Mineral Demand Outlook for Global Paper & Packaging Markets Ian

Mineral demand outlook for global paper & packaging markets

Ian Wilson, Consultant, UK ACKNOWLEDGEMENTS

Wisdom Intelligence Ilari Valkeinen Eileen Hao

Masato Katayama, President Nick Wilshaw

Mossman Resources Richard Flook

TD Vietnam Ms. Thu Vu Ghulam Mohammad, CEO Ismene and Mike AGENDA o Some minerals used and shape and size o Some details on kaolin and PCC , particulary Specialty Minerals (MTI) o Market view from Valmet who make paper machines o A producing paper/board company - Stora Enso mineral use o Situation in Japan - use of some pigments for paper o Situation in China - reasons for 7% decline in output for P&B

Crystals and types of Calcium Carbonate (CaC03)

Rhombohedral Calcite Scalenohedral calcite Aragonite needles

Chalk Cocoliths Lamellar nature of talc from Afghanistan

Markikhel Mine Some PCC morpholgies produced by Specialty Minerals Rhombohedral, Scalenohedral and Aragonite

SCALENOHEDRAL CALCITE RHOMBHEDRAL CALCITE ARAGONITE NEEDLES

PRISMATIC CALCITE SPHERICAL CALCITE CLULTER ACICULAR ARAGONITE SHAPES OF BLOCKY,PLATY KAOLINITE AND TUBULAR HALLOYSITE

THIN PLATELETS 2 MICRONS

KAOLINITE STACK 10 MICR0NS KAOLINITE PLATES 2 MICRONS HALLOYSITE 500nm PAPER AND PULP TYPES PAPER TYPES NEWSPRINT – MAINLY MECHANICAL PULP OR RECYCLED FIBRE UWF (UNCOATED WOODFREE) – PRINTING & WRITING PAPER WOODFREE PAPER - <10% MECHANICAL PULP. WF INCLUDES COATED (CWF) AND UWF. (WF = FINE PAPER, US - FREE SHEET) CWF – COATED WOODFREE PINTING AND WRITING PAPER LWC – LIGHT WEIGHT COATED. USUALLY MECHANICAL PRINTING PAPER <60gsm USED IN PUBLICATION PAPER SC - SUPERCALENDERED

PULP TYPES BHKP - BLEACHED HARDWOOD KRAFT PULP BSKP - BLEACHED SOFTWOOD KRAFT PULP BCTMP - BLEACHED CHEMI-THERMOMECHANICAL PULP KRAFT PULP - REMOVE LIGNIN LEAVING FIBRES BEFORE BEING USED IN SOME PAPERMAKING KRAFT PAPER - MADE FROM KRAFT PULP – STRONG PAPER USED MAINLY IN WRAPPING / PACKAGING

KAOLIN DELAMINATION OF STACKS OF KAOLIN - UK

10 1 mic mic

DELAMINATION

STACKS PLATES

PLATES, FROM >10 Micron stacks in DELAMINATION overflow second stage OF STACKS – HIGH of classification ASPECT RATIO/ SHAPE FACTOR

MEDIA GRINDING TO PRODUCE HIGH ASPECT RATIO CLAYS FOR SC (SUPECALANDERED PAPER) MEASUREMENT OF SHAPE FACTOR AND ASPECT RATIO

• ECC (NOW IMERYS) DEVELOPED A STOP-FLOW CONDUCTIVITY MEASUREMENT INSTRUMENT WHICH GIVES A SHAPE FACTOR. THE METHOD IS KNOWN AS ASPECT RATIO CAN BE MEASURED BY THE TEM PANACEA: SHADOWING TECHNIQUE PARTICLE ASSESSMENT (by) NATURAL ALIGNMENT (and) CONDUCTIVITY EFFECT For a given shadow angle, particle thickness proportional to shadow length ANALYSIS

PAPER COATING

• One of main roles of a paper coating is to provide optical and physical coverage of the base paper providing a high quality surface for printing

• Main difference between kaolin and carbonate in paper coating is particle shape. The platy nature of kaolin gives a smooth surface for printing whilst carbonate is added for brightness (and is generally much cheaper)

• Generally the higher the aspect ratio of kaolin mixed with calcium carbonate (GCC) will give better printability.

• IMERYS developed new coating pigments from mid-Georgia called “E-TYPE” PLATY PIGMENTS o Premium Coarse Platy Pigments – provide good coverage and developed for use in pre-coating and work well blended with other pigments such as GCC. Improved coverage allows papermakers to reduce calendering and improve sheet bulk o Premium Fine Platy Pigments work well in single coated applications and can be blended with GCC. Can be used in coated board precoat applications to improve coverage on darker base boards. Work well blended with calcined clays. E800™ Hypa-platy.

