global newsprint outlook - fastmarkets risi...eventful year driving newspaper consumption in 2016;...

Global Newsprint OutlookWill steep adjustments give way to moderation?

Derek MahlburgSenior Economist, Graphic Paper

San Diego, RISI North American ConferenceOctober 5th, 2016

© Copyright 2016 RISI, Inc. | Proprietary Information


• Has covered graphic paper markets with RISI since 2008

• Co‐author of the monthly Paper Trader and North American graphic paper forecasts

• Special studies include single‐client projects and Global Woodfree Risk of Closure Study, North American Containerboard Conversion Study and Global Outlook for Cut Size Uncoated Freesheet Markets

Senior Economist, Graphic PapersDerek Mahlburg

[email protected]

2

© Copyright 2016 RISI, Inc. | Proprietary Information 33

World Newsprint DemandFive straight years of accelerating demand declines culminate in 8.6% drop in 2015, the worst performance since 2009; can global demand find some stability?

‐15%

‐10%

‐5%

0%

5%

10%

20

22

24

26

28

30

32

34

36

38

40

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Millions of Ton

nes

Volume (L)Percent Change (R)

3


Newsprint Demand Now Declining Across the GlobeThousand Tonnes, Percent per Year, 2016‐2018

Global: ‐2,870 (‐4.1%)

‐10 (‐1.2%)

‐1,005 (‐6.2%)

‐812 (‐2.6%)

‐42 (‐2.5%)

‐155 (‐3.4%)

‐52 (‐4.0%)

‐691 (‐6.7%)

‐101 (‐2.7%)

3‐year total growth in tonnes(3‐year average % change)

4


Global Demand Losses of 2014‐2015 Exacerbated by Weak Emerging Markets

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

2010 2011 2012 2013 2014 2015 2016 2017 2018

Annual Newsprint Demand Decline by Region, Millions of Tonnes

Asia North America Europe Latin America Rest of World

5


‐30%

‐25%

‐20%

‐15%

‐10%

‐5%

0%

0

1

2

3

4

5

6

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Million Tonn

es, A

pparen

t Co

nsum

ption

Apparent Consumption% Change (R)

North American Newsprint Demand Decline Finally Easing from Double-Digit Pace in 2016Loss of 230,000 tonnes per year in 2016-2018 compared to 430,000 tonnes per year in 2013-2015

6


Demand from Newspapers Rebounded After Inventory Drawdown in 3Q15Demand from newspapers only down 6% year‐to‐date in 2016; commercial printing end uses account for about 25% of total newsprint demand

200220240

260280300320

340360

500

600

700

800

900

1,000

1,100

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

Thou

sand

Ton

nes

N. American Quarterly Newsprint Consumption by End‐Use

NewspapersCommercial Printers (R)

Source: PPPC

7


Is the North American Newsprint Demand Decline Really Slowing Down?North American quarterly demand on pace with 6% negative trend in place since 2010

100

140

180

220

260

300

340

380

420

460

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

2010 2011 2012 2013 2014 2015 2016 2017 2018

Thou

sand

Ton

nes

US DemandNorth American DemandCanadian Demand

8


Minimal Change in Trends for Drivers of US Newsprint DemandConsistent declines in advertising of 7‐8% per year; circulation declines of around 6% per year

‐35%

‐30%

‐25%

‐20%

‐15%

‐10%

‐5%

0%

2009 2010 2011 2012 2013 2014 2015 2016

Year‐over‐Year Change in US Newspaper Advertising Revenues

Print Ad Revenues Reported by NAATotal Ad Revenues from Sample of Publishers

Source: NAA, RISI, quarterly financial reports of public newspaper publishers.

9


Fewer Newspaper Publishers Successfully Balanced Costs and Revenues in 2015

0123456789

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Number of Publicly Traded Publishers with Profit or Loss

Profit Loss

Source: Pew Research Center, publisher financial reports

10


‐30%

‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%

01234567891011

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Million Tonn

es, A

pparen

t Co

nsum

ption

E. European DemandW. European Demand% Change (Total Europe)

European Demand Declines Also Gentle in 2016Eventful year driving newspaper consumption in 2016; economic growth in 2017-2018 will be less stimulating than in North America

11


Currency Shifts Swing Global Newsprint Market Share Away from North America and to Europe

+12%

‐15%‐7%

‐6%‐16%+13%

‐12%

+6%

0

500

1,000

1,500

2,000

2,500

North America Europe

Thou

sand

Ton

nes

Offshore Exports of Newsprint

2012 2013 2014 2015 2016

Source: PPPC/EURO‐GRAPH, 2016 estimated from first 7 months / 6 months

12


US Mills Have Also Lost Share in Home Market Due to Strong CurrencyExacerbating ongoing retreat of demand

