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DomtarBMI presentation May 5, 2009
Doc Maiorino V.P. Sales Publication Paper
Uncoated Freesheet
3Source: 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
8
9
10
11
12
13
14
15
16
17
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10
Mill
ion
of s
hort
tons
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
100,000
120,000
140,000
160,000
180,000
200,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
07 shipments 08 shipments 09 shipments
• 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
65,000
75,000
85,000
95,000
105,000
115,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
07 shipments 08 shipments 09 shipments
• Opaque shipments were down 8.6% in 2008 vs. 2007
Source: PPPC
N.A. Opaque Industry Statistics
7
Pieces Weight
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
30,000
40,000
50,000
60,000
Jan 0
7
Mar 0
7
May 0
7
Jul 0
7
Sep. 0
7
Nov. 0
7
Jan. 0
8
Mar. 0
8
May 0
8
Jul. 0
8
Sept. 0
8
Nov. 0
8
Jan. 0
9
Mar. 0
9
Imports Exports
• 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
2007 Date Company Location
-350 Feb 2007 IP Pensacola, FL
-250 Feb 2007 Boise Wallula, WA
-70 June 2007 Dirigo Gilman, VT
-125 June 2007 Domtar Woodland, ME
-120 July 2007 GP Wauna, OR
-20 Oct 2007 Domtar Hull, QC
-35 Oct 2007 Fraser Gorham, NH
-150 Dec 2007 Domtar Dryden, 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
2008 Date Company Location
-100 Jan 2008 Wausau Groveton, NH
-35 Feb 2008 Neenah Urbana, OH
-35 April 2008 Fraser Gorham, NH
-130 June 2008 Domtar Port Ed, WI
-250 Sept 2008 IP Bastrop, LA
-160 Nov 2008 Domtar Dryden, ON
-150 Nov 2008 IP Franklin, VA
Total: -860
2009 Date Company Location
-200 Jan 2009 Boise St. Helens, OR
-295 Jan 2009 Domtar Plymouth, NC
List of UFS Mill Closures in 2008 & 2009
11Source: RISI
North American UFS Capacity Reductions('000 tons)
-200400600800
1,0001,2001,400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009thruFeb
• 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
12Source: PPPC
97%
88%93%
74%
96%
75%
95%
69%
0%10%20%30%40%50%60%70%80%90%
100%
Ope
ratin
g ra
tes
%
Unc. Freesheet Unc. Mechanical CoatedWoodfree
CoatedMechanical
Q1 2008 Q1 2009
• 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
13Source: PPPC
84%
85%
86%
87%
88%
89%
90%
91%
92%
93%
94%
2003 2004 2005 2006 2007 2008 2009 2010
PPPC forecast UFS Operating Rates to decrease slightly over next 2 years as demand declines
UFS Operating Rates
14Source: RISI
0%
10%
20%
30%
40%
50%
60%
70%
80%
Unc. Freesheet Unc. Mechanical Ctd. Freesheet Ctd. Mechanical
Europe North America
• 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.
Uncoated Mechanical
17
8
10
12
14
16
18
20
22
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11
Mill
ions
of s
hort
tons
Demand has declined 5.1 million tons since 2000
• The latest forecast from PPPC is a decline of -15% in 2009
Source: PPPC
Total N.A. Demand for UGW+Newsprint
18
0
1
2
3
4
5
6
7
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11
Mill
ions
of s
hort
tons
• The latest forecast from PPPC is a decline of -11% in 2009
Source: PPPC
Total N.A. Demand for UGW
19
5
6
7
8
9
10
11
12
13
14
15
95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11
Milli
ons
of s
hort
tons
Newsprint Demand has declined 5.8 million tons (-39%) since 2000
• The latest forecast from PPPC is a decline of -18% in 2009
Source: PPPC
Total N.A. Demand for Newsprint
20
50,000
70,000
90,000
110,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
07 shipments 08 shipments 09 shipments
• Super-bright shipments increased 9.6% in 2008 vs. 2007 and are down 22.6% in Q1 09 vs Q1 08
Note: Shipments include exports
Source: PPPC
N.A. Super-Bright Industry Shipments
21
50,000
70,000
90,000
110,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
07 shipments 08 shipments 09 shipments
• High-bright shipments increased 29.7% in 2008 vs. 2007 and are down 14.2% in Q1 09 vs Q1 08
Note: Shipments include exports
Source: PPPC
N.A. High-Bright Industry Shipments
22
USA Book Printers Choosing Super-Bights More Often for their Uncoated Needs
200
300
400
500
600
700
800
900
0 1 2 3 4 5 6 7 8 9
An
nu
ali
ze
d r
ate
by
qu
art
er,
th
ou
sa
nd
to
ns
Purchases of paper for use in books printed in the USA
Uncoated Freesheet
Uncoated Mechanical
23
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
07 shipments 08 shipments 09 shipments
• Bulking book shipments dropped 31.5% in 2008 vs. 2007 and are down 11.8% in Q1 09 vs Q1 08
Note: Shipments include exports
Source: PPPC
N.A. Bulky Book Industry Shipments
24
2007 Date Company Location
-160 Feb 2007 Abitibi-Consolidated Fort William, ON
-100 June 2007 Bowater Dolbeau, QC
-70 Sept 2007 Kruger Wayagamack, QC
-80 Nov 2007 Kruger Trois-Rivieres, QC
Total: -410
* Idled capacity not permanent closures
Source: RISI & PPPC
2008 Date Company Location
-280 Q1 2008 AbititbiBowater Groveton, NH
-30 Q1 2008 AbititbiBowater Urbana, OH
-180 Q1 2008 AbititbiBowater Gorham, NH
-180 July 2008 Katahdin Paper Port Ed, WI*
-120 Dec 2008 AbititbiBowater Calhoun, TN*
Total: -790
List of UGW Mill Closures
Impact on the Book industry
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
Demand by Paper Grade ('000 tons)
Coated Mechanical
14%
Coated Bristol
3%
Uncoated Mechanical
24%
Uncoated Freesheet
27%
Coated Freesheet
32%
27Source: 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
28Source: GAPTRAC – Poyry Consulting
Publishers Paper Demand
29
Paper Usage in Books Printed in the USA
1
1.2
1.4
1.6
1.8
2
2.2
0 1 2 3 4 5 6 7 8 9
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.