Long term price outlook on Paper and Paperboard TransGraph ... · Paper and paperboard supply-Paper and paperboard supply ---demand balance demand balance demand balance ----GlobalGlobalPaper

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A presentation by TransGraph Consulting

Long term outlook on Paper and Long term outlook on Paper and Long term outlook on Paper and Long term outlook on Paper and PaperboardsPaperboardsPaperboardsPaperboards

Aug 2012Aug 2012Aug 2012Aug 2012

ContentsContentsContentsContents

• Economic overview – GDP trends and relation with paper industry

• Historical paper production trends – India and Global

• Indian paper production and consumption cycles

• Paper and paperboard supply-demand balance – Global

• Indian paper and paperboard industry

– Raw material segmentation

– Indian paper industry in global perspective

– Indian paper and paperboard scenario

– Indian supply-demand balance and trends – Kraft Paper and Duplex Board

– Indian waste paper scenario

• Supply-demand analysis – Paper and Paperboard

• Supply-demand analysis – Kraft Paper

• Supply-demand analysis – Duplex board

• Growth Drivers of Indian paper and paper board industry

• Summary price outlook for 2011

GDP GDP GDP GDP –––– Current & Forward lookingCurrent & Forward lookingCurrent & Forward lookingCurrent & Forward looking

� High unemployment and inflation continues to pester global and regional Economic growth.

� Industrial production cycle shall largely be depended on the upcoming stimulus measures at

matured nations and monetary policy measures at India and China.

2.80

-0.60

4.70

3.00

2.50

-1

0

1

2

3

4

5

2008 2009 2010 2011E 2012P

Global GDP Growth and Projections

-5.3

4.4

-0.9

1.7

-2.5

3.0

1.8 1.8

-3.9

1.9 1.6

-0.5

8.710.4

9.28.2

5.7

9.9

7.4 7.0

-8

-6

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-2

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12

2009 2010 2011E 2012P

GDP Growth - Trend and Projection (IMF)

Japan USA EU China India

GDP a critical factor for paper industry GDP a critical factor for paper industry GDP a critical factor for paper industry GDP a critical factor for paper industry ---- GlobalGlobalGlobalGlobal

� Industrial sector performance being a critical driver of economic growth across the

globe, better performance by the sector prompting companies to push up their

advertising expenses leading to higher demand for newsprint and other categories

paper.

� Slowdown in global GDP growth in 2012 shall weigh down on the demand for Paper.

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2000 2002 2004 2006 2008 2010 2012p

GDP Growth Vs. growth in Paper demand - Global

Consumption growth (%) GDP growth (%)

GDP a critical factor for paper industry GDP a critical factor for paper industry GDP a critical factor for paper industry GDP a critical factor for paper industry ---- IndiaIndiaIndiaIndia

� Close linkages with economic growth as higher industrial output leads to increased

demand for industrial paper for packaging, increased marketing spend benefits the

newsprint and value-added segments, and increased education and office activities

increase demand for writing and printing paper

� Going forward, Indian GDP expectation to grow at around 7.5 percent (against earlier

expectation of over 8.5 percent growth) in 2012-13 signals of a demand to remain

steady.

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2002-03 2004-05 2006-07 2008-09 2010-11e 2012-13p

GDP Growth Vs. growth in Paper demand - India

Consumption growth (%)

GDP growth (%)

Historical production trends Historical production trends Historical production trends Historical production trends ---- IndiaIndiaIndiaIndia

� Analyzing the production trend since 1961 gives a clear indication of an average turnaround

period of four years being prevalent in the market troughs.

