Mexico’s Pulp and Paper Market Potential Finpro Mexico June 2009

Mexico at a glance as a market area and production location Strategic location Network of free trade agreements with > 43 countries 11th largest economy in the world Investment grade and IP protection agreements Competitive and young labor force 107 million consumer market Efficient hub from a transportation and logistical perspective 2nd commercial partner of the USA Stable economic and political environment Dollar dependent currency / © Finpro ry

Background Mexico is ranked in 11th place worldwide for areas with productive forest lands. However Mexico currently imports almost 7 billion dollars in forest product The adverse trade balance in forest products accounts for almost 80% of the deficit observed nationally. Strengthening the forest sector is one of Mexico's governments priorities. Forest industry has been stagnant due to lack of raw materials, but is waking up as a result of important governmental support programs: By the year 2025 the Mexican government will invest 500 million USD to develop the commercial plantations through Prodeplan program which is designed to support the development of 875,000 ha by providing subsidies to cover as much as 65% of start up costs. Currently there are 140,000 ha planted, 95% eucalyptus (in 1997 there was only 20,000 ha of plantations. The government also has support programs for making more efficient the production based on the 54 million ha of natural forests / © Finpro ry

Pulp and Paper Industry Paper and Board production is around 4.8 million metric tons per year (Spain around 6.9 million metric tons) The most important grades are liner and corrugating boards (1.8 Mt/yr) and tissue papers (0.8 Mt/yr) Mexico is the 2nd most important tissue paper producer in Latin America, not too far from Brazil, number one producer in this sector. Mexico produces 25% of paper and board in Latin America, this being 1.2% globally. There are 56 pulp and paper plants in Mexico creating 64,000 direct and 235,000 indirect jobs. Kimberly Clark, Copamex (partly owned and managed by Swedish SCA Svenska Cellulosa AB) and Corporación Durango, which is the largest one and owns plants also in the USA, are the most important producers. Major domestic paper manufacturers in Mexico 2004 (in thousand tons) / © Finpro ry

Pulp and Paper Industry Mexico uses over 4.1 million tons per year of recycled fiber. With the plantation industry the share of eucalyptus and other species will increase. The growth rate in pulp and paper industry is expected to be high due to high demand, the demand in 2008 is expected to be of 7,590,000 metric tons and the installed capacity for production is expected to be 5,505,000 tons. In 2007 Kimberly-Clark declared that it will invest USD 350 Million in 2007-08 in expansions of tissues, disposable diapers and wet wipes. The company expects sales this year to rise between 8% and 9%. / © Finpro ry

Pulp and Paper Industry - Current Stage and Future Outlook Currently the pulp and paper plants are small in size and have old machinery. Mexican government is supporting the modernization of the sector as it is fundamental for the Mexican economy and trade balance. Recently a group of Finnish consultants won the public bid for making an industry study and a strategic plan for increasing the competitiveness and sustained development of pulp and paper industries. This study is partly financed by the Secretary of Economy. An other Finnish consulting group prepared in in depth feasibility study of the Mexican Gulf Region. This region is suitable to integrate and develop a highly competitive forest production chain for the production of fiber, timber, cellulose and paper as the potential for forest plantations in this region is of 4.5 million ha. / © Finpro ry

Pulp and Paper Industry – Market opportunities for Finnish companies Virgin pulp production is low, but paper consumption is high Paper mills can be convinced with technologies that provide savings related to raw material consumption, process water and energy costs The industry is actively looking for modern high technology solutions that will increase the efficiency and lower production costs: Especially for tissue and liner and corrugating boards Secondary fiber products (Mexico global nr. 3 in secondary fiber use) Transportation equipment Chemicals for manufacturing processes and recycled fibers The current key-suppliers come from the United States of America Mexico is a leading manufacturing location for products headed for USA / © Finpro ry

Pulp and Paper Industry – Statistic view according to FAO SOFO 2009 study Total annual paper and paperboard consumption is 7.5 Mt Total annual paper and paperboard imports are 3.0 Mt Total annual pulp consumption, excluding recycled fibers, is 1.5 Mt The Mexican Pulp and Paper Industry operates in a field heavily affected by large-scale paper imports, a lack of virgin fiber raw material and a high need for utilizing secondary fibers The industry directly employs 64 thousand workers in 56 production plants in 19 Mexican states, generating net sales of 10.3 billion USD / © Finpro ry

Finpro Mexico at Your Service Finpro Mexico also covers Colombia, Central America Venezuela and Caribbean Islands Finpro Mexico is ready to partner up with you to make your landing soft and to discover all the business opportunities in the market: Market access consulting, market studies and local partnering In depth site selection for production Subcontracting and local supplier search (local sourcing) Establishment services for sales and service offices/subsidiaries Regional strategy development for Latin America Analysis of import / export programs Assistance in negotiations Reputation analysis of potential partners Tailor made programs / assignments Finpro México Oficina Comercial de Finlandia Monte Pelvoux 111, 4 Piso Col. Lomas de Chapultepec 11000 México D.F. Mexico Phone +52 55 5520 3397 Fax +52 55 5202 6567 Nina Jaakkola Head of Trade Center nina.jaakkola@finpro.fi Mobile: +52 1 55 1406 7550 / © Finpro ry