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Opportunities for Indonesian Paper Exporters in Europe: Trends, Markets and the Environment 2 nd High Level Market Dialogue Jakarta, 20 March 2012

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Presentation on theme: "Opportunities for Indonesian Paper Exporters in Europe: Trends, Markets and the Environment 2 nd High Level Market Dialogue Jakarta, 20 March 2012"— Presentation transcript:

1 Opportunities for Indonesian Paper Exporters in Europe: Trends, Markets and the Environment 2 nd High Level Market Dialogue Jakarta, 20 March 2012

2 PwC LLP Topics Global and European demand trends European market characteristics How does Indonesia stack up and what is the opportunity for its producers Concluding thoughts Slide 2

3 PwC LLP Million tons Global paper and board demand has grown by nearly 25% in the last decade Slide 3 Source: RISI

4 PwC LLP But growth has faltered since the financial crisis and outlook is tepid (% change) - covers newsprint, printing & writing, paperboard, tissue and specialities Slide 4 Source: RISI

5 PwC LLP The longer term outlook shows growth below GDP but some grades have better prospects than others: Averageannual growth rates Paper intensity of growth is reducing, Growth available concentrated in emerging markets Source: RISI 2010 2010 Europe c. 88 mn tons or 26% of Global Slide 5

6 PwC LLP Europe well illustrates the variable growth patterns for different paper grades 20092010201120122013 P&W papers Europe (mn tons) 33.235.935.133.733.3 % change-14.48.1-2.2-4.1 World (mn tons) 104.2110.3109.8110.7113.3 % change-9.05.8- Europe’s share (%)31.932.531.930.429.3 Tissue papers Europe (mn tons) % change4. World (mn tons)27.929.230.531.732.9 % change1. Europe’s share (%)27.527.327.227.126.8 Slide 6 Source: RISI

7 PwC LLP Taking a closer look, the EU paper industry is a EUR 72 bn sector. It is a large importer of pulp and a large exporter of paper EURbn20062007200820092010 Pulp Exports1.1 1.01.4 Imports(4.6)(4.7)(4.6)(3.4)(5.2) Net imports(3.5)(3.6)(3.5)(2.4)(3.8) Paper Exports18.719.019.316.920.2 Imports(6.6)(7.7)(7.4)(6.9)(7.6) Net Exports12.111.311.910.012.6 Slide 7 Source: EU Market Access Database, CEPI c. 20% of pulp needs are imported And c. 20% of paper output is exported With an aggregate value of over EUR12 bn,the import market for pulp and paper is substantial

8 PwC LLP Pulp comes from the West but paper goes everywhere-major EU Trade partners(2010) Pulp EUR bn Net exports Net Imports Brazil1.9 USA1.2 Chile0.6 China0.5 Canada0.5 Uruguay0.3 Indonesia (EUR mn)24 Gross exports/imports 7248 % of EU total5%1% PaperEURbn Net exports Net imports Russia1.8 Turkey1.0 China0.7 Ukraine0.7 USA0.6 Australia0.6 India0.4 Indonesia (EUR mn)1 Gross exports/imports172171 % of EU total1%2% Slide 8 Source: EU Market Access Database Indonesia is a net buyer of pulp and in 2010 of paper too. With waste paper on top, the EU is an important supplier of fibre EU duties on imports of Chinese coated P&W papers wef 2011 will reduce the net import balance

9 PwC LLP Looking deeper at some European market trends, we can see the decline in end use consumption in publications Slide 9 Source: RISI

10 PwC LLP..... as screens become the new paper Slide 10 Source: Gerd Leonard PRIMA Berlin May 2011

11 PwC LLP The European supply base must still adjust to lower demand, notably in publication papers Source: Cepiprint, Cepifine, UPM Slide 11

12 PwC LLP And with sales prices lagging cost rises, European papermaking margins are under pressure Slide 12 Source: Hawkins Wright Pulpwatch, March 2012

