Global Dynamics of the Pulp and Paper Industry - 2013

1. Global Dynamics of the Pulp and Paper Industry - 2013 Richard B. Phillips, PhD North Carolina State University richard_phillips@ncsu.edu

2. Three Main Points • Growing imbalance between where paper and board are consumed and where wood fiber isgrown • Imbalance gives USA industry better options for dealing with declining domestic demand … exploits our low cost softwood • American industry can restructure to focus on production of softwood products and bioenergy for export and domestic consumption

3. 1. Global Imbalances

4. Global Imbalances Consumption of Paper & Board • Only tissue not declining in the West • Graphic Papers declining rapidly • Packaging declining slowly • All grades increasing in the Rest of World • Especially packaging Source: RISI

5. Global Imbalances Production of Fiber • Western World Wood Pulp Production declining • Global RCP production exceeds virgin fiber by 40% • Practical limit of ~70% recovery of domestic waste • Practical limit on number of times fiber can be recycled Source: RISI

6. Global Imbalances China Packaging • China produces no Linerboard from virgin fiber • Consume ~ 50% of all World exports of Recovered Paper,forecast to go to 60% • How can P&B be recovered from Western Europe and North America when regional demand is declining? Source: RISI

7. Global Imbalances China Price for Recovered Packaging Papers & Pulp Packaging Waste Prices 2.5 x Price Increase since 1996 Softwood Pulp Price 1.6 x Price Increase since 1996 Source: RISI

8. Global Imbalances Forecast Fiber Gaps in 2020 Recovered Paper Bleached Softwood Pulp Phillips Forecast • By 2020 Asia requires 110% of excess RCP in NA &WE • … and 125% of Bleached Softwood available from West

9. 2. Dealing with Declining Demand

10. Dealing with Decline Decline in American Consumption Printing and Writing and Newsprint Packaging • Paper Consumption down 10 Million Tonnes from Peak • Paper Production down 7 Million Tonnes …modest increase in exports and decrease in imports • Packaging down 7 Million Tonnes from Peak but stabilizing • Packaging exports up 5 Million Tonnes Source: RISI

11. Dealing with Decline USA Southeast very competitive on softwood Source: FisherSolve® Q4 2012

12. Dealing with Decline Multiple Mill Options …None Easy Graphic Papermills • Shut down machines and write off assets • Convert hardwood to Viscose Dissolving Pulp • Convert assets to softwood Absorbent Pulp • Convert assets to softwood linerboard • Convert assets to biofuels and biomaterials

13. Dealing with Decline Conventional Options Illustrated

14. Dealing with Decline Shutdown

15. Dealing with Decline Viscose Pulp Hydrolysate

16. Dealing with Decline Absorbent Pulp

17. Dealing with Decline Liner Conversion Export

18. Dealing with Decline Export Option Depends on Production Cost Delivered to Beijing China OCC at $250 per Tonne Japan USA • Lowest cost American producers more competitive toBeijing than 50% of Chinese producers, all Japanese Source: FisherSolve® Q4 2012

19. 3. Biorefinery Options

20. Integrating with Bioenergy Absorbent Pulp + Pellets

21. Integrating with Bioenergy Bioproducts Machine Shutdown

22. Integrating with Bioenergy Wood Pellets 500,000 BDT 490,000 BDT x $150 per Ton 120,000 T x $900 per Ton OR 500,000 BDT 250,000 T x $500 per Ton AND 240,000 BDT x $165 per Ton

23. Integrating with Bioenergy $5.00 per MMBTU $35.00 per MMBTU $8.00 per MMBTU

24. Integrating with Bioenergy Financial Analysis of Hardwood AutohydrolysisCo-Located with Kraft Pulp Mill Source: Nebraska Energy Office

25. Summary and Conclusions Questions? Asia has become overly – dependent on cheap Recovered Paper that will become scarce and expensive in the future New softwood capacity will be needed to provide fiber to Asia American papermills have some good but difficult options … bioproducts may be an answer