� With the trough likely to have placed during 2009, the same augurs well for the coming years

in terms of the output growth

Historical production trends Historical production trends Historical production trends Historical production trends –––– India vs GlobalIndia vs GlobalIndia vs GlobalIndia vs Global

� Historically global and Indian production tend to move inline barring the year (1975-81)

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1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012p

Historical production trend - Indian Vs. Global

Indian Paper production - Annual change (%)

Global Paper production - Annual change (%)

Indian production and consumption cyclesIndian production and consumption cyclesIndian production and consumption cyclesIndian production and consumption cycles

� Similar trends in production and consumption growth indicates the demand driven

nature of the industry

� With trough being placed in demand growth during 2000-01, 2005-06 and 2009-10, the

same indicates a possible growth rate of over 9 percent in 2012-13.

� Increase in demand from Panmasala and Gutkha packaging to keep imports of poster

and chromo paper higher

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12

18

2002-03 2004-05 2006-07 2008-09 2010-11e 2012-13p

Indian Paper Production and Consumption Cycle

Demand growth (%)

Production growth (%)

Paper and paperboard supplyPaper and paperboard supplyPaper and paperboard supplyPaper and paperboard supply----demand balance demand balance demand balance demand balance ---- GlobalGlobalGlobalGlobal

Paper and paperboardPaper and paperboardPaper and paperboardPaper and paperboard 2009200920092009 2010 2010 2010 2010 2011 e2011 e2011 e2011 e 2012 p2012 p2012 p2012 p

Production 378.27 391.02 401.05 416.79

Imports 126.67 131.82 137.81 143.71

Exports 127.44 131.65 138.18 144.84

Apparent consumption 377.50 391.19 400.68 410.50

Production growth - 0.50 3.37 2.57 3.92

Consumption growth - 1.26 3.63 2.43 2.36

Recovered paperRecovered paperRecovered paperRecovered paper 2009200920092009 2010 2010 2010 2010 2011 e2011 e2011 e2011 e 2012 p2012 p2012 p2012 p

Production 187.10 192.58 198.77 205.45

Imports 49.33 51.85 55.34 59.04

Exports 48.48 51.33 55.62 60.13

Apparent consumption 187.95 193.10 198.50 204.36

Production growth 3.02 2.93 3.21 3.36

Consumption 2.82 2.74 2.79 2.95

� Paper and paperboard consumption to

grow at mixed pace during 2012, with

global economy fairing well in certain

pockets.

� Despite closure of many small and old

mills across Europe and North

America, Paper and paperboard

production in 2012 is expected to grow

at around 3.4 percent, mainly driven

by growth in Asian production.

� Rising environmental concerns over

use of wood chips further supports of

more use of recovered paper in the

developing nations.

� Tightening availability of virgin pulp

due to rising environment concerns

over deforestation shall further support

use of recovered paper.

Indian paper and paperboard industryIndian paper and paperboard industryIndian paper and paperboard industryIndian paper and paperboard industry

Indian Paper Industry

Strong economic growth Low per capita consumption

Printing IndustryIncreased government focus on

education

� Strong Consumer Demand for Packaged goods fueling high growth in Industrial grades of

Paper & Boards largely led by growing disposable incomes & Lifestyle changes.

� With per capita consumption in the region being very lower the same provides higher

growth potentiality of paper in the region.

� Increase of 1 kg in per capita consumption could lead to increase in demand by 1

million tons of paper.

� Higher growth potential of printing industry in the region to fuel the demand for paper

over the long term

Raw material segmentationRaw material segmentationRaw material segmentationRaw material segmentation

� Industrial paper demand continues to be the leading demand segment for paper in the

country, with packaging alone accounting for over 24 percent of total demand

� Encouraging trend in demand for non-branded packaging coupled with higher emphasis on

education to keep overall demand for paper on firm tone

� Usage of Recycled paper as raw materials increasing at the cost of declining availability of

agro-based raw materials as more of them being utilized by the their parent industries into

power production

� However, with government initiatives and enhanced technology agro-based raw materials

usage can get a boost over the long run as it requires only 50 percent of chemical

compared to wood

Raw Material Scenario

2010 2006

Indian Paper Industry in Global PerspectiveIndian Paper Industry in Global PerspectiveIndian Paper Industry in Global PerspectiveIndian Paper Industry in Global Perspective