Pigment GE Brightness % <2um Shape Form Slurry % solids Premium Fine Platy Pigments Contour™ Xtreme HS 90 97 Platy Slurry/Dry 69-69.5 E100™ 88 91 V.Platy Slurry/Dry 67 E170™ 88 90 V.Platy Slurry/Dry 63.5 Premium Coarse Platy Pigments E300™ 87.5 84 V.Platy Slurry/Dry 62 E500™ 87 78 H-Platy Slurry/Dry 61 E800™ 87 72 H-Platy Slurry/Dry 59.5 IMERYS North American Kaolin Value in Coverage

SURFACE GLOSS STIFFNESS PRINT QUALITY SOURCE: CHRIS NUTBEAM, IMERYS COATING CLAY - SHAPE FACTOR AND FINENESS d50

Bakery/Bread Bag o IMERYS produce BARRIKOTE™ which is a water-based barrier coating (WBBC) using hyper-platy kaolin in formulated coatings for use in various packaging applications. o The barrier solution can be regulated, by varying the coat weight, to enable the bread to breath at the required rate to extend shelf life and maintain freshness. o Imerys’ solution is a press applied WBCC that enables flexibility to convert any bread pouch according the specific needs of the bread. o By using water based barrier coating the bread bags are recyclable PCC Precipitated Calcium Carbonate LIMESTONE SUITABLE FOR PCC FOR PAPER

Chemistry suitable for PCC with range and details of a Vietnamese limestone deposit

Greyish limestone, Arcos, Brazil Chemistry Ideal Range TD Vietnam

CaCO3 95-98% 98.50% MgO 0.5-1.0% 0.05% max MgO 0.5-1.0% 0.05% max S 0.01-0.03% 0.02% max

Fe2O3 0.05-0.08% 0.02% max Mn 0-30 ppm 30-40 ppm Acid insolubles 0.3-0.6% 0.03-0.05% LOI 42-43% 42-43%

Limestone from TLD Vietnam, Hai Duong Courtesy: Ms Thu Vu. TLD Vietnam Production of PCC from Limestone o Calcination of limestone in a kiln to drive off carbon dioxide and produce lime

(CaO)CaCO3 + Heat » CaO (lime) + CO2 (Calcination) o Lime delivered to Satellite plant, lime slaked (water added)

CaO + H2O » Ca(OH)2 (Hydration or slaking) o Carbon dioxide bubbled bubbled through in a carbonator to give precipitated carbonate

Ca(OH)2 + CO2 » CaCO3 + H2O (Carbonation) o Screening to further purify the PCC to remove coarse particles. Most grades have a minimum purity of around 98% with magnesium carbonate, silica and unconverted lime as the main contaminants o In a satellite plamt PCC is then used in the manufacture of the paper. Particle shape and size (crystal engineered PCC) can be determined during the processing MTI (Specialty Minerals) is the largest producer of PCC for paper and mainly produce in Satellite plants at paper mills

Paper PCC MTI - MINERALS BUSINESS 2017 29% $1.320 BILLION REVENUE Performance Materials $734.8 (56%) $377.7 Performance Specialty Minerals $584.8 (44%) Materials (millions of dollars) 56% (mainly bentonite) Paper PCC – 29% Revenue 29% of total Specialty GCC PCC 6% 5% Specialty PCC is for non-paper uses

Talc 4% 56 PCC Satellite Plants for paper, 2018 – 4,212ktpa Country Satellites Tonnage, kt China 9 767 South Africa India 5 210 Brazil 2% Indonesia 2 140 7% Japan 1 50 Malaysia 1 50 Thailand 3 200 Asia Europe USA 18 1565 34% 16% Canada 2 150 Finland 2 165 France 3 140 Germany 1 75 North America Poland 1 75 41% Portugal 1 125 Slovakia 1 100 Brazil 5 300 South Africa 1 100 Total 56 4212 Source: MTI Annual Report 2018 MTI LOOKING AHEAD

• PCC is designed to provide optimum balance of paper properties including brightness, opacity, bulk, strength and improved printability. o Research and development and technical service staff focuses on expanding sales from its existing and potential new satellite PCC plants, as well as, developing new technologies for new applications. o These technologies include, among others, acid tolerant ("AT® ") PCC, which allows PCC to be introduced to the large wood-containing segment of the printing and writing paper market. o New Yield®, a technology that converts a paper and pulp mill waste stream into a functional pigment for filling paper. o FulFill® family of products, a system of high-filler technologies that offers papermakers a variety of efficient, flexible solutions which decrease dependency on natural fiber o OPACARB® PCC, a family of products for paper coating Nine MTI PCC Satellite plants in China 2018

