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Paper price increase

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Reasons for the Paper Price Increase in 2010

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Paper price increase

  1. 1. Cut Sheet Market Update Current Supply Situation
  2. 2. Contents <ul><li>Dynamics affecting paper supply & pricing </li></ul><ul><ul><li>Economic Downturn </li></ul></ul><ul><ul><li>Exchange Rate </li></ul></ul><ul><ul><li>Raw Materials </li></ul></ul><ul><li>Manufacturing base overview </li></ul><ul><ul><li>Consolidation </li></ul></ul><ul><ul><li>Mill Closures </li></ul></ul><ul><li>Outlook </li></ul><ul><ul><li>Short to medium term prognosis </li></ul></ul>
  3. 3. Economic Downturn European Paper Market
  4. 4. Unprecedented market conditions -15% -12% -24% -2% -11% -15% -10% -14% -9% -12% -23% -14% -15% -11% -6% -18% -17% -12% -12% -19% Significant year on year decline in volumes in all European countries – But growth in other areas Source: Eugropa - Merchant total sales volumes YTD Nov ’09 vs. PY
  5. 5. Paper Production Decreased <ul><li>Economic downturn and associated paper volume decline. </li></ul><ul><ul><li>Massive over capacity in the Market </li></ul></ul><ul><ul><li>Mills opt for machine closures </li></ul></ul><ul><li>A large number of paper mills have ceased production removing 2,441,000 tonnes from the supply chain </li></ul>
  6. 6. Financial Dynamics Exchange Rate Effect
  7. 7. Exchange Rates <ul><li>We are all aware of how the £GBP has weakened against the €uro. </li></ul><ul><ul><li>There are no manufacturers of Copier Paper in the UK today – all product is imported. </li></ul></ul>Mills attempting to recover pro-longed loss making period
  8. 8. Net Mill Selling Prices <ul><li>Average selling prices into main paper markets - indexed </li></ul>UK 7.79 France 8.04 US 8.50 Italy 7.87 Germany 8.30 Brazil 9.30 Spain 8.10
  9. 9. Raw Materials Pulp Pricing
  10. 10. Impact of Pulp Price Increase on Paper Production Cost vs. Paper Price Development Projection according to RISI’s forecast Projection according to announced increases Change vs. October, €/tn
  11. 11. Pulp Price - Benchmarking <ul><li>Pulp price currently comprises 60% of variable manufacturing cost of standard WFU paper </li></ul>
  12. 12. Global Shortage <ul><li>8% of global pulp supply became to halt for an indefinite period </li></ul><ul><ul><li>immediate shortage of pulp </li></ul></ul>
  13. 13. Manufacturing Base How are the Mills handling the economic downturn and declining returns ?
  14. 14. Production Consolidation <ul><li>10 Years Ago </li></ul><ul><ul><li>10 Manufacturers </li></ul></ul><ul><ul><li>70% of Supply </li></ul></ul><ul><li>Today </li></ul><ul><ul><li>6 Manufacturers </li></ul></ul><ul><ul><li>88% of Supply </li></ul></ul><ul><ul><ul><li>UPM </li></ul></ul></ul><ul><ul><ul><li>Stora </li></ul></ul></ul><ul><ul><ul><li>MReal </li></ul></ul></ul><ul><ul><ul><li>GPS </li></ul></ul></ul><ul><ul><ul><li>Mondi </li></ul></ul></ul><ul><ul><ul><li>IP </li></ul></ul></ul>
  15. 15. Industry Order Flow v Production Capacity <ul><li>Cumulative WFU order inflow in 2010 is 17% higher than production capacity </li></ul>practical production capacity
  16. 16. Capacity v Demand Continued growth in demand for printing and writing papers combined with the increased utilisation rates by the mills (due to excess capacity being taken out of the market) is demonstrated by the shrinking gap between the demand and capacity lines.
  17. 17. Paper Production Decreased <ul><li>Economic downturn and associated paper volume decline. </li></ul><ul><ul><li>Massive over capacity in the Market </li></ul></ul><ul><ul><li>Mills opt for machine closures </li></ul></ul><ul><li>A large number of paper mills have ceased production removing 2,441,000 tonnes from the supply chain </li></ul>
  18. 18. Outlook
  19. 19. Outlook <ul><li>Unless Ex Mill market pricing reaches sustainable levels supply into the UK will continue to be restricted. </li></ul><ul><ul><li>Exchange rate – 2 year 27% differential </li></ul></ul><ul><ul><li>Capacity </li></ul></ul><ul><ul><li>Price Inflation - Pulp </li></ul></ul><ul><ul><li>Mills currently actively switching production from Cut Sheet to other products that give better return e.g. Envelope Base </li></ul></ul><ul><li>Further price increases notified from May/June </li></ul><ul><ul><li>MReal UPM </li></ul></ul><ul><ul><li>Stora </li></ul></ul><ul><ul><li>IP </li></ul></ul><ul><ul><li>Mondi </li></ul></ul><ul><ul><li>Steinbeis – April, May & September </li></ul></ul><ul><li>Mills already talking about September </li></ul>

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