Paper Industry Update. Charles P. Klass Klass Associates Inc. Madeira Beach, FL

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1 Paper Industry Update Charles P. Klass Klass Associates Inc. Madeira Beach, FL

technical/operating management, chemical, machine clothing and capital equipment supplier

2 Chuck Klass Background Degree in Pulp & Paper Technology from Western Michigan University and MBA from Pace University Over five decades in paper industry including mill technical/operating management, chemical, machine clothing and capital equipment supplier management Consultant since 1986 Also serve as Adjunct Professor of Paper & Chemical Engineering and Imaging at WMU

3 Summary of Presentation Overall industry trends and outlook Focus on grades that are gravure printed Uncoated mechanical Coated free sheet and coated mechanical Coated paperboard Flexible packaging Décor paper Demand drivers and sustainability Barrier coated paper and board

4 Overall Industry Trends Consolidation continues 3 4 major players now control 80% of market share for each major grade Markets are less cyclical Pricing is better disciplined Most older and higher cost capacity gone Paper companies have minimized R&D Sustainability becoming a market driver

5 Uncoated Mechanical Steady demand for uncoated mechanical SC Users have switched from LWC to SC for cost reasons Insert printers have upgraded from newsprint to SC Capacity reductions keep operating rates high Operating rates should be 93-94% in 2014, but don t expect a price increase

6 Uncoated Mechanical SC North American Market Shares Company Pacific West Port Hawkesbury, NS Resolute Forest Products* UPM Madison, ME J. D. Irving St. John, NB New Page Duluth, MN Catalyst, Powell River, BC Market Share % * Jonquiere, QC and Catawba, SC

7 Coated Mechanical Demand continues to decline Reduction in magazines Impact of postal rate increase especially on catalogs Verso taking market down time at Bucksport Inventory excess and spike in natural gas prices Verso/NewPage merger will provide some synergies but lead to some likely shutdowns Impact of Canadian dollar exchange rate Imports from Europe especially Nordic countries and Germany Expect a $50/ton price increase in Q3/4 of 2014

Blandin Kruger Catalyst Evergreen (Rank Group)

8 Coated Mechanical North American Market Shares Company Verso/NewPage Resolute Forest Products UPM Blandin Kruger Catalyst Evergreen (Rank Group) FutureMark Market Share %

and are not likely to increase in 2014 Verso/NewPage

9 Coated Free Sheet Demand declined 4% 2013/2012 and continues to decline Prices eroded $35-40/ton in Q4-13 and are not likely to increase in 2014 Verso/NewPage merger will provide some synergies but lead to some likely shutdowns

10 Imports Coated Free Sheet Punitive duties have eliminated most Chinese CFS imports could change if appeal to ICJ is successful Korean imports to West Coast continue Duty rates lower than those on Chinese European imports 70% of European CFS is made in non-integrated mills Impacted by US$/Euro exchange rate

11 Coated Free Sheet Market Shares Company Verso/NewPage Sappi North America Appleton Coated West Linn (Belgravia/Stern) Glatfelter Market Share %

domestic market Multi-ply recycled markets softer Operating rate <90% Will have trouble maintaining

12 Paperboard Demand for coated unbleached and coated bleached remains steady with supply in good balance Bleached board will face competition in export markets from new capacity in China Not a threat to the domestic market Multi-ply recycled markets softer Operating rate <90% Will have trouble maintaining margins if waste paper prices increase due to increased demand from China Cost-driven price increases of $30/ton announced

sheet Mostly C1S some C2S Double blade coated and gloss

13 Coated Bleached Board SBS Produced primarily in the US southeast One mill in Idaho Two mills in Quebec make 3-ply sheet Mostly C1S some C2S Double blade coated and gloss calendered Printed offset and gravure Gravure grades now <1.0µ PPS 10

14 Coated Bleached Board USA Market Shares Company International Paper MeadWestvaco Clearwater Georgia Pacific RockTenn Market Share %

carton not wet strength C1S only Double or triple coated over

15 Coated Unbleached Board SUS CNK Produced at three mills in the US south Beverage carrier board wet strength Folding carton not wet strength C1S only Double or triple coated over brown kraft Blade, rod and air knife coated Printed gravure and offset

16 Coated SUS/CNK Producers and Share Graphic Packaging West Monroe, LA Macon, GA MeadWestvaco Mahrt, AL 56% 44%

17 Coated Multi-ply Recycled Board CRB Made from recycled fiber Produced in all regions Used for folding cartons Double coated and gloss calendered Sold in sheets and rolls Mostly C1S some backside coating Printed offset and gravure

18 Coated Multi-ply Recycled Board Producers and Share Graphic Packaging Rock-Tenn Paper Works Fusion Paperboard Caraustar White Pigeon Newark Pacific 39.5% 33.6% 12.0% 5.9% 3.1% 3.0% 2.9%

19 Coated Recycled Multi-ply Board Importers Primarily two Canadian and three Mexican mills Canada Cascades, East Angus, QC CanAmPac (Strathcona), Napanee, ON Mexico Smurfit Kappa, Cerro Gordo Smurfit Kappa, Los Reyes OEM Cartones Ponderosa, San Juan del Rio

20 Flexible Packaging Papers Specialty papers for gravure made at a small number of mills Coated MG Papers NewPage, Stevens Point, WI Dunn Paper, Port Huron, MI Uncoated MG Papers Expera 2 mills in Wisconsin Domtar, Port Huron, MI and Espanola, ON

21 Décor Paper Specialty grade for decorative laminates made at a small number of mills Décor paper producers Neenah Paper, Munising, MI Onyx, South Lee, MA Schoeller Technical, Drummondville, QC Verso Paper PM-5, Jay, ME

Market Driver - Sustainability Walmart and Consumer Packaged Goods marketers focused on sustainability Walmart packaging scorecard PepsiCo and other CPG marketers focused on

22 Market Driver - Sustainability Walmart and Consumer Packaged Goods marketers focused on sustainability Walmart packaging scorecard PepsiCo and other CPG marketers focused on shift back from plastic to recyclable paperbased packaging Paper companies strategic shift Twin Rivers, Madawaska, ME Verso, Bucksport, ME Several others not yet in public domain

23 Recyclable Barrier Coatings Alternatives to fluorocarbons for oil and grease resistance Latex + high aspect ratio pigment Biolatex + high aspect ratio pigment Nano-spun filaments Alternatives to ½ mil PE Latex + high aspect ratio pigment Biolatex + high aspect ratio pigment Nano-spun filaments

On-Press Application of Barrier Coatings Both direct gravure and offset gravure well suited for barrier coating application Aqueous gravure coatings for

24 On-Press Application of Barrier Coatings Both direct gravure and offset gravure well suited for barrier coating application Aqueous gravure coatings for barrier Crosslinked PVOH coatings with nano pigments Biolatex coating with nano pigments Early stage development Combinations of nano-cellulose and biolatex

scanner Chips are expensive Inserting the chip is cumbersome Research at WMU and elsewhere

25 RFID Tags Wal-Mart and other large retailers mandating that packages have RFID tags to automate logistics Requires inserting a chip in the package surface to be read by a scanner Chips are expensive Inserting the chip is cumbersome Research at WMU and elsewhere is developing economical print-on RFID tags as part of the regular packaging material printing process

26 Thank you for your attention! Questions? Charles P. Klass Klass Associates Inc. Madeira Beach, FL

A Comparison of Folding Carton Substrates and Appropriate Applications

A Zumbiel White Paper A Comparison of Folding Carton Substrates and Appropriate Applications In today s packaging landscape, the choice of raw materials can be daunting. Substitutions are sometimes made