McCarthy, P., Lei, L., Shifts in Regional Consumption for the Pulp ...

Shifts in Regional Consumption for Pulp and PaperPat McCarthyChair, School of EconomicsDirector, Center for Paper Business and Industry Studies (CPBIS)Georgia Institute of TechnologyAtlanta, GA

Overview• Objective• Structure of the NA Industry• Regional Pulp and Paper Consumption• Regional Market Shares• Conclusions and Next Steps2 TAPPI, November 2006

Objective• Characterize the NA Industry• Identify regional consumption and market shares• Explore shifts and structural differences in thecontext of regional consumption• Next steps3 TAPPI, November 2006

Objective• Data Sources United Nations – Food and Agricultural Organization (FAO) Penn World Table Forest Products Laboratory US Bureau of Economic Analysis• Geographic Regions Asia, Europe, North America, South America 93% of world consumption 93% of world production4 TAPPI, November 2006

Objective• Apparent Consumption Production + Imports – Exports Inventory data unavailable• Consumption Categories Pulp Paper and Paperboard Newsprint, Printing & Writing, Household & Sanitary,Wrapping & Packaging5 TAPPI, November 2006

North American Industry• The North American Pulp and Paper industry is a mature webof businesses generally characterized by:Highest per capita consumption in world across allgradesSlower growth than real GDPHigh capital intensityCost and price based competitionBelow cost of capital returnsAn aging asset base Cyclical pricing and profitability. . . . .6 TAPPI, November 2006

North American Industry• Number of US Mills and Companies, 1970 – 20001970 1975 1980 1985 1990 1995 2000Number of millsPaper only 148 151 143 132 131 130 119Paperboard only 167 165 154 142 140 144 137Pulp only 26 24 31 32 29 30 28Number of companies 264 256 247 224 212 201 184Percent of single mill companies 32.95 35.16 34.01 36.61 33.02 37.31 36.417 TAPPI, November 2006

North American Industry• US Paper Capacity (tst), 1970 – 20001970 1975 1980 1985 1990 1995 2000Total Paper Capacity only 26,302 28,849 33,028 37,439 42,314 47,518 49,413(in thousand short tons)(% of total paper capacity)Newsprint 14.42 14.48 15.72 16.34 15.62 16 14.73Coated Free Sheet 8.58 9.3 9.58 9.76 10.34 10.63 11.83Uncoated Free Sheet 25.71 25.06 27.36 27.55 30.02 32.48 33.28Coated Groundwood 7.63 7.76 7.64 8.80 8.90 9.22 9.12Uncoated Groundwood 4.35 4.37 3.85 3.82 4.29 3.60 3.75Tissue and Sanitary paper 17.87 17.07 16.52 14.91 14.79 15.08 15.21Packaging and Industrial Paper 21.44 21.93 19.3 18.8 15.77 13 12.068 TAPPI, November 2006

North American Industry• Return on Capital (%)9 TAPPI, November 2006

North American Industry• Pulp and Paper SectorsChange in Capacity(Tons/Tonnes)Grade Segment 2000-2004 2005-2010 1990-2004Compound Annual GrowthRate2005-2010NA Boxboard -74 609 1.4% 1.0%U.S. Containerboard -1,292 1,516 1.7% 0.8%NA Newsprint -2,057 -2,328 -0.5% -2.9%NA Printing & Writing -1,221 -51 1.7% 0.0%NA Tissue 800 131 2.1% 0.2%NA Market Pulp -352 532 1.5% 0.5%Industry SurveysAnd ProjectionsIndicate ThatCapacity CouldBegin To GrowAgain Between2005 And 2010 –But At A MuchLower ThanHistoric Rates AndFrom A ReducedBase10 TAPPI, November 2006

North American Industry• The NA Industry environment has stabilized due to acombination of factors :A weakening US dollarRebounding domestic demandImproving returnsWeakening competitiveness of European producersModerating industry growth in developing regionsBetter understanding by industry leaders of the role ofcapacity and spending management11 TAPPI, November 2006

