Global natural resource development – threats and possibilities for the forest industry CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion. Stockholm, October 2, 2012 THE MARCUS WALLENBERG PRIZE SYMPOSIUM
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Global natural resource development – threats and possibilities for the forest industry
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.
Stockholm, October 2, 2012
THE MARCUS WALLENBERG PRIZE SYMPOSIUM
McKinsey & Company 1|
Commodity prices have increased sharply since 2000, erasing all the decline of the 20th century
40
60
80
100
120
140
160
180
200
220
240
260
2000 201121990198019701960195019401930192019101900
World War I
Post-warDepression
Great Depression
World War II
1970’soil shock
McKinsey Commodity Price Index (years 1999–2001 = 100)1
1 Based on arithmetic average of 4 commodity sub-indices of food, non-food agricultural items, metals and energy. 2 2011 prices based on average of first eight months of 2011.
SOURCE: Grilli and Yang; Pfaffenzeller; World Bank; International Monetary Fund; Organisation for Economic Co-operation and Development; UN Food and Agriculture Organization; UN Comtrade; McKinsey analysis
McKinsey & Company 2|
The emergence of 3 billion middle-class consumers will fuel future demand
Global middle class1; Billions of people
SOURCE: OECD
1 Based on daily consumption per capita ranging from $10 to $100 (in purchasing power parity terms)
20302020
3.25
2009
Europe
North America
Central and South America
Middle East and North Africa
Sub-Saharan Africa1.85
4.88
3 billion
Asia-Pacific
McKinsey & Company 3|
Steel demand is expected to double by 2050, with power requirements following
Other developing world
Developed world
China
Global power requirements
for steel production1
GW
78
2050
244
2007
Finished steel demand
Billion tonnes
1 Including power requirements for mining and scrap processing
SOURCE: IEA World Energy Outlook 2006; McKinsey Global Institute; WEF; McKinsey analysis (BMI)
X31.4
1.8
2050High
3.0
0.6
0.6
2050Low
2.6
0.6
0.6
2007
1.2
0.6
0.4
0.2
X2-3
McKinsey & Company 4|
272
72
113
CoalGas
1,181
51
181
53
824
Oil
352
4410
26
Proved conventionals (BP)
Recoverable unconventionals (IEA)
Yet-to-find conventionals (USGS)
Remaining unconventionals (IEA)
Natural gas hydrates (IEA)
Ce
rta
inty
Years of supply at forecast demand
SOURCE: BP Stat 2011; USGS; IEA ETSAP 2010; McKinsey cost curve 3.0; McKinsey analysis
Shortages in fossil fuel are unlikely to be a binding concern in the near future; prices for extraction are however likely to rise
McKinsey & Company 5|
Waste generation and disposal have become an increasingly intractable problem globally and are expected to worsen still
SOURCE: EPA; UNEP; Financial Times; The Guardian; “The Chinese economy: fighting inflation, deepening reforms”; McKinsey analysis
Beijing landfill sites have only 4 more years of remaining lifespan; UK 6 years
The world generates ~10 mn tons ofwaste per day – 70% goes directly to landfill
In the US, waste associated with consumer packaged goods makes up almost 50%(by weight) of municipal solid waste
Its management costs EUR 16bn annually
The Pacific Garbage Patch – an estimated 100 million tons of plastic waste floating in the Pacific gyre
▪ Covers 1.5 times the area of US
▪ Contains 45 kg of plastic for everykg of plankton
McKinsey & Company 6|
The paper industry has already done a lot to improve its own resource productivity
1 Indirect = purchased electricity; Direct = fossil fuels onsite2 Extrapolated
SOURCE: CEPI Sustainability Report 2011; Metso (water); Holmen (TMP)
0.2
0.2
0.2
0.10.1
2010
0.4
0.3
2005
0.5
0.4
2000
0.6
0.4
19952
0.7
0.5
1990
0.8
0.6
0
5
10
15
20
25
30
35
40
45
50
55
1990 1995 2000 2005 2010
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1970 1980 1990 2000 2010
Indirect1
Direct1
TMP energy consumptionMWh/ton pulp
H2O consumption (Finland)m3/ton paper
CO2 emissions (Europe)Ton CO2e/ton paper
EXAMPLES
McKinsey & Company 7|
Chemicals▪ Reducing petro-
chemicals (CO2 etc)▪ Specific properties (e.g.,
degradable)
Textiles▪ Reduce water need▪ Reduce use of fertilizer,
biocides, etc▪ Reduce oil consumption
Forest products can support the resource revolution in several areas
Construction▪ Reduce resource use
(energy, steel, cement, etc)▪ Improve CO2 footprint
Power▪ Reduce consumption of
fossil fuels▪ Improve CO2 footprint
Packaging▪ Reducing food waste▪ Increasing shelf-life▪ Substituting petro-based▪ Bio-degradable packaging
Transportation▪ Reduce oil consumption▪ Material substitution, e.g.,
carbon fibers, composites)▪ Improve CO2 footprint
EXAMPLES
McKinsey & Company 8|
0
400
800
1,200
1,600
2,000
2,400
100806040200 2012
SOURCE: Press releases; Company websites; Poyry; CCF Group; McKinsey analysis
The dissolving pulp story carries a lesson about the challenges with new markets
Price of dissolving wood pulp, delivered China; USD/tonne
New announcements ~4 mn tonnes, e.g., ▪ Fortress (0.2)▪ Mercer (0.9)▪ Sun Paper (0.4)
Mercer, Sun plans on hold in 2011-12
Many projects under reconsideration
McKinsey & Company 9| 9
Value chain barriers can hinder and delay the adoption of new products
24.8
13.1
7.7
3.9
Very complex
ComplexSimpleVery simple
Major new infrastructure required▪ Composting facilities▪ New sorting process
Contamination of existing waste management streams
Consumer behavior▪ Source separation
Time to adoption of 58 major plastics applications, by value chain complexityYears (average)
Example of value chain barriers in biodegradable plastic
McKinsey & Company 10|
Feed2,000 USD/ton
Performance plastics7,100 USD/ton
Phenolreplacement2,000 USD/ton
Biomass
LigninCellulose
Hemicellulose
Monomer
extractionIncineration
Monomer
modification
Enzymatic
digestion
NOT EXHAUSTIVE
Epoxy3,000 USD/ton
Energy
Ethanol Butanol
Monomer
SOURCE: McKinsey
It is not only the forest products industry that can produce lignin
Market price; USD/tonne
McKinsey & Company 11|
R&D
▪ Innovative basic and applied research
Market understanding
▪ Value chain understanding!▪ Don’t get stuck in “product forward”
Cooperation
▪ With the right players in the value chain▪ IP increasingly important to safeguard
Right business model▪ Sustainable, robust, hard-to-copy
Organization & skills▪ Very different needs from today
Beware of “value added”▪ Go for value creating instead
In summary – and way forward
To capture the opportunities
of the resource revolution
But the road is long
and winding, with many
roadblocks
The forest products
industry can contribute
▪ Internal productivity
▪ Innovative products
The world needs a
“resource revolution” –
resource productivity
becomes key
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