Published on November 27, 2007
North American Pulp & Paper Industry An Overview: North American Pulp & Paper Industry An Overview June 2004 Center for Paper Business and Industry Studies (CPBIS), Georgia Tech Director – Pat McCarthy Executive Director – Jim McNutt Overview: Overview North America Pulp &Paper Industry – An Overview – Overview Industry Performance Capacity Issues Industry Outlook Industry Issues Going Forward Slide3: Overview What Is North America’s Market Perspective?: The North American Pulp and Paper Industry Is a Mature Web of Businesses Generally Characterized of Late By: Highest per capita consumption in world across all grades High capital intensity Intense Cost and price based competition Below cost of capital returns What Is North America’s Market Perspective? What Is North America’s Market Perspective?: Continued to behave as it did in the past – investing available cash in new capacity in 1980’s & early 1990s This New Capacity Relied on Increasingly Competitive Export Markets to Maintain Volume Yet – Simultaneously -- Developing Regions & Europe Began Aggressive Imports into North America Result – Persistent Overcapacity What Is North America’s Market Perspective? Paper Demand and GDP: Paper Demand and GDP Source: Jaako Poyro Global Net Trade of Paper Products: Global Net Trade of Paper Products Source: Jaako Poyro Consumption and Imports of Paper and Paperboard China : Consumption and Imports of Paper and Paperboard China Slide9: Industry Performance Industry Performance ROTC Vs. Cost of Capital: ROTC Averages 4 Points Below Target Industry Performance ROTC Vs. Cost of Capital ROTC Averages 7 % vs. 11% Cost of Capital Industry Performance Debt Levels: US Companies Are Maintaining Debt Levels Near 50% - Which Will Likely Limit Future Investments Industry Performance Debt Levels Industry Performance Capital Spending Level – Real USD: Long Term Downward Trend Industry Performance Capital Spending Level – Real USD Slide13: Industry Performance Facility Related Spending Accounts For Declining Share of P&P Captial Exp for IT = More Industry Performance Capital Spending/Depreciation: US Capital Exp Are Now Below Maintenance Levels Industry Performance Capital Spending/Depreciation Industry Performance Profitability: Continues Its Declining Path In Real Terms Since 1970s Industry Performance Profitability Slide16: Capacity Issues Industry ConsolidationMergers in the Pulp and Paper Industry 1970-2000 : Industry Consolidation Mergers in the Pulp and Paper Industry 1970-2000 1970 - 1979, the average annual merger for all three sectors is 9 1980 - 1989, the number becomes 20 1990 - 1999, there were 26 mergers per year on average Market Concentration in Pulp & Paper(% of top four producers) : Market Concentration in Pulp & Paper (% of top four producers) 1972 - 1997, concentration in the paper sector rose from 24% to 33.6% 1987 – 1997, concentration in the pulp sector rose from 44% to 58.6% Capacity Issues Declining North American Share: Capacity Issues Declining North American Share Capacity Issues Growth Outside North America: Capacity Issues Growth Outside North America Slide21: Industry Outlook Industry Outlook Market Overview: Economy & Demand -- Is Improving – Which Is Significant for Pulp & Paper Industry Excess Capacity [& Inventories] Undermined Pulp & Paper Prices & Returns Industry Outlook Market Overview Industry Outlook The Economy: Industry Outlook The Economy Continued Expected Recovery With US Leading Europe Industry OutlookThe Drivers: Industry Outlook The Drivers Demand Growth Accelerating – Just Now Being Realized By Manufacturing Sector Industry Outlook Performance Direction: Industry Outlook Performance Direction European & US Industry Firms’ Performances Are Converging – But Both Regions Now Under-performing – Yet Asian & Latin American Share Growth Continues Industry Outlook Price & Volume: Industry Outlook Price & Volume -- Improving Performance Emerging-- Industry Outlook Global Capacity Changes: Industry Outlook Global Capacity Changes Industry Outlook The North American Grades: NA Experienced Pulp & Paper Capacity Decline Through 2003 -- With Some Growth Through “Creep” Coming Through 2006. Yet -- Several Scenarios Possible Where Net Capacity Reductions Do Continue Industry Outlook The North American Grades Industry Outlook Offshore Capacity: Industry Outlook Offshore Capacity The Noted Offshore Capacity Additions Will Continue to Put Significant Pressure on the Global Export Markets Industry Outlook Competitiveness: Industry Outlook Competitiveness North America Does Not Enjoy Low Cost Producer Status On Most Grades – Which Clouds The Outlook Period Industry Outlook Competitiveness: Industry Outlook Competitiveness High Volume North American Grades Have Significant Substitution Threats Slide32: Major Industry Issues Major Issues Facing the Industry: Major Issues Facing the Industry Resumed economic downturn – globally & domestic Expanded Substitution of US produced P&P by International competitors and non-fiber based products Continued over capacity – globally as well as domestic Lackluster innovation Question – Will the US industry follow in the path of US steel and textiles or will it restructure as steel has begun to do?