The Global Flows of Recovered Fibre

Henri Vermeulen, VP Recovered Fibre Europe

Key Takeaways

► Global Recovered Fibre demand is increasing whilst supply is constrained by collection rate ceilings

► Chinese Recovered Fibre deficit will remain in place

North American and European exports of key importance

► Quality of Recovered Fibre becoming an important factor

► SKG’s 75% ‘Grip’ gives a strong control over supply

► Rising OCC prices will support industry pricing

Composition of Recovered Fibre and relevance to OCC

► Recovered Fibre is the collective term for all recyclable paper waste

► All 4 grades are used in production

► OCC has most favourable cost /quality

► OCC is used as the key reference due to strong and increasing demand

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OCC ONP High Grades Mixed P & B

World Recovered Fibre demand by major grade

Source: RISI Outlook for Global Recovered Paper Markets (2012)

Snap-shot of Recovered Fibre at SKG

► Europe’s biggest Recovered Fibre consumer

2012 consumption of 5.4m tonnes

► Strong control over supply

► Recovered Fibre makes up ~ 50% of paper production costs

► Increasingly impacted by global trade flows

4,260 metric

kT

1,176 metric

kT

Europe the Americas

Recovered Fibre consumption: Smurfit Kappa

Source: Smurfit Kappa

World Recovered Fibre market

► Annual consumption approximately 234m tonnes

► China, North America and Western Europe account for more than 60% of the global consumption

► Decreases in North America and Western Europe due to declining publication paper market

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China North America Western Europe

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1995 2007 2012

Recovered Fibre Consumption by region

Source: RISI Outlook for Global Recovered Paper Markets (2012)

Fibre demand developments

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1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

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Western Europe North America China

Source: RISI Outlook for Global Recovered Paper Markets (2012)

Inter-regional flows | Trade balances: Key markets

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China North America Western Europe

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1995 2007 2012Source: RISI Outlook for Global Recovered Paper Markets (2012)

Recovery rates of Recovered Fibre

► The recovery rate is the ratio of Recovered Fibre collection to (apparent) paper and board consumption

China: 44% | North America: 65% | Western Europe: 74% Source: RISI Outlook for Global Recovered Paper Markets (2012)

► A recovery rate of around 80% is considered the maximum limit

► Chinese reported rates are depressed by corrugated exports

► China will require continuing high imports levels of Recovered Fibre to sustain planned capacity expansion

Quality issues with Recovered Fibre

► Deteriorating quality of Recovered Fibre an important issue

► Comingled collection and material recovery facilities

► Recycling rates in Europe are close to the ‘recycling limit’

As a result inferior quality was tolerated due to tight supply conditions

► Clean and accessible Recovered Fibre volumes used for local consumption with remainder exported

Quality issues with Recovered Fibre

► In February 2013 China adopted their ‘Green fence’ policy

► Demand has remained balanced with 2012 levels despite tighter quality controls

► Exporters reluctant to ship materials unless quality can be assured

► Increased demand for quality further reinforces price premium

Crucial to balance Recovered Fibre to Virgin Fibre

► Paper fibres can be recycled a limited number of times

► As a result fresh fibre inflow is essential for the global system

► The relative share of Recovered Fibre in the system is increasing

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1994 2005 2016

Recovered Fibre Wood Pulp Non-wood Pulp

Source: RISI Outlook for Global Recovered Paper Markets (2012)

Relative fibre furnish shares

Improving Industry Outlook | OCC costs

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

OCC (Europe €) OCC (US $)

Global Recovered Fibre pricing trends

Source: RISI actual to 2012 and forecast to 2017

Key Takeaways

► Global Recovered Fibre demand is increasing whilst supply is constrained by collection rate ceilings

► Chinese Recovered Fibre deficit will remain in place

North American and European exports of key importance

► Quality of Recovered Fibre becoming an important factor

► SKG’s 75% ‘Grip’ gives a strong control over supply

► Rising OCC prices will support industry pricing