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Global Trends in Market Pulp Brian McClay Brian McClay & Associates Inc. pulpmarket

Global Trends in Market Pulp Brian McClay Brian McClay & Associates Inc. www.pulpmarket.ca €UROPULP – UTIPULP meeting Nice, France 20 September 2012. Paper still a growth business, China 25% of total. Purchased fibre gaining share of global paper furnish.

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Global Trends in Market Pulp Brian McClay Brian McClay & Associates Inc. pulpmarket

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  1. Global Trends in Market Pulp Brian McClay Brian McClay & Associates Inc. www.pulpmarket.ca €UROPULP – UTIPULP meetingNice, France 20 September 2012

  2. Paper still a growth business, China 25% of total Brian McClay & Associates

  3. Purchased fibre gaining share of global paper furnish Brian McClay & Associates

  4. Paper still growing - packaging, tissue gaining share Brian McClay & Associates

  5. Huge capacity surge in China, 90% non-integrated Brian McClay & Associates

  6. Europe biggest market, China more impact on pricing Brian McClay & Associates Inc.

  7. BEK demand up 10%/year past decade, NBSK 1.7% Brian McClay & Associates Inc.

  8. Short-term: 4-quarter pricing rally Brian McClay & Associates Inc.

  9. Medium-to-Longer term outlook • China continues to drive global wood fibre markets • Peak Recovered Paper • Softwood pulp shortage? NBSK a specialty pulp and priced as such. • Good growth prospects for dissolving pulp - the cellulose gap. • Mill conversions reduce paper pulp supply next few years • Purpose-built DP (flex) mills will be needed 2017+, add to market volatility • Nano-crystalline cellulose (NCC) • US$ 600 billion industry by 2020 Brian McClay & Associates Inc.

  10. China’s continued ascendancy China driving global fibre demand Brian McClay & Associates Inc.

  11. China’s surging middle-class more paper-centric Should drive consumer packaging, tissue, printing & writing grades Brian McClay & Associates Inc.

  12. Growing tissue output will need more softwood pulp Brian McClay & Associates

  13. Most fibre demand growth in China will be wood pulp Brian McClay & Associates

  14. Peak Recovered Paper Supply growth slows, quality declines, costs rise Brian McClay & Associates Inc.

  15. Peak Recovered Paper • Graphic paper use down in U.S., Europe and Japan, big exporters • Already high recovery rates? U.S. 72%, Europe 77%, Japan 81% • Raise recovery rates everywhere else • Tissue demand growing fast (4%), potential recovery rate lower. • More specialty papers, food grades, composites, not recovered • Marginal cost of collection rising • Quality of marginal supply declining. Brian McClay & Associates Inc.

  16. Peak Recovered Paper Supply growth slows, quality declines, costs rise Brian McClay & Associates Inc.

  17. Will India be another China? Brian McClay & Associates

  18. India growth to be fueled by market pulp, imports Brian McClay & Associates

  19. Softwood pulp shortage? Little new supply, rising demand from tissue, fluff, specialty products Brian McClay & Associates

  20. DP: 5 mm tonnes 2011 – 75% textile, 25% specialty Brian McClay & Associates Inc.

  21. Share of global textile business by fibre type Brian McClay & Associates Inc.

  22. Major Viscose Staple Fibre Producing Regions Brian McClay & Associates Inc.

  23. Growth prospects for dissolving pulp • China, India surging consumer classes • Peak cotton • Sustainability–10 tonnes pulp/hectare vs. 1 tonne cotton, water use • World demand for all textile fibres growing 3% per year • Dissolving pulp based fibres 4% of total, huge leverage • 10% per annum demand growth for textile grades • Limit - all textile growth > 2.5 million more DP capacity per year TerraChoice Market Services Inc.

  24. Brian McClay & Associates Inc.

  25. TerraChoice Market Services Inc.

  26. Brian McClay & Associates Inc.

  27. Longer term implications for the pulp business • Converting existing mills no longer enough • Need to build world-scale plantation based DP mills, ‘flex’ mills? • Flex mills reduce pricing volatility for DP, increase it for paper pulp • Significant pressure on wood chip supply • Adds to wood sustainability story – construction, paper/packaging, bio-energy, bio-chemicals, textiles . • Overall, huge net positive. TerraChoice Market Services Inc.

  28. Nano-crystalline cellulose • Very early stage of development • Transparent, lightweight, 10 times stronger that stainless steel • Domtar has pilot plant JV in Quebec • US Forest Service funding similar plant • Takes 2 tonnes of dried pulp to get 1 tonne of NCC • US National Science Foundation - $600 billion business 2020 Brian McClay & Associates Inc.

  29. Brian McClay & Associates Inc. Brian McClay, Principal Montreal, Canada bmcclay@videotron.ca 514-457-4450 www.pulpmarket.ca Brian McClay & Associates Inc.

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