Pulp prices, the RCP situation, opportunities & outlooks This presentation, in slightly amended form, was delivered to the Fibre Value Chain Conference, in Rotorua, New Zealand, on Thursday 6th December 2018

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Topics Timeline of key moments in RCP supply to China Australian experience NZ experience Outlook for RCP and Pulp prices

FIRST critical point in RCP supply to China OCC Import Price Index to China: Jan ‘17 – Nov ‘18 August 2017 Compared to pulp prices, OCC is over-priced, having grown 30% since January 2017 OCC over-priced Chinese imports fell starting August 2017 – dragged prices down Source: ABS, RBA, Statistics NZ, RBNZ & IndustryEdge

Hard to ignore the pulp price increases of 2017 Rises up to 47% in 2H’17 – driven by demand as RCP shipments slumped UKP prices are the clue Substitution an option for all grades, to some extent – except for dissolving pulp Price increases commenced August 2017 – another clue January 2018 – pulp prices plateaued Perfect time to introduce prohibitions on alternative fibre – top of the commodity cycle Chinese Pulp Price Index: Jan ‘17 – Nov ‘18 (Base: Jan ‘17 = 100) Source: Hawkins Wright, Brian McClay & Associates & industryEdge

SECOND critical point in RCP supply to China OCC Import Price Index to China: Jan ‘17 – Nov ‘18 August 2017 Compared to pulp prices, OCC is over-priced, having grown 30% since January 2017 January 2018 China’s quality prohibitions commence – National Sword coincides with beginning of China-US trade dispute China’s prohibitions commence OCC prices had fallen already – pulp prices stabilised Source: ABS, RBA, Statistics NZ, RBNZ & IndustryEdge

THIRD critical point in RCP supply to China OCC Import Price Index to China: Jan ‘17 – Nov ‘18 August 2017 Compared to pulp prices, OCC is over-priced, having grown 30% since January 2017 January 2018 China’s quality prohibitions commence – National Sword coincides with beginning of China-US trade dispute April 2018 RCP suppliers begin to adapt. Chinese buyers re-enter market for ‘quality’ supply Market begins to adapt Source: ABS, RBA, Statistics NZ, RBNZ & IndustryEdge

FOURTH critical point in RCP supply to China OCC Import Price Index to China: Jan ‘17 – Nov ‘18 August 2017 Compared to pulp prices, OCC is over-priced, having grown 30% since January 2017 January 2018 China’s quality prohibitions commence – National Sword coincides with beginning of China-US trade dispute April 2018 RCP suppliers begin to adapt. Chinese buyers re-enter market for ‘quality’ supply Specific market commences for best quality OCC supply Specific prices for quality OCC Source: ABS, RBA, Statistics NZ, RBNZ & IndustryEdge

Australia’s RCP exports fell early 2018 – stabilised since Australian RCP Exports by Grade (ktpm & ktpa) Source: ABS

China was not the only country to participate in changes Australian RCP Exports by Country (ktpm) Indonesia decreased imports from Australia in 2017, but there was no recovery Supplies to China recovered, but not entirely – its all about quality Source: ABS

OCC exports down, USD price recovered Australian Monthly OCC Exports (ktpm, AUDFob/t & USDFob/t) US Dollar price has returned to its price of a year ago USDFob165/t Quantity is down one-third Quality is on average higher Source: ABS

NZ exports rose and appear very stable, but... NZ RCP Exports by Grade (ktpm & ktpa) Source: Statistics NZ

... OCC prices have fallen more than 40% along the way NZ Monthly OCC Exports (ktpm, NZDFob/t & USDFob/t) Source: Statistics NZ

OCC prices show key differences for Australasian supply Australian & NZ Monthly OCC Exports (ktpm & USDFob/t) April 2018 Australia’s OCC price began to rise NZ’s price flatlined All about quality for export Source: ABS, Statistics NZ, RBA, RBNZ & IndustryEdge

RCP’s turbulent year – volatility must still be expected OCC Import Price Index to China: Jan ‘17 – Nov ‘18 Recent volatility is obvious and continuing – all prices moving down But quality recovered fibre is clearly higher priced So, what does that mean for pulp prices... Market begins to adapt China’s prohibitions commence OCC over-priced Specific prices for quality OCC Source: ABS, RBA, Statistics NZ, RBNZ & IndustryEdge

Impact on pulp prices seems clear Pulp v RCP Prices Index: Jan ‘17 – Nov ‘18 (USD/t) Quality requirements for RCP created a ‘new’ quality OCC product at a higher price That price is sustaining pulp prices at historic highs for an historically long period Theoretically, the quality OCC products will trade at a discount to virgin pulp, but it is not yet clear how large that will be Expect the pulp floor price to be higher in future

Fibre market outlook is very good – true for all fibre Quality RCP will find a home Suppliers will be sorting to supply quality Source separation becomes more likely RCP prices are likely to remain higher – better average quality Pulp floor price should be higher – supported by quality RCP prices Other trends: New countries will receive RCP and ship packaging papers to China RCP pulp shipments will continue to grow Collected but unused proportion (eg. Australia) still has to find a home

Further information and to stay up to date www.industryedge.com.au You can subscribe to the monthly Pulp & Paper Edge at https://industryedge.com.au/pulp-paper-edge/ Confidential discussions on your needs Tim Woods tim@industryedge.com.au +61 (0) 3 5229 2470

Additional charts NZ Monthly RCP Exports (ktpm, NZDFob/t & USDFob/t) Australian Monthly RCP Exports (ktpm, AUDFob/t & USDFob/t)