� Indian per capita consumption currently at 9.85 kg per annum against the Asian average

of 45 kg and Chinese average of 68 kg, signaling of strong growth prospects

� Strong growth expected in Indian economy over 8.2 percent during 2011 and over 9

percent in 2012 to support demand

� Strong consumer demand for packaged goods and upstream paper products to keep

fueling high growth in industrial grades of paper & boards

� Strong growth in printing industry and increasing focus of government towards education

keep demand for paper in the future on encouraging note

0

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2009 2010e 2011p 2012p

Per Capita Consumption (in Kg)

India China Asia World

Indian Paper and Paper Board ScenarioIndian Paper and Paper Board ScenarioIndian Paper and Paper Board ScenarioIndian Paper and Paper Board Scenario

� Projection of over 80 percent literacy rate by next financial year to keep demand for

paper and paperboard on encouraging note

� Declining poverty and rising per capita income with more of population entering into

middle class segment to further support demand for paper

� Paper imports to keep rising with Indian government signing Trade agreements with least

developing countries, non-least developed countries, ASEAN etc, which permit import of

Paper into India at concessional/ nil import duty

0.0

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2007-08 2008-09 2009-10 2010-11e 2011-12p 2012-13p

Indian paper and paperboard trade

Imports (MTPA) Exports (MTPA)Source: CPPRI, DIPP

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2007-08 2008-09 2009-10 2010-11e 2011-12p 2012-13p

Indian paper and paperboard consumption

Demand (MTPA) Demand growth (%)Source: CPPRI, DIPP

Indian SupplyIndian SupplyIndian SupplyIndian Supply----demand balance and trendsdemand balance and trendsdemand balance and trendsdemand balance and trends

Kraft PaperKraft PaperKraft PaperKraft Paper 2010201020102010----11111111 2011201120112011----12e12e12e12e 2012201220122012----13p13p13p13p

Demand 2761 2950 3210

Import 156 180 196

Export 0 0 0

Production 2605 2770 3014

All units in million tons

Duplex BoardDuplex BoardDuplex BoardDuplex Board 2010201020102010----11111111 2011201120112011----12e12e12e12e 2012201220122012----13p13p13p13p

Demand 1506 1620 1775

Import 71 80 85

Export 0 0 0

Production 1435 1540 1690

All units in million tons

� No major capacity addition expected in 2011 and likely to encourage imports

� Kraft paper and duplex board demand is expected to grow by over 8.8 and 9.5 percent

respectively during the year (2012-13) – Growth in economy boosting the growth in

exports of various products leading to higher demand for packaging materials

� Further, most of the new capacity in 2010 and 2011 being added for non-industrial grade

paper (mainly news print), this could tighten the availability of industrial papers

Indian waste paper scenarioIndian waste paper scenarioIndian waste paper scenarioIndian waste paper scenario

� Indian recycled paper consumption is expected to grow at healthy rate of over 12 percent

with improving recovery rates to keep domestic supplies higher

� With fiber content in Indian recovered paper being very low the same shall keep

encouraging imports of recovered paper for the purpose of mixing with Indian recovered

paper.

� Indian government announcing reduction in custom duty on waste paper from 5 percent to

2.5 percent shall further encourage imports of waste paper

� Lower rate of recovery (24 percent) keeps prospects on bright note

45

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2008 2009 2010e 2011p 2012p

Indian recycled paper demand supply trend

Production (mn tons) Consumption (mn tons)

Imports (mn tons) Imports as % of demand

Source: FAO, TransGraph

RegionRegionRegionRegion DemandDemandDemandDemand SupplySupplySupplySupply

GlobalGlobalGlobalGlobal

� Globally demand for Paper andPaperboard is likely to keep its growthpace intact

�Writing and printing paper demand to beon slower side with many firms in westgoing paperless.

� Robust demand for paper by Chinesehousehold would to keep Asian demand onhigh note.