North American Industry – Summary• U.S. Pulp and Paper industry consumption peaked circa 2000– closures will continue at a slower rate but best facilities willremain strong• Will take years to reach 2000 levels again – if ever• Pulp and paper not likely to be a source of growth for woodconsumption with current products• However, complete replacement by offshore producers unlikelydue to U.S. wood resources and large absolute market12 TAPPI, November 2006

North American Industry• Consequently – The demand weakness and oversupply of the pastyears have begun to reverse, and Producers have been generally successfulimplementing price increases -- so far -- in thisenvironment13 TAPPI, November 2006

Regional Pulp and Paper ConsumptionTotal Paper and Paperboard Consumption (mmt)NA(3.3% )Europe(4.5%)Asia(14.7%)1970 – 19.11980 – 32.71990 – 61.92000 – 103.31970 – 54.41980 – 67.31990 – 86.92000 – 108.8SA(8.1%)Average AnnualGrowth Rate1970 – 38.31980 – 48.21990 – 65.21970 – 3.52000 – 90.41980 – 6.41990 – 7.72000 – 12.014 TAPPI, November 2006

Regional Pulp and Paper ConsumptionTrade in Pulp p( (1980, 2000) mmt% increaseNA with ROW (85.0%, 65.7%)Imports – (4.0, 7.4) Exports – (10.8,17.9)Asia with ROW (221.6%, 1137.5%)Imports – (3.7,11.9) Exports – (0.16,1.98)Europe with ROW (50.9%, 63.9%)Imports – (11.6,17.5) Exports – (7.2,11.8)Pulp Demand (mmt)NA – (60.8, 75.02) Asia – (20.3, 48.8)SA – (39 (3.9, 8.02) 802) Europe – (35.6, 53.2)SA with ROW (82.6%, 292.3%)Imports – (0.46,0.85) Exports – (1.3,5.1)15 TAPPI, November 2006

Regional Pulp and Paper ConsumptionTrade in Paper and Paperboard (1980, 2000) mmt% increaseNA with ROW (154.5%, 81.2%)Imports – (8.8, 22.4) Exports – (13.8, 25.0)Asia with ROW (374.4%, 883.3%)Imports – (4.3, 20.4) Exports – (1.2, 11.8)Europe with ROW (196.9%, 221.0%)Imports – (16.2, 48.1) Exports – (18.1, 58.1)SA with ROW (150.0%, 333.3%)Imports – (1.2, 3.0) Exports – (0.3, 1.3)16 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Pulp Consumption – Total (mmt)Millions Mt9080 Asia Europe NAFTA South America7060504030201001961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200117 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Paper and Paperboard Consumption – Total (mmt)Millions Mt120100Asia Europe NAFTA South America8060402001961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200118 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Newsprint Consumption (mmt)Millions Mt1614 Asia Europe NAFTA South America1210864201961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200119 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Share – Total50%40%30%20% Asia10%EuropeNAFTASouth America0%1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200120 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Share – Market Pulp50%40%30%20%10%AsiaEuropeNAFTASouth America0%1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200121 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Share – Paper and Paperboard50%40%30%20%10%AsiaEuropeNAFTASouth America0%1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200122 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Share –Newsprint50%40%30%20%10%AsiaEuropeNAFTASouth America0%1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200123 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Share – Printing and Writing Papers50%40%30%20% Asia10%EuropeNAFTASouth America0%1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200124 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Share – Other Paper and Paperboard50%40%30%20%10%AsiaEuropeNAFTASouth America0%1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200125 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Share – Household and Sanitary Papers90%80%70%60%AsiaEuropeNAFTASouth America50%40%30%20%10%0%1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200126 TAPPI, November 2006

Regional Pulp and Paper Consumption• Regional Share – Wrapping and Packaging Paper and Paperboard90%80%70% AsiaEurope60%NAFTASouth America50%40%30%20%10%0%1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001-10%27 TAPPI, November 2006

Regional Pulp and Paper Consumption• Consumption (kg) and GDP (US $) Per Capita - Total500450400pita (kg)demand per ca35030025020015010050AsiaEuropeNorth Am Free Trade AgrSouth America00 5000 10000 15000 20000 25000 30000real GDP per capita (dollar)28 TAPPI, November 2006