Location Paper Company Capacity, tpa Dagang. Jiangsu APP, Gold East Paper (Jiangsu) Co. Ltd 100,000 Zhenjiang APP, Gold East Paper (Jiangsu) Co. Ltd 100,000 Suzhou Gold Hua Sheng Paper Co. Ltd 100,000 Yanzhou, Shandong Shandong Sun Paper Industry Co. Ltd 100,000 Jiaozuo City, Henan Henan Jianghe Paper Co. Ltd 22,000 Nanning, Guangxi Nanning Jiangxing Paper Ind. Co. Ltd 45,000 Zhejiang - PCC coating Zhengda Paper – cartonboard packaging 50,000 Changshu, Jiangsu UPM-Kymmene Corporation 100,000 Shouguang, Shandong Melium Paper Co (Chenming Paper) 150,000 Total 767,000 Source: MTI Annual Report 2018 Country Company Plants PCC capacity (kt) Europe Austria Omya 2 122 Finland Omya 2 190 France Omya France 1 26 Netherlands Omya Netherlands 1 100 OMYA Portugal Omya Comital 1 30 PCC Russia ooo Unikristall Komi 2 80 Sweden Omya AB 2 36 SATELLITE North America PLANTS USA Omya North America 1 200 South America Argentina Omya Argentina 1 30 Brazil Mogi Guacu 1 100 Asia India Omya India 1 60 South Korea Omya Hankuk Chemical 1 50 Total 16 1024 Source: Region Mill Paper Company Tonnage, kt Europe Sweden Hosum M-real 50 USA Canton Blue Ridge Paper 54 IMERYS Somerset Sappi Fine Paper 82 PCC Bennettsville Domtar 36 Asia Satellite China Yueyang, Hunan Tiger Forest & Paper 90 Plants India Bhadrachalan ITC 20 Indonesia Riau Asia Pacific Resources 120 South America Argentina Capitan Bermudes Cellulosa Argentina 10 Ledesma Libertador General 10 Brazil Limeira Ripasa 150 Santanesia Schweitzer-Maudut 15 Total 637 Source: PCC Satellite plants for paper, 2018 6.800 kt Schaeffer Kalk Others 3% 6% Okutama Kogyo Company Tonnage kt 4% MTI 4,212 Omya 1,024 Imerys Imerys 637 10% Okutama Kogyo 288 MTI Omya 62% Schaeffer Kalk 217 15% Others 422 Total 6,800 Source: MTI, 100 6 1 1 3 90 1 13 4 NORTH AMERICA % OF FILLER 80 USED FROM 1972-2001 70 62 63 60

Most of filler kaolin

% 50 92 from Georgia, USA 40 82 5 was replaced by 30 14 Specialty Minerals PCC 20 33 Satellite plants 10 20 0 1972 1988 1996 2001 KAOLIN GCC PCC TALC Source: Ian Wilson

No TYPE FORM 1 Carbonates - GCC (Ground Calcium Carbonate) marble Slurry - Chalk Powder - Limestone Powder - PCC (Precipitated Calcium Carbonate) Slurry (CaO) Pigments used 2 Kaolin by Stora Enso - Hydrous Slurry, Powder Source: Ilari Valkeinen, - Calcined Slurry Stora Enso, Presentation: 3 Lime Imformed Recycling 2016 4 Talc Slurry, Powder 5 Bentonite Powder 6 Special Pigments STORA PAPER GRADES COATED AND UNCOATED

• Uncoated WFU (Wood Free Uncoated), SC (Supercalendered), Newsprint fillers

o Grade Type function - WFU; PCC, GCC bulk, opacity - SC; Kaolin and talc printing properties - Newsprint “PfR’ (Paper for Recycling) printing properties

. Coated CWF (Coated Woodfree), CM (Coated Mechanical)

o - CWF; GCC printability - CM; Kaolin printability

Source: Ilari Valkeinen, Stora Enso, Presentation: Imformed Recycling 2016 8,100t Pigments, Lime and Bentonite for Stora Enso 1,000t 0% 0% Total 1,867,000 tonnes 18,300t 1% 214,500t Carbonate GCC+PCC 12% Kaolin Talc 368,600t 1,256,000t 20% Special Pigments 67% Lime Bentonite

Source: Ilari Valkeinen, Stora Enso, Presentation: Imformed Recycling 2016 Storaenso target is 25% of sales from new products and services (2018 level is 15%)

REPLACING POUCHES FOR LOW TO POUCHES WITH HIGH LIDS REPLACING PE-FILMS IN CUPS MEDIUM SHELF LIFE BARRIER PROPERTIES

ALUMINIUM FOIL GLOBAL

MS MARKET SIZE

RRIERS RRIERS

B -

ND ~80 A

BIO Bn EUR 2019-2021 2021-2023 2023-2025

CAPS, CLOSURES STRAWS RIGID CAPS WITH & PACKAGING CONTAINERS TRAYS HINGES COMPONENTS ~25

Bn EUR

MPOSITES

O BI

Source: SmithersPira, internal analysis,, 21 March 2019. CONVERSION FOR STORA ENSO

Stora Enso Varkaus PM3 grade conversion rebuild

Growth in traditional retail and e-commerce is increasing global demand for sustainably produced packaging materials. In 2015, Stora Enso’s Varkaus mill in Finland converted their existing paper machine into a board machine to produce linerboard to better meet the market need for renewable packaging. They chose Valmet as their partner for this challenging rebuild.