0%

10%

20%

30%

40%

50%

0

2,000

4,000

6,000

8,000

10,000

12,000

06 07 08 09 10 11 12 13 14 15 16 17 18

Thou

sand

Ton

nes

Canadian Shipments to NA US Shipments to NA

US Share of Total Shipments to NA

13


North American Export Weakness Driven by Decreased Competitiveness for US Mills

15%

20%

25%

30%

35%

40%

45%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Offs

hore Exports/Total Shipm

ents

Export Share of Canadian Newsprint Shipments

Export Share of US Newsprint Shipments

14


Russian Newsprint Exports by DestinationExports to India jump even as Russian exports to the rest of world fade

0

200

400

600

800

1,000

1,200

1,400

1,600

2010 2011 2012 2013 2014 2015 2016E

Thou

sand

Ton

nes

Western Europe Eastern Europe India Other Asia Latin America Rest of World

Source: GTA, 2016 estimated from first six months

15


Indian Newsprint Imports by SourceLargest source of demand growth in the world, about 60,000 tonnesper year; demand decline in 2014 driven by basis weight shift

0

500

1,000

1,500

2,000

2,500

3,000

2010 2011 2012 2013 2014 2015 2016

Thou

sand

Ton

nes

Western Europe North America South Korea ChinaRussia Australia Rest of World Indian Demand

16


Latin American Newsprint Demand Hampered by Maturing Larger Markets, Inconsistent Economic GrowthAverage demand declines of 11% in 2013‐2015

0

500

1,000

1,500

2,000

2,500

05 06 07 08 09 10 11 12 13 14 15 16 17 18

Thou

sand

Ton

nes

BrazilArgentinaVenezuelaOtherMexico

17


North American Newsprint Exports Downward adjustment due to exchange rates in 2014‐2016 will be followed by steadier retreat

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

0

500

1,000

1,500

2,000

2,500

3,000

2005 2007 2009 2011 2013 2015 2017

Thou

sand

Ton

nes

North American Newsprint Exports

USD/EUR Exchange Rate

18


North American and European Operating Rates Healthy in 2016, but Global Market Still Oversupplied

75%

80%

85%

90%

95%

100%

05 06 07 08 09 10 11 12 13 14 15 16 17 18

Ship

men

ts/C

apac

ity

North AmericaW. EuropeAsiaWorld

19


Demand Forecast and Announced Changes in World Capacity for 2016‐2018Conversions to tissue/packaging will spur 962,000 tonnes of 2017 reductions in North America and Europe

‐3,500

‐3,000

‐2,500

‐2,000

‐1,500

‐1,000

‐500

0

N. America Europe Far East Other World

Thou

sand

Ton

nes

Capacity

Demand

20


North American Newsprint Capacity Utilization Forecast

75%

80%

85%

90%

95%

100%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Ship

men

ts/C

apac

ity

North American Newsprint Operating Rate Forecast

Operating Rate Forecast with Only AnnouncedCapacity Assumptions

21


As US Prices Recover, Price Gap with Rest of World WidensStrong US dollar and weak pricing in rest of the world dragging domestic prices down as producers repatriate low‐margin exports

$450

$500

$550

$600

$650

$700

$750

$800

2010 2011 2012 2013 2014 2015 2016

US

Dol

lars

per

Ton

ne fo

r 45

gsm

Pa

per

US EastIndiaBrazilW. EuropeHong Kong

22


Newsprint Delivered Cash Cost Margins for Domestic Markets and Exports to IndiaUS Dollars per Tonne (Margin = Price Minus Delivered Cash Costs)

$0

$50

$100

$150

$200

$250

Margindel. to US

East

Margindel. toIndia

Margindel. to US

East

Margindel. toIndia

Margindel. to W.Europe

Margindel. toIndia

Margindel. to W.Europe

Margindel. toIndia

Margindel. toHongKong

Margindel. toIndia

E. EuropeCanada W. Europe AsiaUSA

23


Weak Export Pricing Weighs Down Average North American Newsprint Selling Price in 2016Weighted Average Export Price based on 45 gsm newsprint prices in Brazil, India and Europe

$450

$500

$550

$600

$650

$700

$750

2011 2012 2013 2014 2015 2016

US Dollars per Ton

ne

US EastUS WestWeighted Average All North American ShipmentsWeighted Average North American Exports

24


N. American and W. European Newsprint Variable Cost ProfitabilityPrice increases and stable costs have allowed domestic profitability peak in 2016

95%100%105%110%115%120%125%130%135%140%145%150%155%

2010 2011 2012 2013 2014 2015 2016 2017 2018

NA US East Price/Variable Costs NA All Shp. Price/Variable CostsWE Price/Variable Costs US CFS Rolls Price/Variable Costs

Note: Variable costs include production costs and delivery to North America or Western Europe

25


World Graphic Paper 5‐Year Forecastwww.risi.com/worldgraphic

Global Cut Size Uncoated Freesheet Studywww.risi.com/cutsize

China’s Influence on WorldGraphic Paper Markets in theComing Decadewww.risi.com/chinagraphic

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global newsprint outlook - fastmarkets risi...eventful year driving newspaper consumption in 2016;...

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