Pulp Market Dynamics

Where are the new sources of pulpwood?

Asia Pacific Forest Investment, Woodchip and Biomass Trade Conference – DANA/GINGKO

A PRESENTATION BY MR. JOÃO CORDEIRO – AFRY MANAGEMENT CONSULTING

MELBOURNE, AUSTRALIA, MARCH 2020
All rights reserved. No part of this document may be reproduced in any form or by
any means without permission in writing from AFRY.

COPYRIGHT ÅF PÖYRY AB

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 Key topics

1 What drives demand for pulp?

2 Why so many eucalyptus-based pulp mills?

3 Where will all those fibres come from?

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 ÅF and Pöyry became AFRY – a 2 billion USD company
17 000 employees in 50 countries

Infrastructure Industrial & Process Energy Management

Digital Solutions Industries Consulting

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Bio-economy and the global forest industry
A growth opportunity of 200 billion Euros

Wood Paper & Hygiene & Chemicals,

Products Paperboard Textile Fuels & Materials
770
40 10 Bi EUR
55 5.5%/a
9
3.4%/a 41
90 1.5%/a 56 118
575 2.6%/a
Bi EUR 92

77
315

259

321
229

2017 2030

Source: AFRY Management Consulting

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Growth is driven by fibre-based Packaging, Hygiene and Textiles products

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Paper consumption patterns are rapidly changing

MATURE MARKETS* DEMAND CARG 2018-2030 EMERGING MARKETS* DEMAND CARG 2018-2030

Million tons
-0.3% Million tons
+2.1%
400 FORECAST 400 FORECAST

300 300
+3.9%

Tissue: +1.0%
200 200
+1.3% Tissue: +6.2%
+2.7%
Packaging: +0.1%

100 +0.8% 100

Packaging: +4.9%
Graphic: -3.4%
-0.2%
-3.9% Graphic : +2.9%
0 0
2000 2005 2010 2015 2020 2025 2030 2000 2005 2010 2015 2020 2025 2030
Graphic

Mature: North America, Western Europe, Japan, Oceania – Emerging: E. Europe, China, Rest of Asia, L. America, Africa

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How will the pulp markets evolve?

PULP AND RCP DEMAND IN THE FOREST INDUSTRY - Million tons

500

400 Since there are:

300  Closures of uncompetitive integrated capacity

200  Shortage of white recovered fiber

60 68 87
100  and Non-wood pulps are mostly uncompetitive
0
2013 2018 2030

Integrated pulp Market pulp White RCP Brown RCP

The trend is towards …
Fibre Growth % 2018-30  Market pulp production increase
Integrated pulp -0.1%
 Plantation fibre gains market share
Market pulp +2.0%
White RCP -0.9%  More brown recycled fibre is needed
Brown RCP +2.5%
Total +1.4%

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Pulp demand grows faster in fiber-poor regions

SURPLUS AND DEFICIT COUNTRIES OF VIRGIN FIBER DEMAND FOR VIRGIN FIBER
Mt
200
Surplus countries
Deficit countries

150
CARG 2017-
2030
+ 0.2%
100

50 CARG 2017-
2030
+ 2.0%
0
Countries with virgin fiber deficit 1980 1990 2000 2010 2020 2030
Countries with virgin fiber surplus

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Increasing interdependence between South America and Asia

NET EXPORTERS OF VIRGIN WOODPULP NET IMPORTERS OF VIRGIN WOODPULP

Million tons Million tons

40 -40
North America Nordics Russia Europe Japan
Indonesia South America Other Asia China

30 -30

20 -20

10 -10

0 0
1980 1990 2000 2010 1980 1990 2000 2010

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Major expansion of pulp capacity in South America

Million tons 1977-1979 1991-1998 2002 - 2009 2012-2022

 Cenibra  Aracruz B  Aracruz C  Eldorado
 Aracruz A  Suzano Mucuri  Jacareí expansion  Suzano Imperatriz
30  Jari  Cenibra  Ripasa expansion  CMPC Guaíba II
 Simao Jacareí  Lwarcel expansion  Klabin Ortigueira
 Arauco  Veracel  MdP Uruguay
 CMPC  Mucuri B  Três Lagoas II
25  Três Lagoas  Arauco Mapa
 Arauco  Bracell SP
 UPM Uruguay  UPM Taurus
20

15
Share of global
BHKP market 8% 18% 45% >60%
10

5
1st wave 2nd wave 3rd wave 4th wave

0
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Capacity year end New capacity

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Industrial growth was only possible through expansion of
plantation area and productivity gains
Million hectares

125 000 ha/a 150 000 ha/a 450 000 ha/a 115 000 ha/a
14
CAGR 9%/a 5%/a 6%/a 1%/a
12 Uruguay
Argentina
10
Chile
8

6
Brazil
4

-
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

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A success story, but are we reaching a productivity plateau?

AVERAGE EUCALYPTUS PLANTATION PRODUCTIVITY IN BRAZIL

m3sob/ha/a
60
Conventional genetic improvement and
enhanced silvicultural practices have
contributed to the success
45
Yields have grown in average 3.5%/a
Productivity today is measured
30 • in ADt of pulp / ha
• rather than m3/ha
Climate change
15
• Challenges current yields

0
1970’s 2020

Source: AFRY Management Consulting

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Are we able to significantly increase woodchip supply and trade?

HARDWOOD WOODCHIP SUPPLIERS TO ASIA HARDWOOD PULP CAPACITY EXPANSION IN SOUTH-EAST ASIA

Million BDMT
Total Woodchip Exports
12.0
2017 – 19.5 M BDMT
2017
10.0 2018
2018 – 21.5 M BDMT

2019 2019* – 22.8 M BDMT

8.0

6.0

4.0

2.0

0.0
Malaysia
Australia

Chile

Indonesia
Vietnam

South Africa
Thailand

Brazil

Running mills
Planned new mills/lines

Note: From January till October 2019

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Wood chip availability is key to the future of pulp making in Asia -Pacific

HARDWOOD WOODCHIP AVERAGE IMPORT PRICES IN CHINA

USD/BDMT

220 Chinese Imports 2019

12.6 million BDMT Chile & Brazil
200
Vietnam
180

160 Thailand

140
Indonesia

120 Australia

100 South Africa

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

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How will pulpwood costs develop in the future ?

MODERN SOUTH AMERICAN BHKP MILLS MODERN CHINESE BHKP MILLS

USD/t USD/t

600 600

400 400

200 200

0 0
Wood Other Logistics Capital Total Wood Other Logistics Capital Total
manufacturing Costs manufacturing Costs
costs costs

Source: AFRY Management Consulting, modelled costs

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Incremental pulpwood and biomass demand will reach 70/90 million BDMT !

IDENTIFIED INCREMENTAL HARDWOOD PULPWOOD DEMAND

SELECTED COUNTRIES SHOWN
Million BDMT
20
Planned
Decided Global Incremental Pulpwood & Biomass Demand
2020-2030
15
• For the global pulp industry: +50 M BDMT
10 • For bioenergy: +20-40 M BDMT
• Where are the new sources?
5

0
Uruguay

China

India
Chile

Indonesia

Vietnam
Thailand
Brazil

Current pulpwood demand in the global pulp industry amounts to some 360 million BDMT

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Pulp demand continues to grow…
…where are the new sources of pulpwood ?

Thank you !
joao.cordeiro@afry.com
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