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Paper Market

Overview:
March 2015

Executive Summary: 2014


Outlook for 2015

Supply Review - 2014


Verso completes the acquisition of NewPage
DOJ forces divestiture Biron, WI and Rumford, ME mills
Verso is now the NA market leader in CFS, no longer
produces CGW
Catalyst has completed the purchase of legacy
NewPages Biron and Rumford mills
Catalyst is now the NA market leader in CGW papers
Closures of Verso Bucksport, ME and FutureMark
Alsip, IL mills
Reduction of 530,000 short tons of capacity in the U.S.
Removed approximately 200,000 tons of No. 5 Roto
capacity
Exchange rates
Euro at 1.13, expected to drop to 1 1.05 and hold
CDN at .80, expected to hold in short terms
Will lead to more imports from Europe into NA,
and likely keep S/D imbalance, price
improvement difficult for mills
Demand Review - 2014
Catalogs mailed in 2014 declined -2.5% vs. 2013 levels.
Total circulation of 11.79BB, with reduced page counts
Magazine ad pages in 2014 were down -9.0% vs. 2013 levels.
Poor newsstand sales, electronic substitution
Uncoated Groundwood down -2.4% vs. 2013.
Supercalendered demand up +3.4% YTD vs. 2013
Coated Groundwood demand down -8.0% vs. 2013
Coated Freesheet demand down -0.7% vs. 2013

Demand Outlook - 2015

Catalogs mailed expected to decline -2.1%


vs. 2014 levels.

Magazine ad pages expected to decline


-3.1% vs. 2014 levels.

2015 YTD Demand for Printing and Writing Papers:

Coated Groundwood operating rates


expected to be 95% (RISI)

Coated Groundwood demand down -6.2% Jan.2015 vs. 2014

Coated Freesheet demand down -1.7% Jan.2015 vs. 2014

Freesheet demand down -2.4% Jan.2015 vs. 2014


UncoatedCoated
Freesheet operating rates expected
Uncoated Groundwood down -3.4% Jan.2015 vs. 2014
to be 93% (RISI)
Supercalendered demand down -5.5% Jan.2015 vs. 2014

USPS

Imports expected to have effect on operating


rates in 2015

Announced avg. increase of ~ 2.0% across most categories, effective April 2015

Mill Financials not Strong

Poor demand, historically low pricing, increased input costs, and high debt loads (Verso ~$2.5BB)

GDP growth for 4Q 2014 at + 2.5%

Unemployment rate now at 5.7%

Price Increase Announcements 2015


Mills

Increase

Date
Announc
ed

Grades

Date Effective

Twin Rivers

$2.00/cwt

1/8/2015

On all Packaging, Publishing and Label paper grades

Effective with shipments on or after


2/16/15

1/30/2015

All CFS / CGW / SCA / Economy sheet grades incl...


Arbor Plus web / Sterling Ultra web / Sterling Ultra caliper web /
ArborWeb web / Influence / Orion web / Velocity / Vision web /
Voyager Web / Superior Gloss web

$2.00/cwt
Verso
$1.50/cwt
$1.00/cwt

Appleton
Coated

$2.00/cwt

Catalyst

$2.00/cwt
($40/st)

Sappi

$1.50/cwt

Effective all orders entered 1/30/15 & all


orders shipping on or after 3/2/15

Advocate / Consoweb web / Anthem Plus sheets/sheeter rolls


Escanaba web / Liberty Gloss / Dependoweb web / Capri web
U2:XG Web / Utopia Two web / Utopia Three web / Utopia Book
web
2/4/2015 Utopia Think Book web / Utopia Film Coat web / Utopia GW Book
Effective with shipments 3/2/15
web
All private label web / Altima sheets
Orion / Vision / Ascent / Escanaba / Pacificote / Dependoweb /
Capri / Electracote Brite / Consoweb / Electracote
Effective with all new and existing orders
2/6/2015
Applies to all basis weights, finishes, grade extensions and related
with confirmed deliveries 4/1/15
private label products.
Flo Folio Sheets & Sheeter Rolls / EuroArt Plus / HannoArt
Increase on new and unconfirmed orders
- all basis weights, all finishes. Standard differentials and
2/6/2015
with confirmed delivery dates on or after
upcharges apply.
3/2/15
Includes all private label programs.

