The document discusses the competition between the pulp and paper industry and the energy industry for woody biomass resources in the US South. It notes that the pulp and paper industry has long-standing supply chain relationships but faces increasing demand from the renewable energy sector. Specifically, the growth of wood pellet exports from the US South to Europe to meet green energy targets creates direct competition for fiber that the pulp industry relies on. While the pulp industry currently has strong cost advantages, the renewable energy sector is driven by government mandates to increase the use of biomass, threatening the pulp industry's fiber supply.

1. ©2016, Forest2Market, Inc.
CLASH OF THE TITAN
THE COMPETITION BETWEEN THE PULP & PAPER AND
THE ENERGY INDUSTRY FOR WOODY BIOMASS
IN THE US SOUTH.

2. ©2016, Forest2Market, Inc.
WHO AM I?
Carl Dahl
• Invented the kraft pulp
process in 1884
• First US kraft mill:
Pensacola, FL in 1911
• Same basic process
used in most all pulp
mills today

3. ©2016, Forest2Market, Inc.
WHAT AM I?
The Recovery
Boiler Equipment
revolutionized the pulp
and paper industry.
Invented by G.H. Tomlinson
1931

4. ©2016, Forest2Market, Inc.
SOUTHERN
INDUSTRY TOOK OFF
US Pulp Fiber Consumption
1980-2007
Source: FRA and F2M
180
200
220
240
260
280
1980 1985 1990 1995 2000 2005
milliongreentons

5. ©2016, Forest2Market, Inc.
WHAT’S THE
POINT?
The pulp and paper industry is OLD.
• The first suppliers are still in business
The pulp and paper industry is ENTRENCHED.
• Long-term relationships abound
The pulp and paper industry OWNS THE SUPPLY CHAIN.
• They receive 9.5 million trucks of trees annually
• $10 billion business

6. ©2016, Forest2Market, Inc.
WHAT’S NEW?
THE GREENING OF THE WORLD
6

7. ©2016, Forest2Market, Inc.
US SOUTH
DEMAND
Tons of wood required at various co-firing rates
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
FL GA NC SC VA AL MS TN AR LA OK
tonsx1000
1%
5%
Based upon current technology and estimates,
every 1% of co-firing requires 10MM tons of wood.

8. ©2016, Forest2Market, Inc.
EUROPEAN
DEMAND
To meet green energy targets of 20% renewables by 2020, the
UK must import 20 million tons of pellets annually.
If 1/3 is sourced from eastern US, then 8-12 new pellet plants
are needed.
Total EU demand is expected to be 120 million tons by 2020 -
more than 10x the world’s installed manufacturing capacity.
8

9. ©2016, Forest2Market, Inc.
WHY THE US
SOUTH?
9

10. ©2016, Forest2Market, Inc.
PULP AND PAPER
Renewable Energy
10
• Economic drivers: GDP, demographics, population growth
• Largest producer of biomass energy in US
• Conflict: Customer of utility; compete for same raw material -
woodfuel
• Economic drivers: none - mandate driven
• Highly regulated and subsidized
• Conflict: Vendor to pulp/paper mill; compete for same raw
material - woodfuel

11. ©2016, Forest2Market, Inc.
PULP/PAPER MILLS HAVE A
STRONG DESIRE TO LIMIT
COMPETITION FOR WOOD FIBER
11
Fixed mill locations
High capital investment
No new greenfield permits likely
Wood fiber makes up 25-40% cost of goods sold
Earnings sensitive to movement in raw material price
It’s a good business!

12. ©2016, Forest2Market, Inc.
US PULP/PAPER MILLS HAVE
A STRONG WORLDWIDE
COST POSITION
12

13. ©2016, Forest2Market, Inc.
CURRENT ECONOMICS FAVOR PULP
MILLS OVER BIOENERGY MARKETS
13
Southern Bleached Softwood Kraft
Price: $1,000 per ton
Cost : $670 per ton
Manufacture - $500 per ton (includes woodfiber)
G&A - $50 per ton
Distribution - $70 per ton
Depreciation - $50 per ton
Profit: $330 per ton

14. ©2016, Forest2Market, Inc.
US ENERGY ECONOMICS
Bioenergy is not terribly competitive:
• 25-35 MW plant - $0.13-0.16/KwH
• 50 MW plant - $0.11-0.13/KwH
• 100 MW plant - $0.10-0.12/KwH
• 300 MW plant - $0.09/KwH (maybe?)
Wholesale power rates in US are $0.06-0.12/KwH.
14

15. ©2016, Forest2Market, Inc.
ECONOMICS -
PELLETS TO EU
15
Delivered wood cost 30 USD / Ton
Equivalent dry fiber cost in pellets 68 USD / Tonne
Manufacturing & transportation costs to port 67 USD / Tonne
Total Cost - FAS 135 USD / Tonne
F2M Analysis of Pellet Costs
Forest2Market estimates that pellets manufactured in the US
South and shipped to Europe are currently a break-even
proposition.
• 350,000 tonnes production ($85 million in capital)
• Rail pellets to port
• European customers
• Based upon March 2007 ENDEX pricing, approximate price FAS US
Port is 130 USD/tonne

16. ©2016, Forest2Market, Inc.
ECONOMICS –
PELLETS TO EU
Even with economic disadvantage, new demands are undeniable.
Forest2Market estimates that pellets manufactured in the US
South and shipped to Europe are currently a break-even
proposition.
16
• 350,000 tonnes production
($85 million in capital)
• Rail pellets to port
• European customers
• Based upon March 2007
ENDEX pricing, approximate
price FAS US Port is 130
USD/tonne

17. ©2016, Forest2Market, Inc.
EXPORT PELLET MARKET
IS PORT DEPENDENT
Where are the pulp mills? Near ports.
Only a handful of US ports have the infrastructure to
accommodate wood pellet exports
• Depth
• Port storage and handling
Favorable growth/drain ratios in surrounding timber basin
Space for expansion
Favorable freight rates to EU
How will it play out?
17

18. ©2016, Forest2Market, Inc.
TWO-TIERED
MARKETS
Pulp and Paper
18
Export-driven coastal markets near deep water ports with
bulk handling capabilities.
Domestic market will likely be more biomass/bioelectic
centric.
Will become increasingly effective at acquiring subsidies to
offset effects of new demand
Grades will change
• Uncoated free sheet (copy paper) demand will continue to erode
• Fluff pulp and containerboard demand will increase

19. ©2016, Forest2Market, Inc.
CONTACT
19
Read Clash of the Titans: Competition for Woody Biomass in the US South.
Forest2Market
15720 Brixham Hill Ave
Suite 550
Charlotte, NC 28277