03 Joe Nemeth Canadian Pulp Industry Transformation Or Extinction

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03 Joe Nemeth Canadian Pulp Industry Transformation Or Extinction

  1. 1. 2009 Hawkins Wright Symposium Canadian Pulp Industry: Transformation or Extinction? CANFOR PULP LIMITED PARTNERSHIP
  2. 2. 2009 Hawkins Wright Symposium Transformation or Extinction? 1. The Past: An Industry in Decline 2. The Present: Challenges & Opportunities 3. The Future: Transformation or Extinction? www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 2
  3. 3. Hawkins Wright Symposium – Canadian Pulp Industry: Transformation or Extinction? Canfor Pulp Limited Partnership (CPLP) ► Canfor Pulp Limited Partnership (CPLP) – $Cdn 800 million annual sales – Ownership: • Canfor Pulp Income Fund 49.8% • Canfor Corporation 50.2% ► Canfor Pulp Income Fund (CFX.UN: TSX) – Float of 35.5 million units – 114,000 units trade on average per day – Tax generation of ~ $ 50 million annually www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 3
  4. 4. Canadian Pulp Industry – Transformation or Extinction? 1. The Past: Unacceptable Historical Returns – Top 100 Return on Capital Employed is calculated as net income before unusual items, minority interest and interest expense, on an after-tax basis, divided by average total assets less average non-interest bearing current liabilities. Source: PricewaterhouseCoopers www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 4
  5. 5. Canadian Pulp Industry – Transformation or Extinction? 1. The Past: Canadian Pulp & Paper ROCE Source:  Statistics Canada, April 2009 www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 5
  6. 6. Canadian Pulp Industry – Transformation or Extinction? 1. The Past: Cdn NBSK Capacity was 8 Million admt in 2000 MILLS RUNNING 11 28 1 12 2 13 3 14 26 4 27 7 19 8 6 29 5 23 9 10 24 21 20 25 22 1. P&T - Mackenzie 17 2. Prince George 15 18 16 3. Cariboo Pulp - Quesnel 4. Campbell River 15. Dryden 5. Crofton 16. Thunder Bay 11. DMI - Peace River 23. Domtar Quevillion 12. Grand Prairie 17. Terrace Bay 24. Jonquiere 6. Port Mellon 18. Marathon 25. Smooth Rock Falls 13. ALPAC - Boyle 7. Harmac - Nanaimo 19. SFK - St. Félicien 26. Prince Albert 14. WF - Hinton 8. Kamloops 20. Saint John, NB 27. Gold River 9. Mercer - Castlegar 21. Neenah - Pictou, NS 28. Skeena 10. Tembec - Skookumchuck 22. UPM Miramichi 29. Western Squamish www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 6
  7. 7. Canadian Pulp Industry – Transformation or Extinction? 2. The Present: U.S. Housing Starts at 25% of the Peak www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 7
  8. 8. Canadian Pulp Industry – Transformation or Extinction? 2. The Present: Challenges - Changing Fibre Supply www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 8
  9. 9. Canadian Pulp Industry – Transformation or Extinction? 2. The Present: Challenges - Effect of the Pine Beetle: Sawlog harvest / availability vs. sawmill demand Region 2 (N. Interior) Potential Log Supply Vs Demand 18,000,000 16,000,000 14,000,000 12,000,000 Volume M3 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Years Actual Harvest Available Logs Mill Demand www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 9
  10. 10. Canadian Pulp Industry – Transformation or Extinction? 2. The Present: Challenges - Effect of Pine Beetle Chip Supply vs. Regional Pulp Mill Demand Region 2 (N. Interior) Chip Supply Vs Demand 7,000,000 6,000,000 5,000,000 Volume M3 4,000,000 3,000,000 2,000,000 1,000,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Years Available Chips Pulp & Paper Mill Demand Actual Supply www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 10
  11. 11. Canadian Pulp Industry – Transformation or Extinction? 2. The Present: Challenges - Competing Demand for Biomass Growth of Pellet Plants (Targeting European Market) 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total Pellet Industry Demand (Local) www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 11
  12. 12. Canadian Pulp Industry – Transformation or Extinction? 2. The Present: Green Energy – The Challenge ► The Challenge: – Canada (North America) does not have regulated markets for GHG emissions (Carbon trading) – Nor does it have hard targets for Green Energy purchases (although some US states now do) – As well, it is difficult to access market pricing for electricity sales (most Provinces are controlled by state owned monopolies) ► The Result: – There has been minimal investment in Green energy production – Canadian companies have been at a disadvantage to their European and American counterparts www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 12
  13. 13. Canadian Pulp Industry – Transformation or Extinction? 3. The Future: Green Energy – The Opportunity Clear Green Energy Regulations U.S. Green Energy Bill (July 2009) ► American Clean Energy and Security Act passed by Congress in July ► Main element: - GHG cap-and-trade system – Designed to reduce emissions 17% from 2005 levels by 2020 and 83% by 2050 ► Secondary elements: – Broader definition of biomass from federal forests – Renewable Electricity Standards (RES) • Federal system of tradable credits • Investments in renewable energy required of large electricity suppliers • RES goal of 6% in 2012, increasing 2% per year up to 20% in 2020 • Alternatives to RES includes conservation and/or penalties www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 13
  14. 14. Canadian Pulp Industry – Transformation or Extinction? 3. The Future: Green Energy – The Opportunity Green Transformation Program – June 2009 ► This is a $Cdn 1 billion Fund ► Goal is to support Investment to improve Energy Efficiency and reduce Environmental Impact ► Key Program Components are: – Company Allocations are based upon $Cdn 0.16/litre of black liquor fired in Canadian operations since Jan, 2009 – Payments are only made to reimburse investment for pre-qualified capital projects that improve environmental performance or energy efficiency – Use it or lose it: Money must be spent by March 31, 2012 www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 14
  15. 15. Canadian Pulp Industry – Transformation or Extinction? 3. The Future: Green Energy – The Opportunity $1 Billion in Credits Awarded as Follows Twenty-four companies have qualified for credits under the PPGT Program. Company Credits Company Credits Domtar Inc. $143.5 million Smurfit-Stone Container $29.6 million Canfor Pulp $122.2 million Northern Pulp $28.1 million West Fraser $88.4 million Nanaimo Forest Products $26.9 million Alberta Pacific $62.9 million Tembec $24.2 million Daishowa – Marubeni $59.1 million SFK Pulp $20.9 million Mercer – Celgar $57.8 million Terrace Bay Pulp $19.2 million Howe Sound $45.5 million Catalyst Paper $18.0 million AV Group $36.4 million Tolko Industries $13.4 million Irving $33.4 million Kruger $6.9 million Abitibi-Bowater $33.2 million Neucel $6.5 million Fraser Paper $33.1 million Cascades $6.1 million Weyerhaeuser $32.4 million Meadow Lake $2.6 million www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 15
  16. 16. Thank You! Joe.Nemeth@canforpulp.com www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 16

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