Exchange Rates: Euro and CDN


to USD
1.8

1.6

1.4

1.2

0.8

0.6

CDN Mar
2015
0.80

0.4

0.2

Source: Forex

NA Graphic Paper Capacity


Changes

Source: BD Internal,
RISI

Printing & Writing Growth Projections


2014 - 2019

Source: RISI

Coated Groundwood

Printing & Writing Growth Projections


2014 - 2019

Source: RISI

Recap - No. 5 Coated


Groundwood: 34#
$70.00

No. 5 CGW 34# Rolls

$65.00

$60.00

$55.00

$50.00

$45.00

$40.00

$35.00

Source: RISI

Recap - No. 5 Coated


Groundwood: 40#
$65.00

No. 5 CGW 40# Rolls

$60.00

$55.00

$50.00

$45.00

$40.00

$35.00

$30.00

Source: RISI

Recap - No. 4 Coated


Groundwood: 40#
$65.00

$60.00

$55.00

$50.00

$45.00

$40.00

$35.00

No. 4 CGW - 40# Rolls

Recap - No. 4 Coated


Groundwood: 50#
$65.00

$60.00

$55.00

$50.00

$45.00

$40.00

$35.00

$30.00

No. 4 CGW - 50# Rolls

Recap - No. 4 Coated


Groundwood: 60#
$65.00

$60.00

$55.00

$50.00

$45.00

$40.00

$35.00

$30.00

No. 4 CGW - 60# Rolls

N.A. Coated Mechanical Capacity


(3/05/15)
Producers of Coated Groundwood Paper in North America
2014 Capacity, Thousand Tons
(Includes FutureMark - Alsip and Verso - Bucksport, ME closures, Catalyst
Biron / Rumford Purchase)

Mill
Catalyst
Verso
Resolute
UPM
Kruger
Evergreen
Total
Capacity*

Capacity
(ST)
1,005
785
562
405
267
200

Market
Share
31.2%
24.3%
17.4%
12.6%
8.3%
6.2%

Cumulative Share
31.2%
55.5%
73.0%
85.5%
93.8%
100.0%

3,224

Source: RISI

Supply and Demand Scenarios: CGW

Source: BD Internal, RISI, P&PW, PPPC

Global Coated Mechanical


Capacity
Worldwide Capacity & Market Share of Top Twenty
Producers of Coated Mechanical Paper

Rank Company

Tonnes (000)

Mkt. Share

UPM

3,029

20.5%

SAPPI

1,205

8.1%

Burgo Group

1,195

8.1%

4
5

NewPage
Stora Enso

1,061
918

7.2%
6.2%

Verso

633

4.3%

Norske Skog

530

3.6%

Resolute

529

3.6%

9
10

Leipa
Oji Paper Holdings

520
518

3.5%
3.5%

11

SCA

490

3.3%

12

Nippon Paper Group

443

3.0%

13

Shandong Chenming Pap. Holdings

366

2.5%

14

Daio Paper

280

1.9%

15
16

Kruger
Catalyst

253
214

1.7%
1.4%

17

Metsa Board

200

1.4%

18

Perlen

190

1.3%

19

Open Gate Capital

180

1.2%

20

Tiger Forest & Paper

175

1.2%

Source: RISI

Coated Freesheet

Coated Freesheet Growth Projections


2014-2019

Source: RISI

Recap - No. 3 Coated Freesheet:


60#
$65.00

$60.00

$55.00

$50.00

$45.00

$40.00

$35.00

No. 3 CFS - 60# Rolls

Recap - No. 3 Coated Freesheet:


70# - 100#
$60.00

$55.00

$50.00

$45.00

$40.00

$35.00

$30.00

No. 3 CFS: 70# - 100# Rolls

North American CFS Capacity


(3/5/15)
Producers of Coated Freesheet Paper in North America
2015 Capacity, Thousand Tons
(Includes FutureMark - Alsip closure, Catalyst
Biron / Rumford Purchase)

Source: RISI, Forestweb, PPPC, Published Company R

Supply and Demand Scenarios: CFS

Source: BD Internal, RISI, P&PW, PPPC

Global CFS Capacity


Worldwide Capacity & Market Share of Top Twenty
Producers of Coated Woodfree Paper

Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Company
Asia Pulp & Paper
SAPPI
UPM
NewPage
Stora Enso
Shandong Chenming Pap. Holdings
Lecta
Nippon Paper Group
Oji Paper Holdings
Moorim SP
Hokuetsu Kishu Paper
Burgo Group
Sun Paper
Hansol
Sequana Capital
Daio Paper
Verso
Shandong Huatai Paper Grp
Mitsubishi
International Paper

Tonnes (000) Mkt. Share


4,826
16.6%
3,141
10.8%
1,580
5.4%
1,474
5.1%
1,372
4.7%
1,261
4.3%
1,233
4.2%
1,109
3.8%
1,077
3.7%
988
3.4%
898
3.1%
817
2.8%
790
2.7%
730
2.5%
729
2.5%
571
2.0%
552
1.9%
425
1.5%
364
1.2%
357
1.2%
Source: RISI, Forestweb, PPPC, Published Company
Reports

Supercalendered / UGW

Uncoated Mechanical Growth Projections


2014-2019

Source: RISI

Recap SC-A: 35#


$1,100.00

35# SC-A

$1,050.00
$1,000.00
$950.00
$900.00
$850.00
$800.00
$750.00
$700.00
$650.00
$600.00

Source: RISI

Recap SC-B: 33#


$850.00

33# SC-B

$800.00

$750.00

$700.00

$650.00

$600.00

Source: RISI

NA SC Capacity
Mill
Irving
Port
Hawkesbury

Capacity (ST)* Market Share

Cumulative
Share

453

25.3%

25.3%

324

21.2%

46.5%

Resolute

252

15.2%

61.7%

NewPage

265

14.8%

76.5%

UPM (Madison)

245

13.7%

90.1%

Catalyst

177

9.9%

100.0%

1,716

Total Capacity*

Source: BD Internal, RISI, P&PW, PPPC

UGW Capacity North America


Producers of Uncoated Mechanical Paper in North America
2014 Capacity, Thousand Tons

Company
Resolute

UGW
1,420

Mkt. Share
32.7%

Catalyst

656

15.1%

Irving

462

10.6%

Belgravia/Stern Group

397

9.1%

Norpac

350

8.0%

NewPage

256

5.9%

UPM
NPI USA

242
163

5.6%
3.7%

White Birch
FutureMark Paper
Group

133

3.1%

112

2.6%

Atlas Holdings

82

1.9%

Rank Group

24

0.6%

Inland Empire
Tembec

20
20

0.5%
0.5%

Verso

0.2%

Great Northern Paper

0.1%

Total

4,348
Source: RISI, PPPC

Supply and Demand Scenarios


SC

Source: BD Internal, RISI, P&PW, PPPC

Global Uncoated Mechanical


Capacity
Worldwide Capacity & Market Share of Top Twenty
Producers of Uncoated Mechanical Paper

Company

Tonnes (000)

Mkt. Share

UPM

2,925

20.1%

Stora Enso

1,705

11.7%

Resolute

1,273

8.7%

Holmen

832

5.7%

Norske Skog

665

4.6%

Catalyst

595

4.1%

Heinzel

530

3.6%

Nippon Paper Group

452

3.1%

Irving

419

2.9%

Stern Group

360

2.5%

H2 Equity Partners

265

1.8%

Verso

232

Marusumi

213

1.6%
Source: PPPC
1.5%

Uncoated Freesheet

Uncoated Freesheet Growth Projections


2014-2019

Source: RISI

NA Market Share By Mill - Uncoated


Free Sheet

Cascade Fine Paper; 1% Flambeau River Papers; 1%


Neenah Paper , Fine Papers; 2%
Rank Group ; 3%
Atlas Holdings ; 3%
Domtar ; 32%
Glatfelter ; 6%
Georgia-Pacific ; 9%

Boise ; 9%
Int'l Paper ; 25%

All Others; 8%

UFS Market Review

U.S. UFS market demand -2.4% in January, and expected to fall ~ -3% in
2015.

U.S. shipments were down -9.3% in 2014 vs. 2013.

Total shipments in NA of UFS is down -4.8% in January 2015.

Total exports in 2014 were down -7.8% vs. 2013 (IP-Courtland, AL).

Total imports were up + 21% in 2014 vs. 2013.

