08 FinPro Poyry GlobalTrends 040507

Global Forest Trends: 

Global Forest Trends World Bank: Business Opportunities in Forestry Sector Helsinki, May 7, 2004 Rainer Häggblom Chairman and CEO Jaakko Pöyry Consulting

Thesis: 

Thesis Fast-growing plantations are the key, but not exclusive, trend of the future of fiber procurement.

Our basic concept: 

Our basic concept Forest products demand will grow significantly through 2015 Creates increased need for RCP and virgin fiber to meet demand Increase in virgin fiber will mainly come from new sources – not mature Western supply regions Investment and stabilization help will be needed to create the conditions for viable projects in some regions How can these incremental projects be developed to be socially, environmentally and financially sustainable?

Overview – threads to be discussed: 

Overview – threads to be discussed Global trend of shifting focus from natural forests to plantations for incremental virgin fiber supply Plantations require significant upfront investment, however forest industry is re-deploying capital away from traditional timberlands Land use issues must be addressed for sustainable projects Recognition of the role of environmentally sound forestry to decrease poverty

Shifting focus from natural forests to plantations - why?: 

Shifting focus from natural forests to plantations - why? Competitiveness reasons Availability reasons Environmental reasons

Continued demand for wood fiber for industrial uses – 1.9 billion m3 by 2015: 

Continued demand for wood fiber for industrial uses – 1.9 billion m3 by 2015 Pulp and Paper fiber demand growth highlights the issues confronting industry, governments, NGOs and institutions in the search for a better model for the incremental supply sources billion m3 1.9 1.0

Paper and board demand grow strongly in future, led by emerging markets: 

Paper and board demand grow strongly in future, led by emerging markets 128 million mt additional paper and board demand by 2015 Demand growth led by developing economies

Demand for papermaking fiber will increase: 

Demand for papermaking fiber will increase RCP will continue to provide the bulk of incremental fiber (90 million tons/a, 2002-2015) Virgin fiber will make up 36 million tons of the increase of which hardwood kraft pulp will account for 22 million tons or 60%. 126 million mt additional paper-making fiber demand by 2015

The importance of hardwood in papermaking will increase: 

The importance of hardwood in papermaking will increase Wood pulp is still the most important papermaking fibre raw material, accounting for about 50% of the paper industry’s total fibre raw material consumption. Recovered paper constitutes an increasing share of the total – today about 47%. Average Papermaking Fibre Furnish in the World 1980-2015

Of the 22 million tons of new HWD BHKP capacity, Latin America/Asia Pacific will supply 14.3 million, but more than 4 million tons has not been identified : 

Of the 22 million tons of new HWD BHKP capacity, Latin America/Asia Pacific will supply 14.3 million, but more than 4 million tons has not been identified Already implemented (2001-2003) Identified < 2010 Unidentified 2010-15 Asia Pacific/Latin America Rest of World 2001- 2015 Total 4,4

Where will the required incremental hardwood pulpwood come from?: 

Where will the required incremental hardwood pulpwood come from? Mixed tropical hardwood plus acacia & eucalyptus plantation potential Existing eucalyptus plantations plus incremental eucalyptus plantation potential Native eucalyptus plus eucalyptus plantation potential

In hardwood production the industry will move south: 

Forest area requirement for supplying global consumption of industrial roundwood in 2000 and 2015 All wood from fast-growing plantations Mean annual increment softwood 20 m3/ha/a hardwood 25 m3/ha/a Area requirement 76 million ha in 2000 88 million ha in 2015 (Forest land area in Finland 20 million ha) In hardwood production the industry will move south

Slide14: 

In hardwood pulp the fast-growing plantations are the most competitive source Development of Hardwood Pulpwood Cost at mill, Wood for Chemical Pulping

As a result the share of fast-growing wood will double: 

As a result the share of fast-growing wood will double Fast-growing plantations Other

As recovered paper supply is becoming tight the need for more hardwood will accelerate: 

As recovered paper supply is becoming tight the need for more hardwood will accelerate Recovered Paper and HW Price Trends in Europe 100 400 700 EURO / ton 1990 2010 BHKP price trends continues to decline. ONP and OCC trends appear to start moving up, reflecting anticipated tightness in supply/demand ratio Bleached Hardwood Pulp Old news & mags. OCC

Who will develop and own the plantations that are needed?: 

Who will develop and own the plantations that are needed? Major corporations? Financial investors? Local companies? Others? Current trends in global forest investment landscape Withdrawing from forestry investment in developed markets as a result of strategic refocusing [examples: Stora Enso, IP, Louisiana Pacific] Invested heavily in “safe?” markets (e.g., US. Oceania, Chile), but not yet in riskier locations [example: Hancock] Has worked to-date, but scale of future investments may strain financial capabilities to develop forest resources and processing assets Other potential plantation developers include local landowners, government and institutions

Role for World Bank: 

Role for World Bank Mitigate risk Commit resources to leverage inputs from others to get the project off the ground Provide clear vision on environmental and social issues Develop forest to meet certification criteria and environmental stewardship Communicate understanding of broad global agenda (e.g., carbon sequestration) Cooperate with industry, government and local interests

Conclusions: 

Conclusions Challenge is to develop new fiber sources as markets and industry continue to grow In environmentally and socially responsible ways Learn from prior lessons Develop industry with broad benefits to all stakeholders Recognize the benefits of sustainable forestry to help develop economies worldwide