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© Copyright 2018 RISI, Inc. | Proprietary Information
Global Fluff Pulp Outlook
Patrick Cavanagh
RISI North American ConferenceSan Francisco, USAOctober 2018
Economist, Pulp
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• Fluff pulp basics• Demand Steady growth trends for both mature and emerging markets
• Supply Recent capacity expansions and closures Little announced capacity expansion, but new supply will be needed
• Prices Fluff pulp prices have increased steadily, even as operating rates have declined
Presentation Overview
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What Is Fluff Pulp?• Specialty wood pulp, that is NOT used to make paper or paperboard
• Fluff pulp is used primarily in absorbent hygiene products Baby diapers, feminine hygiene, adult incontinence and nonwovens/wipes Demand for fluff pulp is growing steadily at 3‐4% per year
• Most of the fluff pulp in the world is produced in the US South (84%) Worldwide, fluff is produced at 24 pulp mills, operated by 13 companies, located in six countries 99% of fluff pulp is made using softwood fibers, utilizing the kraft process Bleached softwood kraft fluff accounted for 23% of global market BSK capacity in 2017
• Many fluff pulp mills can also make paper grade pulp (BSK “swing” mills) Fluff pulp costs more to produce and is usually priced higher than paper grade pulp Sometimes it makes more sense economically to produce paper grade (similar price, lower cost)
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Demand Fundamentals• Demand is driven by growth in GDP per capita and by growth in the population
segments of potential absorbent hygiene product users Babies, women and senior adults are the main potential consumer groups Mature markets are relatively saturated, growth is largely driven by demographics Emerging markets are constrained by income, economic growth is correlated with fluff demand
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Percen
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Real GDP pe
r Cap
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Mature EmergingMature % Chg. Emerging % Chg.
Mature42%
Emerging58%
6.3 Million Tonnes
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Source: UN, RISI
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Population of Babies, 0‐2.5 Years Old
Emerging Mature
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Population of Women, 12‐51 Years Old
Emerging Mature
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95 97 99 01 03 05 07 09 11 13 15 17 19 21
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Population of Adults, 65+ Years Old
Emerging Mature
Share of Demand, 2017
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Global Demand by End Use, 2017
Disposable Diapers37%
Adult Incontinence
29%
Feminine Hygiene21%
Airlaid/Other13%
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Eastern EuropeMiddle East and AfricaOther AsiaLatin AmericaChinaMature Markets*
* Canada, Japan, Oceania, USA and Western Europe.
Demand by Region
Fluff Consumption vs. IncomeKilograms per Potential Consumer and GDP per Capita, 1992‐2022
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s Fluff Pulp pe
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Consum
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Real per Capita GDP, 2005 US Dollars
USA CanadaNordic Western EuropeJapan OceaniaChina Other AsiaBrazil Other Latin AmericaEastern Europe Middle EastAfrica
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Supply‐Side Developments• Traditionally, fluff pulp supply has been centered in the US South softwood fiber region
Several recent capacity projects have been started up in Brazil and Sweden, including eucalyptus, NBSK Currently there is only one publicly announced capacity project, not expected until 2025 New supply will be needed to keep operating rates within historical norms, likely from the US South
80%82%84%86%88%90%92%94%96%98%100%
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Fluff Production
Operating Rate (R)Company Mill Country Capacity
Thousand TonnesDate
Suzano Suzano Brazil 100 2015 Q4
Klabin Ortigueira Brazil 400 2016 Q2
International Paper Riegelwood United States 360 2016 Q2
Domtar Ashdown United States 515 2016 Q3
Domtar Plymouth United States ‐80 2018 Q1
Stora Enso Skutskär Sweden 160 2018 Q2
Klabin Ortigueira Brazil 400 2025
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Fluff Producer Market Share, 2017 Capacity by Region
International Paper36%
Georgia Pacific29%
Domtar10%
Klabin4%
Resolute4%
Stora Enso4%
WestRock3%
Arauco3%
Five Remaining
7%
6.9 Million Tonnes 0
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North America
Western Europe
Latin America
Fluff “Cash” Cost Curve, Fourth Quarter 2017Machine level costs, not including delivery, I, SG&A or logistics
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0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500
Cash Costs, U
S Dollars per Ton
ne
Cummulative Capacity, Thousand Tonnes
South America North America Europe Asia
Tightness in Paper Grade Creates Negative Spread to FluffFluff and SBSK Net Prices, US Dollars per Tonne, Delivered to the USA
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Fluff‐SBSK (R) Fluff SBSK Average Spread (R)
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Unexpected Downtime : Hurricane Florence• On September 14th, Hurricane Florence made landfall in a key fluff producing region
Four pulp mills producing fluff in the Carolinas were shuttered, accounting for 19% of global supply The effective list price for fluff increased $25/tonne in September Full impact remains unclear
Company Mill DaysDown
Capacity / Day(000s tonnes)
Downtime(000s tonnes)
International Paper Riegelwood 17 0.9 15
International Paper Georgetown 8 0.9 7
International Paper New Bern 9 0.9 8
Domtar Plymouth 5 0.9 4
TOTAL 35
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• Fluff pulp demand will continue to grow steadily at 3‐4% per year Mature market demand will grow modestly as aging populations contribute to demand for AI products and outweigh slowing birth rates
Emerging markets will account for 89% of demand growth over the next five years, driven by rapid economic growth and consumer market penetration
• New fluff capacity will be needed to keep the market balanced “Swing” capacity and conversion projects will likely fill the gap
• Strong global demand for paper grade pulp will work to tighten the fluff pulp market further as producers swing production to paper grade pulp
• Higher fluff pulp prices may motivate buyers to seek viable alternatives Northern softwood, eucalyptus, SAP
Forecast Summary
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Outlook for the World Fluff Pulp Market (2018)www.risi.com/fluffpulp18
• Five‐year forecasts for prices, demand, supply and costs
• Historical data and analysis for all regions of the world
• Fluff conversion risk assessment for paper machines in the US South
Thank you!For more information:
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