Regional Pulp and Paper Consumption• Demand (kg) and GDP (US $) Per Capita - Total29 TAPPI, November 2006

Regional Pulp and Paper Consumption• Consumption (kg) and GDP (US $) Per Capita - PlPulp250demand per capita (kg)20015010050AsiaEuropeNorth Am Free Trade AgrSouth America00 5000 10000 15000 20000 25000 30000real GDP per capita (dollar)30 TAPPI, November 2006

Regional Pulp and Paper Consumption• Consumption (kg) and GDP (US $) Per Capita – Paper and Paperboard300capita (kg)demand per25020015010050AsiaEuropeNorth Am Free Trade AgrSouth America00 5000 10000 15000 20000 25000 30000real GDP per capita (dollar)31 TAPPI, November 2006

Regional Pulp and Paper Consumption• Consumption (kg) and GDP (US $) Per Capita - Newsprint4540(kg)35demand pe er capita302520151050AsiaEuropeNorth Am Free Trade AgrSouth AmericaNorth Am-Canada &Mexico0 5000 10000 15000 20000 25000 30000real GDP per capita (dollar)32 TAPPI, November 2006

Regional Pulp and Paper Consumption• Consumption (kg) and GDP (US $) Per Capita –Printing and Writing Papers9080ta (kg)demand per capit706050403020100AsiaEuropeNorth Am Free Trade AgrSouth AmericaNorth Am-Canada &Mexico0 5000 10000 15000 20000 25000 30000real GDP per capita (dollar)33 TAPPI, November 2006

Regional Pulp and Paper Consumption• Consumption (kg) and GDP (US $) Per Capita –Other Paper and Paperboard18 016 014 0ta (kg)demand per capit12 010 080604020AsiaEuropeNorth Am Free Trade AgrSouth AmericaNorth Am-Canada &Mexico00 5000 10000 15000 20000 25000 30000real GDP per capita (dollar)34 TAPPI, November 2006

Regional Pulp and Paper Consumption• Consumption (kg) and GDP (US $) Per Capita –Household and Sanitary Papers201816mand per capita a (kg)de1412108642AsiaEuropeNorth Am Free Trade AgrSouth AmericaNorth Am-Canada &Mexico00 5000 10000 15000 20000 25000 30000real GDP per capita (dollar)35 TAPPI, November 2006

Regional Pulp and Paper Consumption• Consumption (kg) and GDP (US $) Per Capita – Wrapping and140Packaging Paper and Paperboard120demand per capita a (kg)10080604020AsiaEuropeNorth Am Free Trade AgrSouth AmericaNorth Am-Canada &Mexico00 5000 10000 15000 20000 25000 30000real GDP per capita (dollar)36 TAPPI, November 2006

Regional Pulp and Paper Consumption• Real Price – Paper and Paperboard: 1970 - 2001Index 1.0=100; 1990 $1.41.21.00.80.60.40.2AsiaEuropeNAFTASouth America0.01970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 200037 TAPPI, November 2006

Regional Pulp and Paper ConsumptionReal GDP Growth By Region 2002 2003 2004 2005Advanced EconomiesUS 1.9% 3.0% 4.4% 3.4%Euro Area 0.8% 0.5% 2.2% 2.2%Japan -03% 0.3% 25% 2.5% 44% 4.4% 23%2.3%UK 1.8% 2.2% 3.4% 2.5%Canada 3.4% 2.0% 2.9% 3.1%Other Advanced Economies 3.6% 2.4% 4.3% 3.5%Newly Industrialized AsianEconomies 5.0% 3.0% 5.5% 4.0%Other Emerging Markets 4.8% 6.1% 6.6% 5.9%Africa 3.5% 4.3% 4.5% 5.4%Central and Eastern Europe 4.4% 4.5% 5.5% 4.8%Commonwealth of IndependentStates 5.4% 7.8% 8.0% 6.6%Developing Asia 66% 6.6% 77% 7.7% 76% 7.6% 69%6.9%Middle East 4.3% 6.0% 5.1% 4.8%38 Latin America TAPPI, November -0.1%2006 1.8% 4.6% 3.6%