Price recovery of +2% projected in both 2015 and 2016 (RISI)

Source: International Paper, AF&PA,


PPPC, RISI, USDOC, FRB, BLS, EMA, USPS

50# Uncoated Offset Rolls and


NBSK Pricing
$1,175
$1,150
$1,125
$1,100
$1,075

50 lb Offset Rolls USD/cwt


min
50 lb Offset Rolls USD/cwt
max
NBSK USD/cw t

$1,050
$1,025
$1,000
$975
$950
$925
$900
$875
$850
$825
$800
$775
$750
$725
$700
$675
Jan
Feb
Mar
2006
Apr
2006
May
2006
Jun
2006
Jul
2006
Aug
2006
S2006
ep
Oct
2006
Nov
2006
Dec
2006
Jan
2006
Feb
2006
Mar
2007
Apr
2007
May
2007
Jun
2007
Jul
2007
Aug
2007
S2007
ep
Oc
2007
Nov
2007
tDec
2007
Jan
2007
Feb
2007
Mar
2008
Apr
2008
May
2008
Jun
2008
Jul
2008
Aug
2008
S2008
ep
Oct
2008
Nov
2008
Dec
2008
Jan
2008
Feb
2008
Mar
2009
Apr
2009
May
2009
Jun
2009
Jul
2009
Aug
2009
S2009
ep
Oc
2009
Nov
2009
tDec
2009
Jan
2009
Feb
2009
Mar
2010
Apr
2010
May
2010
Jun
2010
Jul
2010
Aug
2010
S2010
ep
Oct
2010
Nov
2010
Dec
2010
Jan
2010
Feb
2010
Mar
2011
Apr
2011
May
2011
June
2011
July
2011
Aug
2011
S2011
ep
Oct
2011
Nov
2011
Dec
2011
Jan
2011
Feb
2011
Mar
2012
Apr
2012
May
2012
June
2012
July
2012
Aug
2012
S2012
ep
Oc
2012
Nov
2012
tDec
2012
Jan
2012
Feb
2012
Mar
2013
Apr
2013
May
2013
June
2013
July
2013
Aug
2013
S2013
ep
Oct
2013
Nov
2013
Dec
2013
Jan
2013
Feb
March
2013
2014
April
2014
May
June
2014
2014
July
2014
Aug
S
2014
ept
2014
Oct
2014
Nov
2014
Dec
2014
2014
2014

Source: RISI & P&PW

P&PW NBSK Pricing


$1,100
$1,050
$1,000
$950
$900
$850
$800

$/ADMT$750
$700
$650
$600
$550
NBSK '06

NBSK '07

NBSK '08

NBSK '09

NBSK '10

NBSK '11

NBSK '12

NBSK '13

NBSK '14

NBSK '15

Source: RISI, P&PW

Global UFS Capacity


Worldwide Capacity & Market Share of Top Twenty
Producers of Uncoated Woodfree Paper in 2014

Rank Company
1 International Paper
2 Asia Pulp & Paper
3 Domtar
4 Nippon Paper Group
5 Mondi
6 Portucel
7 UPM
8 Stora Enso
9 APRIL
10 Shandong Chenming Pap. Holdings
11 Double A
12 PCA
13 Oji Paper Holdings
14 Koch Industries
15 Shandong Huatai Paper Grp
16 Ballarpur Industries
17 Sun Paper
18 Shandong Tralin Group
19 Glatfelter
20 Tiger Forest & Paper

Tonnes (000) Mkt. Share


4,248
6.98%
3,537
5.81%
3,068
5.04%
1,700
2.79%
1,651
2.71%
1,630
2.68%
1,530
2.51%
1,401
2.30%
1,287
2.11%
1,109
1.82%
948
1.56%
858
1.41%
852
1.40%
787
1.29%
755
1.24%
692
1.14%
679
1.11%
627
1.03%
621
1.02%
615
1.01%
Source: PPPC

Market Data

Catalogs Mailed
- 1.1% decrease in catalogs mailed in 2014 vs. 2013
-1.0% total circulation reduction predicted in 2015
6,000

5%
Catalogs Mailed (millions)