� Packaging and container board to be themajor demand segment

� Rising concern for environment withmany firms discouraging use of paper toimpede demand growth

� Economic downturn witnessed during 2008-09resulted in closure of large number of paper mills inwestern region with the mills unable to absorb hugelosses incurred due to demand destruction

�With global economy mainly Asia and US givingsignals of revival and the same expected to startshowing better results moving into 2012, the sameshall prompt some of the companies to increasetheir runs and may lead to reopening of few closedplants

� Limited availability of virgin pulp to prompt millsto put up capacities based on Agro-residues andwaste papers

IndiaIndiaIndiaIndia

�Strong emphasis on literacy, increase inper-capita income and increasing use ofphotocopiers and printers shall keepdemand on high note in the region.

�High economic growth propelling demandfor consumer goods, thus stimulatingdemand for packaging paper

�Increased use into packaging of PanMasala and Gutkha

� Obsolescence of technology and shortage of rawmaterial being a major hindrance at supply side

� Lack of government initiatives to provide wasteland for plantation

�With capacity utilization in the region reaching to93 percent, new capacity needs to be added tocater the growing demand

Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis ---- Paper and paperboardPaper and paperboardPaper and paperboardPaper and paperboard

RegionRegionRegionRegion DemandDemandDemandDemand SupplySupplySupplySupply

GlobalGlobalGlobalGlobal

� Persistent concern over economicrecovery and monetary tightening stepstaken by Chinese Govt. to impact demand.

� Revival in industrial production across theworld and increase in global trade standscrucial for incremental demand.

� Increasing use of packaged goods tofurther boost demand sentiments

� Closure of many small mills in Europe andNorth America to limit the global supply in thecoming year

�While startup in South America and Asia add tothe supply basket, not much of it is for industrialpaper, which shall hinder the supply growth ofpackaging papers

�With global economy giving signals of revival,the same would prompt some of the companiesto increase their runs and may lead to reopeningof few closed plants

IndiaIndiaIndiaIndia

�Expectation of robust performance byIndian industrial sector to propel demand forduplex boards

�Higher export growth and rising demandfor high quality packaging to keep Indianmarket in tandem

� Increased global trade to spill-over ontothe Indian export scenario and enhancedexports (of products) to fare well for Indiandemand scenario

� Obsolescence of technology and shortage ofraw material being a major hindrance at supplyside

� Lack of government initiatives to provide wasteland for plantation

� Not much new capacity coming on-stream forKraft paper– A long term issues yet to be tackled

Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis ---- Kraft paperKraft paperKraft paperKraft paper

RegionRegionRegionRegion DemandDemandDemandDemand SupplySupplySupplySupply

GlobalGlobalGlobalGlobal

� Persistent concern over economicrecovery and monetary tightening stepstaken by Chinese Govt. to impact demand

�Revival in industrial production acrossthe world and increase in global tradestands crucial for incremental demand.

� Current signals of improving industrialoutput and trade in certain pocketsprovide encouraging scenario forindustrial papers in the coming year

� Capacity closure in Europe and NorthAmerica to limit the global supply in the comingyear

�With global economy giving signals ofrevival, the same would prompt some of thecompanies to increase their runs and may leadto reopening of few closed plants

IndiaIndiaIndiaIndia

� Better quality packaging of FMCG,rising health care spends and over-the-counter medicines and increasingpreference for ready-to-eat foods are thekey demand drivers for paperboard

�Growing number of Export - orientedindustries

� Strong demographic factors likepopulation growth and increase in literacylevels

� Obsolescence of technology and shortage ofraw material being a major hindrance at supplyside.

