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

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

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

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

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

6. Europe well illustrates the variable growth patterns for different paper grades
2009
2010
2011
2012
2013
P&W papers
Europe (mn tons)
33.2
35.9
35.1
33.7
33.3
% change
-14.4
8.1
-2.2
-4.1
-1.0
World (mn tons)
104.2
110.3
109.8
110.7
113.3
-9.0
5.8
-0.5
0.9
2.3
Europe’s share (%)
31.9
32.5
30.4
29.3
Tissue papers
7.7
8.0
8.3
8.6
8.8
4.9
3.0
3.4
3.1
27.9
29.2
30.5
31.7
32.9
1.1
4.5
4.1
4.2
27.5
27.3
27.2
27.1
26.8
Source: RISI

7. Taking a closer look, the EU paper industry is a EUR 72 bn sector
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
EURbn
2006
2007
2008
2009
2010
Pulp
Exports
1.1
1.0
1.4
Imports
(4.6)
(4.7)
(3.4)
(5.2)
Net imports
(3.5)
(3.6)
(2.4)
(3.8)
Paper
18.7
19.0
19.3
16.9
20.2
(6.6)
(7.7)
(7.4)
(6.9)
(7.6)
Net Exports
12.1
11.3
11.9
10.0
12.6
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
Source: EU Market Access Database, CEPI

8. Pulp comes from the West but paper goes everywhere-major EU Trade partners(2010)
Pulp EUR bn
Net exports
Net Imports
Brazil
1.9
USA
1.2
Chile
0.6
China
0.5
Canada
Uruguay
0.3
Indonesia (EUR mn) 24
Gross exports/imports 72 48
% of EU total 5% 1%
PaperEURbn
Net exports
Net imports
Russia
1.8
Turkey
1.0
China
0.7
Ukraine
USA
0.6
Australia
India
0.4
Indonesia (EUR mn) 1
Gross exports/imports
172
171
% of EU total 1% 2%
EU duties on imports of Chinese coated P&W papers wef will reduce the net import balance
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
Source: EU Market Access Database

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

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

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

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

13. 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 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,
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
* Confederation of European Paper Industries

14. >3% of global pulp; 2.5% of global P&B
Getting Indonesia in perspective- Major pulp and paper producer countries (2009)
Pulp (mn tons)
Paper(mn tons)
USA
48.3
China
20.8
Canada
17.1
Brazil
13.3
Sweden
11.5
Finland
9.0
Japan
8.5
Russia
7.2
Indonesia
6.0
Chile
5.0
Global total
178
China
86.4
USA
71.6
Japan
26.3
Germany
20.9
Canada
12.9
Sweden
10.9
Finland
10.6
South Korea
10.5
Brazil
9.4
Indonesia
Global total
371
>3% of global pulp; 2.5% of global P&B
Source: RISI

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

16. So how do Indonesia and Brazil compare?
Population (mn 2012 est)
248
206
Area (mn km²)
1.9
8.5
GDP ($ at official ex rate-2011 est)
834 billion
2,500 billion
GDP per capita ($ at PPP 2011 est)
4,700
11,600
Ranking for ease of doing business( 2011 out of 184 countries)
129
126
Corruption perception index –rating out of 10 ( 2010 ranking out of 178 countries in brackets)
2.8(110)
3.7(69)
Top environmental issue
Deforestation
Deforestation(of Amazon)
Forest cover (% of land area with forest) 52 65
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%)
Sources: CIA Handbook, Transparency Int’l, World Bank, FAO Resources Assessment 2010,FSC, PEFC, BRACELPA

17. The key Brazilian players are a mixture of domestic and foreign companies
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
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. 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.

19. Key contacts Clive Suckling,
UK & Global Leader, Forest ,Paper & Packaging Industry tel: +44 (0)
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