%CHYA
0%

5,000
-5%
4,000
-10%

3,000

-15%

-20%
2,000
-25%
1,000
-30%

-35%

Source: RISI

U.S. Magazine Ad Pages


5.0% Percentage

Change in PIB Magazine Ad Pages

0.0%
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
-5.0%
-10.0%
%Ch Year Ago
-15.0%
-20.0%
-25.0%
-30.0%

Source: RISI

Retail Sales
450,000,000,000

400,000,000,000

350,000,000,000

300,000,000,000

250,000,000,000

200,000,000,000

150,000,000,000

100,000,000,000

50,000,000,000

Source: Government Census

Consumption, Shipments,
Operating2009
Rates
2010
2011
2012
2013

2014

CFS
Consumptio
n

3,559

4,280

4,430

3,952
(- 4.3%)

3,919
(-0.8%)

CGW
Consumptio
n

4,144

4,133

3,803
(-8.0)

3,829
(-0.7%)

3,555
(-7.2%)

Uncoated
Mechanical
Consumptio
n

5,031

4,958

4,647

3,809
(- 18.1%)

3,940
3.4%

U.S. CGW
Operating
Rates

81%

95%

94%

91%

91%

94%

U.S. CFS
Operating
Rates

82%

96%

92%

88%

88%

90%

Uncoated
Mechanical
Operating
Rates

81%

95%

93%

92%

99%

95%

Source: PPPC, RISI

3,900
(-0.7%)

3,252
(7.8%)

3,884
(2.7%)

Market and Economic Drivers


2010

2011

2012

2013

2014

Magazine Ad
Pages

-0.1%

-3.1%

-8.2%

-4.1%

-10.4%

Commercial
Printing

0.1%

-4.3%

-1.6%

-0.6%

2.3%

Catalogs
Mailed

-1.8%

-5.4%

-0.6%

-3.0%

-1.1%

Source: RISI

Economic Driver Outlook


Economic Driver

2011

2012

2013

2014

2015

2016

2017

Real GDP (Percent change)

1.8%

2.8%

1.9%

2.4%

3.3%e

2.1%

3.2%

Federal Funds Rate


(Percent)

1.0% 0.14% 0.19% 0.44%

1.69%

2.13%

3.03%

Ten-Year Treasury Yield


(Percent)

2.8% 1.80% 2.36% 2.45%

1.91%

2.39%

2.53%

Oil Prices, Refiner


Acquisition Cost ($/barrel)

102

94

98

78.37

49.52

75

71

Consumer Price Index (%


change y/y)

3.1%

2.1%

1.5%

1.6%

1.2%

2.3%

2.1%

Housing Starts (Millions)

0.61

0.78

0.93

1.00

1.28

1.66

1.54

67

76.5

83

92.6

95.4

92.4

91.4

9.0%

8.1%

7.1%

5.8%

5.7%

5.7%

5.5%

Consumer Sentiment (Univ.


of Michigan)
Unemployment Rate
(Percent)

Source: Global Insight

Ad Spending, By Region
2010

2011

2012

2013

2014

North America

$162,165,000
2.7%

$165,104,000
1.8%

$172,039,000
4.2%

$178,313,000
3.6%

$186,344,000
4.5%

Western Europe

$106,344,000
5.4%

$108,104,000
2.2%

$107,885,000
(0.7%)

$109,668,000
1.7%

$112,642,000
2.7%

Central / Eastern
Europe

$24,181,000
9.3%

$26,151,000
8.1%

$26,631,000
1.8%

$28,592,000
7.4%

$31,089,000
8.7%

$125,059,000
10.6%

$132,172,000
5.7%

$140,383,000
6.2%

$148,423,000
5.7%

$157,155,000
5.9%

$31,996,000
18.5%

$35,344,000
10.5%

$38,080,000
7.7%

$41,935,000
10.1%

$45,600,000
8.7%

Middle East /
North Africa

$4,881,000
7.7%

$4,155,000
(14.9%)

$4,198,000
1.0%

$4,313,000
2.8%

$4,412,000
2.3%

Rest of the
World

$10,940,000
16.2%

$11,592,000
6.0%

$12,321,000
6.3%

$13,468,000
9.3%

$14,812,000
10.0%

Global Total

$465,566,000
7.0%

$483,206,000
3.8%

$501,536,000
3.8%

$524,712,000
4.6%

$552,054,000
5.2%

Asia Pacific
Latin America

Source: RISI Forecasts