�Government ignoring industry demand forinterest subsidy under Technology UpgradationFund (TUF) Scheme

�Not much new capacity coming on-stream forDuplex board – A long term issues yet to betackled

Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis Supply Demand Analysis ---- Duplex boardDuplex boardDuplex boardDuplex board

Indian Industry UpdatesIndian Industry UpdatesIndian Industry UpdatesIndian Industry Updates

� The Indian government has again ignored the industry demand for allocation of Rs 400

crore as interest subsidy under Technology Upgradation Fund (TUF) Scheme

� Delhi-based JK Paper has planned to expand its annual capacity by 150 thousand tons to

400 thousand tons by 2012 end with a planned investment of INR 1500 crore

� Ballarpur Industries Limited (BILT) is planning to start the new PM 2 machine which is

expected to set new standards for graphic coated paper. With this installation production

capacity for wood-free coated paper at the Bhigwan location can now be increased from

the previous 125 Ktpa to 315 Ktpa in H2, 2011

� During 2010-11, BILT incorporated 3 subsidiaries in the Netherlands and 1 subsidiary in

Malaysia. Over the next 5 years, BILT plans to invest INR 35-40 billion to double its

overall production capacity to around 2 MTPA.

� BILT’s strategy is to operate in low-cost economies such as India and Malaysia, which

also have strong domestic demand. It is also looking at improving the distribution network

by foraying into the retail business (office supply and stationery retail), while moving up

the value chain by shifting the production mix towards higher value products. This will

enable the company to improve revenues.

� Rising fuel and chemical cost may impact the profitability of paper producers

� Sustenance of economic growth momentum would manifest itself in a favorable domestic

demand scenario for paper sector during 2011 and 2012

� Perception of Chinese producers looking at India more seriously as an alternative market

after US imposing high anti-dumping duty on several varieties of Chinese paper being

imported to the US shall be a big challenge for Indian paper producers as imports from

China and Indonesia are comparatively cheaper.

� Meanwhile keeping such a scenario in picture industry for a long, has been lobbying the

government for stricter protective measures and the imposition of “anti dumping duties”.

� Major issues confronting India’s pulp and paper industry are high cost of production

caused by inadequate availability and high cost of raw materials, power cost and

concentration of mills in one particular area, non-availability of good-quality fibre,

uneconomical plant size, technological obsolescence and environmental challenges

� Some of the big companies like BILT has encouraged farm forestry to attain self

sufficiency in procuring raw material. However, availability of sufficient land remains a

major hurdle for the other players

Contd.Contd.Contd.Contd.

Industry perspectives Industry perspectives Industry perspectives Industry perspectives –––– An overviewAn overviewAn overviewAn overview

Wood

Agro fibre

Recycled fibre

Raw Material

�Revision of Forest Policy so that

plantation can be increased.

�Degraded forest lands should be

identified by state govt. and be

offered to industry on long leases

of plantations.

�FDI in plantation programme (with

no change in land use)

�Public –private partnerships

�Equal subsidy be made available

to paper industry at par with

energy subsidy of Bagasse

�Funds for technology

development

�Allow duty free imports of waste

paper

�Encourage voluntary agreements

to increase paper recovery

�Cooperation with farmers and

State Forest Dept.

�Search for foreign partners.

�Public –private partnerships

�Restructuring needed due to

quality and environmental reasons

�Develop pulping and papermaking

technology based on non-wood

fibre.

� Long term contract with

printing/converting waste

�Global sourcing, foreign partners

�Sorting of imported mixed waste

�Fibre fractionation to separate

long fibres

Government Industry

Finance

Energy Policy

Environmental Policy

�Allow duty free imports of new

and second hand

machinery/equipment for

technology upgradation.

�Better availability and quality of

coal.

�More uniform energy policy by

states

�Uniform policy as regards to non-

biodegradable materials.

�Eco labeling scheme based on

sustainable raw material base

(wood/waste paper /agro) and

environmental friendly processes.

�Better access to international

financing

�Seek for foreign partners

�Cogeneration in pulp & paper mills

�Bigger mills and modernization to

meet environmental standards.

�Actively participate development of

Eco label schemes so that

industry’s can be taken into

consideration.

Government Industry

Industry perspectives Contd..Industry perspectives Contd..Industry perspectives Contd..Industry perspectives Contd..

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