3 Source: PPPC UFS Industry Statistics UFS demand was down -16.8% Q1 2009 vs. Q1 2008 UFS mill inventory was at 42 days of supply at the end of March, up 5 days from a year ago UFS imports were down by -23% Q1 2009 vs. Q1 2008 UFS exports were down -20.5% Q1 2009 vs. Q1 2008 UFS operating rates are at 88% Q1 2009
4 UFS demand has declined 3.9 million tons since 1999 The latest forecast from PPPC is a decline of -8.5% in 2009 and a drop of -1.5% in 2010 The RISI forecast for 2009 shows a decline of -7.8% and flat in 2010 Source: PPPC N.A. Demand for UFS has declined since 1999
5 Offset shipments dropped 11.1% in 2008 vs. 2007 and are down 30% in Q1 09 vs Q1 08 Note: Offset shipments consist of offset & reply card Source: PPPC N.A. Offset Industry Statistics
6 Opaque shipments were down 8.6% in 2008 vs. 2007 Source: PPPC N.A. Opaque Industry Statistics
7 PiecesWeight Service Category% chg Q4 ‘08 vs. ‘07% chg Q4 ’08 vs. ’07 First Class Mail-7.2%-6.0% Periodicals-3.5%-12.6% Standard Mail-5.5%-8.7% Total All Mail-9.3%-11.7% In the US, 33% of all printing and writing paper flows through the postal service Average weight per piece declined 2.7% quarter over quarter 2008 Source: USPS Quarterly US Postal Service Mail Volumes
8 Imports and exports of UFS are very close to being in balance at approximately 5% per year Portucel will start production on a new UFS machine(550,000 tons/yr) in August 2009, it is not clear how much of this will be sold into the North American market Source: PPPC N.A. UFS Imports & Exports
9 IP 16% Boise 10% GP 7% Glatfelter 5% Appleton 2% Evergreen 2% Wausau 2% Neenah 2% Finch 2% All Others 9% Domtar 33% Source: RISI 2008 N.A. UFS Producers (capacity in ‘000 tons)
10 2007DateCompanyLocation -350Feb 2007IPPensacola, FL -250Feb 2007BoiseWallula, WA -70June 2007DirigoGilman, VT -125June 2007DomtarWoodland, ME -120July 2007GPWauna, OR -20Oct 2007DomtarHull, QC -35Oct 2007FraserGorham, NH -150Dec 2007DomtarDryden, ON Total: -1120 As demand for UFS has fallen paper companies have permanently closed mills to balance capacity with demand and maintain a more stable pricing environment Source: RISI & PPPC 2008DateCompanyLocation -100Jan 2008WausauGroveton, NH -35Feb 2008NeenahUrbana, OH -35April 2008FraserGorham, NH -130June 2008DomtarPort Ed, WI -250Sept 2008IPBastrop, LA -160Nov 2008DomtarDryden, ON -150Nov 2008IPFranklin, VA Total: -860 2009DateCompanyLocation -200Jan 2009BoiseSt. Helens, OR -295Jan 2009DomtarPlymouth, NC List of UFS Mill Closures in 2008 & 2009
11 Source: RISI Since 2007 over 2.4 million tons of UFS capacity have been removed from the market (19% of annual UFS demand) Two closures have been announced through February 2009 Magnitude of UFS Capacity Closures over the past 9 years
12 Source: PPPC The drop in operating rates (capacity versus shipments) for UFS are not as severe as the other grades Printing & Writing N.A. Operating Rates 2008 vs. 2009
13 Source: PPPC PPPC forecast UFS Operating Rates to decrease slightly over next 2 years as demand declines UFS Operating Rates
14 Source: RISI In Europe the top 3 producers of UFS have 30% of the domestic market while in North America the top 3 have almost 70% of their domestic market Further consolidation of European companies may be required to maintain a healthy supply and demand relationship in UFS Top Three Producers Market Share Europe vs. North American
15 Conclusions Demand for UFS in North America continues to decline –Supply balanced by mill closures allowing for relatively steady prices –Mill and merchant inventories for UFS have decline slightly Long-term survival will require a strong balance sheet today –Timing of economic recovery? –Will printed media rebound to pre-recession levels? Future consolidation/closures may be required as new demand levels are established in our recovering economy.
26 In 2008 the Book industry used 1,76Million tons of Paper from all sources (49% coated and 51% Uncoated) It is projected that the demand for paper used in books will decrease by 2% in 2009 Source: GAPTRAC Q1 2009 report Book Industry Paper Demand
27 Source: GAPTRAC – Poyry Consulting Publishers Unit Sales (Millions of Books) Based on GAPTRAC projections the book industry remains relatively stable, with unit declines of less than 1% over 4 years
28 Source: GAPTRAC – Poyry Consulting Publishers Paper Demand
29 Paper Usage in Books Printed in the USA Annual Rate by Quarter, Million Tons -35%
30 Book Industry – Growth Opportunities Extend sales channels beyond bookstores, e.g., mass retailers, Starbucks, Costco, WM Sonoma, etc. More specialization and customization, new genres and special interest topics, new titles published increasing more than 3% Digital printing for short runs and reprints of out-of-print titles and one-off books printed in store or ordered on-line Global markets: rapidly developing economies in India, China and rest of Asia seeking books about science, medicine, business, education, etc. People changing careers and taking courses
31 Book Industry – Threats to Growth Digital downloads and migration to digital editions from printed books, Kindle and Sony Reader e-books Competing entertainment and media alternatives to reading – Internet, blogs, movies, i-pods, podcasts, video games, etc. Declining number of young readers Dwindling percentage of book-buying households and fewer people reading books for enjoyment Content piracy in offshore countries and copyright infringements, especially by Web search sites Fewer blockbuster best-sellers
32 Impacts on Paper Industry Green products, FSC, recycled pre consumer-post consumer 10,20,30. what’s next? Product substitution, coated to uncoated GWD to UFS. Bs. Wt. reduction, bulking capabilities. Make it better make it cheaper and make it in smaller lots. Supply Chain efficiencies (Collaboration) Cash flow management, how do we all do more with less.
33 Impact All that being said we are determined to survive our current challenges and continue to innovate and meet the needs of the Book Industry and of the Publishing community for many years to come.