paper market update : background information on june 2010 price increase
TRANSCRIPT
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Paper Market Update :
Background information onJune 2010 price increase
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ContentsDynamics affecting paper supply & pricing
Economic Downturn • (11% reduction in UK paper consumption)
Exchange rate falls• (leading to lower returns for importing mills)
Raw material increases (leading to higher mill costs)• Pulp
• Oil
• Diesel
Manufacturing base overviewDespite consolidation and closures a significant number of mills are at
risk
World EventsSupply challenges
Paper Prices 2003 -2010
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Demand is down
Paper consumption has fallen during the recession right across Europe and there has been an 11% reduction in the UK
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-10%-10%
-13%
-13%
-23%-23%
0%0%
-10%
-10%
-13%
-13%
-10%
-10%
-13%
-13%
-8%-8%-10%-10%
-20%
-20%
-13%-13%
-14%
-14%-9%-9%
-5%-5%
-16%
-16%
-15%
-15%
-11%
-11%
-11%
-11%
-21%
-21%
Significant year on year decline in paper volumes in all countries
Source: Eugropa - Merchant total sales volumes 2009 vs. 2008
Unprecedented Market Conditions
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Paper Mill consolidation and closure
Mills are making unsustainable returns and continue to close
Since 2005 mill closures have taken 3,000,000 tonnes out of production across Europe
Despite industry consolidation and closures a significant number of mills remain at risk
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Monthly average Spot exchange rate, Euro into Sterling
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
Source : Bank of England
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Input Costs are Rising
Pulp prices are rising sharply – the largest raw material
Oil prices are increasing again – Paper manufacturing uses high levels of energy
Diesel prices are rising – distribution is a significant element in the cost of paper
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Wood Pulp Prices
Source : PPI Europe
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10 Source : US Energy Information Administration
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World Events
Added to the issues facing the industry there have been a number of events that have happened in 2010 to make the situation for supply and demand even more challenging
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Chilean Earthquake
At the end of February, 12,000 people were left homeless by an 8.8 magnitude earthquake, the world’s fifth-strongest in a century in Chile.
It also claimed a number of pulp mills. Chile is home to about 8% of the worlds pulp production. All 6 market pulp mills have been closed.Manufacturing has just started in one or two of the sites again but the down time has created shortages of pulp and a number of paper mills have had machines standing idle without pulp to produce paper
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Finnish Stevedores Strike
A Finnish stevedores' walkout crippled the country's foreign trade for two weeks. About 80% of Finland's exports are shipped by sea. Finland produces about 4% of the worlds pulp
"The strike's effects will reduce Finnish work and jobs in the wood-processing industry as well as in its supplier network in other sectors," Timo Jaatinen, the managing director of the lobby, said in a statement.
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Swedish Paper Mill Strikes
A 10-day strike during April by some 3,000 paper mill workers that has cost the industry some 50 million Euros
Paper workers from 6 mills had been on strike since April 16, and the union warned that another 7 production units would join the strike if last-bid talks broke down.
The second round of strikes has been narrowly avoided after unions reached an agreement with employers over pay increases.
www.swedishwire.com/business/4095-swedish-paper-mills-strike-is-over
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Paper prices over the last 7 year period
Despite all of these issues the average price of all papers sold by merchants in the UK, whilst fluctuating over the last 7 years was only 3.29% higher in February 2010 than those of February 2003
If we look at coated sheets alone then the figure is only 2% higher over the same time frame
Compare this to the Retail Price Index which is 17% higher during the same period, meaning that in real terms the price of paper has fallen in this time
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16 Source: National Association of Paper Merchants
Price Index 2003-2010Average Price of All Paper Products 2003 to Present
80
90
100
110
120
130
Jan-
03
May
-03
Sep-0
3
Jan-
04
May
-04
Sep-0
4
Jan-
05
May
-05
Sep-0
5
Jan-
06
May
-06
Sep-0
6
Jan-
07
May
-07
Sep-0
7
Jan-
08
May
-08
Sep-0
8
Jan-
09
May
-09
Sep-0
9
Jan-
10
Ind
ex (
Jan
uar
y 20
03 =
100
)
Index Set at Jan 03
Average Sales Price
Retail Price Index
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Price Index 2003-2010
Source: National Association of Paper Merchants
Average Price Coated Sheets 2003 to Present
80
90
100
110
120
130
Jan-
03
May
-03
Sep-0
3
Jan-
04
May
-04
Sep-0
4
Jan-
05
May
-05
Sep-0
5
Jan-
06
May
-06
Sep-0
6
Jan-
07
May
-07
Sep-0
7
Jan-
08
May
-08
Sep-0
8
Jan-
09
May
-09
Sep-0
9
Jan-
10
Ind
ex (
Jan
uar
y 20
03 =
100
)
Index Set Jan 03
Average Sales Price
Retail Price Index
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Looking ahead
It will be some time before “normal” Pulp production is resumed
Oil and diesel costs look set to continue to riseBut the £ looks although it will strengthen against the Euro
providing some relief
Overall Paper Manufacturers will continue to apply pressure under the threat of closure to increase prices and restore their returns