Capacity Growth
Demand Growth
Th
ou
sa
nd
To
nn
es
21
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Coated Mechanical Operating RatesDecline in North America leads to weaker markets, Europe forecast assumes shuts
2008 2009 2010 2011 2012 2013 201475%
80%
85%
90%
95%
100%
N. Amer-ica
With ex-isting capacity
22
With assumed shuts
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Announced Net Capacity Changes for 2013-2014 vs RISI Forecast of Demand Growth for the Same Period
Europe N. America Asia Latin America Global-1,000
-500
0
500
1,000
1,500
2,000
2,500 Uncoated Woodfree
Capacity Growth
Demand Growth
Th
ou
sa
nd
To
nn
es
23
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Uncoated Woodfree Operating RatesMore shuts are likely to occur to balance global demand and supply over the next two years
2008 2009 2010 2011 2012 2013 20140.870000000000002
0.880000000000002
0.890000000000002
0.900000000000002
0.910000000000002
0.920000000000002
Global with Announced Capacity Changes Only
Global with Assumed Shuts Including Shuts of Old Capacity in China
24
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Announced Net Capacity Changes for 2013-2014 vs. RISI Forecast of Demand Growth for the Same Period
Europe N. America Asia Latin America Global-700
-600
-500
-400
-300
-200
-100
0
100
200
300Uncoated Mechanical
Capacity Growth
Demand Growth
Th
ou
sa
nd
To
nn
es
25
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Uncoated Mechanical Operating RatesMassive shuts in Europe cause global markets to tighten despite restarts in North America
2008 2009 2010 2011 2012 2013 201475%
80%
85%
90%
95%
100%
N. America
W. Europe
Global
26
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Costs for Virgin and Recycled Fiber Will Likely Increase Over the Next Two Years
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
$50
$150
$250
$350
$450
$550
$650
$750
$850
$950BHKP SOP#37 Hard Wht. Shv.#30
US$/ton
Data sources: RISI and Letsrecycle.com
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• Demand and supply are seeing widely different growth rates and this will create upward pressure on high grades – Demand: fast-growing paper sectors, such as tissue, will
request more high grades of recovered paper– Supply: printing and writing paper, the major supply of
high grades, however, will see significant decline in consumption
• Costs are forecast to move upward through 2014 along with the strengthening virgin pulp market, after a weak year in 2012.
High Grade Recycled Paper in the US Market
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Period of Relative Cost Stability to End as Costs Rise for Fiber, Energy, and TransportN. American Mill Delivered Cash Costs for Producing 34 lb. LWC
2008 2009 2010 2011 2012 2013 2014$700
$750
$800
$850
$900
$950
$1,000
$1,050
Integrated to Pulp
Not Integrated to Chemical Pulp
29
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Historical Publishing Paper Prices ($US/cwt) …Trending down while the rest of the world is starting to increase
2005 2006 2007 2008 2009 2010 2011 2012 2013$30
$35
$40
$45
$50
$55
SC-A Ctd. No. 5 34 lbCtd. No. 3 60 lb. Unc. Offset 50 lb.
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World Graphic Paper 5-Year Forecast
Global Newsprint Risk of Closure Studywww.risi.com/gnr
China’s Influence on WorldGraphic Paper Markets in theComing Decadewww.risi.com/chinagraphic
Thank you for your attention!For more information: