Specialist
Former executive Fortress Paper Ltd
Agenda
- Market demand for paper and pulp across Europe and the US, assessing segment volumes and trends
- Impact of cost inflation, strengthening US dollar and global economic outlook for paper and pulp markets
- Impact of climate change and geopolitical policy on fibre demand
- Core players such as International Paper (NYSE: IP), Graphic Packaging Holding (NYSE: GPK) and WestRock ( NYSE: WRK) and their pricing dynamics
- H2 2022 outlook – demand dynamics, cost structure evolution and potential strategic readjustment
Questions
1.
What are the core trends impacting the global paper and pulp industry? What 2-3 trends, headwinds or tailwinds will drive the market in the near term?
2.
Are there any lesser-appreciated implications of the Russia-Ukraine conflict on the paper and pulp market? What should we look for over the next 12 months?
3.
How should we think through potential implications of rising energy costs on metal and glass in Europe? Are we likely to see shifts away from those substrates as a result and into paper and plastic in the near term, or is that too short of a time window for shifts to occur?
4.
Which regions and companies are likely to see short-term or sustained tailwinds from the price and energy pressures you highlighted? What US companies are relevant here?
5.
How long will it take for US companies to see the impact of these tailwinds on their financial statements?
6.
Could you outline the paper and pulp segments – pulp, publishing paper, containerboard and tissue – and discuss your outlook for each over the next 12 months, as well as anything else you want to highlight?
7.
Could you elaborate on pressures on dissolving pulp in South America and on the potential disruption in paper pulp? Can you give some depth on those trends?
8.
Is there any risk of oversupply across different types of pulp? Do you have any near-term concerns for oversupply?
9.
How do you expect pricing to trend across pulp? When and at what price do you expect it to normalise?
10.
What do you need to see on either the supply or demand side to fulfil your expectations? What should we expect over the next 12 months to indicate paper pulp reducing by USD 300 per tonne?
11.
Where do you expect sustained growth for containerboard and paperboard by end market, product or region? Where might we see declines or movement away from paper?
12.
How should we frame paper packaging’s ability to take share from other substrates such as plastic? Where is this conversion most likely, given today’s environment? In which markets might you expect a faster plastics-to-paper conversion?
13.
Are there any specific products, such as bags, that we can expect to shift into paper more explicitly?
14.
Where are we likely to see shortfalls within paper and pulp markets as sustainability pressures mount and there’s a shift towards paper? Are there any areas that cannot support such a strong shift into paper? We’ve seen other substrates struggle with their ability to source sustainable materials, noting, for example, a lack of recycled plastics.
15.
What is your outlook for e-commerce demand, given concerns about this demand waning? Over the past two years, we’ve seen a lot of e-commerce demand growth.
16.
How much aggregate capacity has been brought online by the paper packaging players over the last couple years, and how much is being added over the next few years?
17.
How do you gauge the seriousness of the risk of global industry oversupply in the near-to-mid-term, given the amount of capacity that has been and is being added, as well as potentially fading growth drivers with a potential recession?
18.
How can our clients be proactive about assessing containerboard oversupply? What data points and indicators would you look to for measuring this risk? We recently saw FedEx report slowing demand.
19.
Can you explain why pricing power starts to fade when capacity utilisation falls below 90%? What is the dynamic between utilisation and pricing power? You’ve mentioned that if capacity utilisation remains above 90%, pricing power will remain, and if it goes below, that pricing power will erode.
20.
Which firms are best- or worst-positioned to capitalise on the trends you’ve highlighted thus far and why?
21.
What are the core differentiating factors between players such as Graphic Packaging Holding, WestRock or IP [International Paper]? What makes one player better capitalised or positioned to grow from these tailwinds?
22.
Where are cost pressures more salient today, and do you expect them to remain? How is the current cost environment for paper and pulp players? Months back, pressures were focused on OCC [old corrugated containers], energy and labour, and energy remains topical, especially in Europe.
23.
How much of paper packaging players’ pricing power remains, given the elevated costs you mentioned? Do you expect them to have the ability to continue to pass costs through without much friction, or are there certain markets or customers you expect to become more resistant to price increases in the near term? We’ve seen a lot of pricing increases get passed through.
24.
How should we think through elasticity and the limits to increasing pricing there? When do customers start to evaluate other suppliers or reduce volumes altogether? Are there any general rules we should consider?
25.
When might we see reduced volumes or shifts away from paper? Why and where do you foresee this happening? Are there specific products or regions that would be first to push back on price?
26.
How do you expect margins to trend across the paper and pulp space over the next 12-24 months? You mentioned minimal changes in the near term.
27.
What trends do you expect to drive growth or declines in paper and pulp over the next 10 years? What do you expect to see when you look at a long-term horizon?
28.
What might be the implications of an economic downturn or potential recession on the paper and pulp industry?
29.
Is there room for growth within paper and pulp if we don’t see a shift away from plastic and other substrates? Can you outline the core organic growth opportunities for paper and pulp, without mentioning attrition away from other substrates?
30.
What could disrupt the paper and pulp industry over the next 5-10-years? What are the competitive threats and technology risks, or is there a concern with other substrates becoming more attractive?
31.
Do you have any closing comments? What questions would you ask paper and pulp management teams?
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