Regional Pulp and Paper ConsumptionRegional Consumption GDP ElasticitiesTotalPulpPaper/PaperboardNews-printPrinting/WritingHousehold/SanitaryWrapping/PackagingRegion(a)(b)(c)(d)(e)(f)(g)NAFTA 0.44 0.41 0.45 0.31 0.56 -0.240.02Europe 0.86 0.70 0.95 0.77 1.05 3.02 1.68Asia 1.06 0.84 1.17 0.88 1.04 1.53 1.30SouthAmerica1.54 1.68 1.40 0.24 1.36 2.62 2.8539 TAPPI, November 2006

North American Industry• Real OutputPaper productsReal Output Index1987 - 2003All industriesIndex(2000 = 100 0)1101009080706050401987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Year40 TAPPI, November 2006

North American Industry• US Mills and Integrated Capacity, 1970 – 20001970 1975 1980 1985 1990 1995 2000Integrated Paper mills 139 136 135 136 137 129 132Integrated Paperboard mills 59 60 57 57 54 57 56Integrated Paper and Paperboard mills 234 232 229 229 228 220 213Integrated Paper and Paperboard Capacity 73.53 82.18 76.2 77.19 77.24 75.7171 75.37( % of total paper and paperboard capacity)41 TAPPI, November 2006

North American Industry• US Wood Pulping Capacity, 1970 – 20001970 1975 1980 1985 1990 1995 2000Total Wood Pulping Capacity 43155.21 47957.92 54253.06 59977.45 66127.21 74672.72 76127.8(in thousand short tons)(% of total wood pulping capacity)Mechanical 12.67 12.38 12.93 13.92 14.01 11.95 12.35Chemical 75.29 75.62 77.05 77.13 77.98 81.13 81.31Dissolving Alpha 3.66 3.36 2.83 2.55 2.31 1.92 1.34Semi-Chemical 8.38 8.64 7.19 6.40 5.70 4.99 5.0042 TAPPI, November 2006

North American Industry• NA Sectors That Directly Drive Pulp & Paper Demand and GDPReal GDPEconomic IndicatorImplicit Price DeflatorPersonal Consumption ExpendituresIndustrial ProductionIndust. Prod. - Non-DurablesIndust. Prod. - DurablesFood & Beverage SalesFood services and drinking placesComputer & Peripheral SalesProfessional Employment & BusinessServicesUS HouseholdsHousing StartsIndustry SegmentImpacted20051990-19951995-20002000-20042006-2010All 2.5% 4.1% 2.5% 3.4% 3.0%All 2.4% 1.6% 1.9% 3.6% 2.2%All 2.6% 4.4% 3.2% 3.1% 2.8%All 3.5% 6.0% 0.1% 3.7% 2.5%Containerboard 1.8% 1.3% -0.6%2.2% 0.9%Packaging 4.9% 9.5% 0.7% 5.7% 5.3%Boxboard 1.9% 3.2% 3.6% 5.0% 3.1%Tissue 4.8% 5.5% 6.3% 7.4% 2.9%P&W Papers 21.6% 5.2% 2.0% 15.0% 4.6%P&W Papers, Tissue 3.4% 5.3% -0.4%3.4% 2.7%Tissue, BuildingProductsTissue, BuildingProducts1.2% 1.1% 0.2% 1.0% 1.0%2.5% 2.9% 5.5% 1.0% -2.0%43 TAPPI, November 2006

Conclusions and Next Steps• Robust world consumption for paper and paperboardElasticities differ by region and product category• Shifting regional demandsNAFTA Region Losing Market Shares Across All ProductCategoriesStructural differences between NAFTA and other regions• Industry downsizing in NAFTACapacityCost of capital‘core business’44 TAPPI, November 2006

Conclusions and Next Steps• Need more research on the industry to understandRole of prices, exchange rates, and transportation costsHow information technologies affect shifts in demand andmarket sharesOutsourcing and the NA industryThe relationship between GDP and consumptionChina’s increasing influence on the NA industry45 TAPPI, November 2006