13 PwC LLP The EU Market is increasingly environmentally and socially concious The end of waste Strong development of recycling, with European paper recycling rate now 69% (2010), up from 52% in 2000. EU target of 70% by 2015 54% of paper and board made from the “urban forest” Forests are expanding- net forest expansion of 512,000 ha, 2005-10 Virgin fibre -legal and sustainable CEPI * Code of Conduct on Legal Logging(2005) adopted by all national assns 62% of wood virgin fibre usage is certified(2010), up 5% in two years Near 100% of corporate owned or managed forests in Europe certified 96% of market pulp, 70% of P&B capacity covered by C of C certification Broad stakeholder engagement For consumers, sustainability is increasingly taken as the new norm Companies engage in wide social dialogue with civil society including NGOs Slide 13 * Confederation of European Paper Industries

14 PwC LLP Getting Indonesia in perspective- Major pulp and paper producer countries (2009) Pulp (mn tons) USA48.3 China20.8 Canada17.1 Brazil13.3 Sweden11.5 Finland9.0 Japan8.5 Russia7.2 Indonesia6.0 Chile5.0 Global total178 Paper(mn tons) China86.4 USA71.6 Japan26.3 Germany20.9 Canada12.9 Sweden10.9 Finland10.6 South Korea10.5 Brazil9.4 Indonesia9.4 Global total371 Slide 14 Source: RISI >3% of global pulp; 2.5% of global P&B

15 PwC LLP How competitive is Indonesia? BHKP *cash costs (delivered to W Europe cif) Slide 15 Source: Hawkins Wright, Feb 2012 * Bleached hardwood kraft pulp Indonesia compares well with its low cost peers in Brazil and Chile on in-mill costs...but loses out on wood costs

16 PwC LLP So how do Indonesia and Brazil compare? IndonesiaBrazil Population (mn 2012 est) 248206 Area (mn km²) 1.98.5 GDP ($ at official ex rate-2011 est) 834 billion2,500 billion GDP per capita ($ at PPP 2011 est) 4,70011,600 Ranking for ease of doing business ( 2011 out of 184 countries) 129126 Corruption perception index –rating out of 10 ( 2010 ranking out of 178 countries in brackets) 2.8 (110) 3.7 (69) Top environmental issue DeforestationDeforestation(of Amazon) Forest cover (% of land area with forest) 5265 Planted forest area- mn ha( % of total forest cover in brackets) 3.5 ( 3%) 6.3 (3%) Plantations –certified area - mn ha est (% certified in brackets) 0.5 ( 14%) 2.7 ( 43%) Slide 16 Sources: CIA Handbook, Transparency Int’l, World Bank, FAO Resources Assessment 2010,FSC, PEFC, BRACELPA

17 PwC LLP The key Brazilian players are a mixture of domestic and foreign companies Domestic Fibria ¹ Suzano¹ Klabin¹ Duratex ¹ Joint Ventures CENIBRA- Japanese consortium co Veracel- Fibria: StoraEnso(Finland) ² 50:50 Foreign Arauco (Chile)² CMPC ( Chile) ² Rigesa ( Meadwestvaco USA) ² International Paper (USA) ² Slide 17 ¹Publicly listed on the Brazil stock exchange.Most though remain close/family controlled ² Publicly listed on home stock exchanges; the two Chilean cos, are also NYSE listed although remain family controlled

18 PwC LLP Concluding thoughts EU is a large but mature market-some sectors in decline; others still growing EU an open market, with well developed trade channels internally and externally EU is oversupplied domestically. But there will be more disinvestment than investment, creating opportunities for competitive external suppliers Stakeholders in pulp and paper in the EU are environmentally and socially concious; EU corporates have a high degree of public accountability and responsibility Exporters to the EU will need to be competitive not just on price and product performance, but also in terms of corporate responsibility-the Latin American exporters are well down that road. Indonesia would seem to have the basis for being cost competitive in Europe but is this enough? Ensuring that pulp and paper supplies are sourced and processed from legally sourced and processed wood is a good foundation but only the start of the whole journey. Slide 18

19 Key contacts This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2011 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. Clive Suckling, UK & Global Leader, Forest,Paper & Packaging Industry tel: +44 (0)20 7213 4887

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