STORA ENSO VARKAUS PM3 Grades AvantKraft Brown (kraft liner)and AvantKraft White Top (whitetop liner) Basis weights 80225 g/m2 Wire width 8 400 mm Design speed 1 200 m/min Annual capacity 395 000 t/a o Established in 1987 as WGCC supplier for paper coating o Leading producer of GCC in Japan o Four plants in Japan for WGCC, and one dries to produce powder WGCC. o Formed JV with SMI in 1996, and built one satellite plant in 2000

Slurry Shiraoi Plant

Fimatec Soma Plant

Soma Plant + Production Technology Development

Main office at Kanda, Tokyo

Plant Locations, Japan Okayama Plant Fuji Plant +R&D +Paper Customer Support Lab

Confidential Situation in Japan for paper o Kaolin use in paper in 2018 Significant decrease in kaolin imports into Japan from USA and Brazil Less kaolin is used in coating formulations – formerly 50% blends with GCC now 20-30% KAOLIN COATING CLAY IMPORTS USA BRAZIL TOTAL 2007 750,000 250,000 1,000,000 2018 377,000 10,002 388,002

o GCC production for paper in 2018 Filler and coating applications around 910,000 tpa in 2018

o Paper Production in 2018 Japanese Coated paper production is decreasing year on year at 3-4% per year Coated board is increasing but slightly. FMT have narrow distribution type product. Source for 2018 figures SPREAD OF PAPER FROM CHINA

GERMANY GUTENBERG ENGLAND 1447 W. CAXTON PHILADELPHIA 1476 1690 BATTLE TIBET CHINA KOREA IRAQ SPAIN TALAS 650 100BC- JAPAN 793 1085 751 AD105 600 N. AFRICA EGYPT 1100 1000 INDIA 600

FRANCE 1190 China P&B Production 2010-2018 (millions tonnes)

YEAR 2011 2011 2012 2013 2014 2015 2016 2017 2018 Production (million t) 100.4 110.3 113.8 115.1 117.9 117.7 123.2 125.4 116.6 % change year on year 9.9 3.1 1.2 2.4 -0.1 4.6 1.8 -7.0

130.0 125.0 Significant drop of 120.0 7.0% in 2018 115.0 compared to 2017 110.0 105.0 Why is this? 100.0 95.0 90.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: National Statistics Bureau, P.R. China Reasons for the decline in Chinese paper industry output in 2018:

1. Internal reason: Strict environmental inspection led to o Small paper mills with heavy pollution have been forced to withdraw from the market. o 2018, there were 6,704 papermaking enterprises and 1,045 loss-making, up 23.5% year on year o In 2018 losses reached 8 billion yuan, up 58.3% year-on-year o Fuyang district of Hangzhou, the hometown of papermaking in China, has shut down 66 papermaking enterprises, eliminated 4.9 million tonnes of production capacity and cut 62.8% of the total papermaking capacity since November 2017, 2. External reasons: Sino-US trade friction, resulting in the import of raw materials blocked o Since 2018, the overall price of waste paper (raw materials) has been affected by the tightening import policy and Sino-US trade friction. o In In the first 11 batches of 2018, 114 companies were approved to import a total of 10.7901 million tons of waste paper, a sharp decrease of 61.61% compared with the 11 batches of 2017.

3. The decline of the industry boom, weak market demand o Profits of Chinese paper companies have fallen in 2018. o The total profit of papermaking enterprises dropped from 83.78 billion yuan in 2017 to 76.64 billion yuan in 2018, a decline of 8.5%.

Data sources: 1. China environment news and China paper network "66 paper mills in Fuyang district of Hangzhou have been closed in a year and a half with a capacity of 4.9 million tons" in March 2019; 2. China business industry research institute ”Business data analysis of China paper industry in 2018 and market forecast in 2019" in February 2019 - acknowledge Eileen Hao and Angela Chen of Wisdom Intelligence

MTI in China developments

o MTI already has 9 satellite plants at paper mills in China. o The waste stream in question is predominantly in China where environmental regulations prohibit burning or landfilling the material. o NewYield®,provides papermakers with a number of benefits. It eliminates landfill costs, provides an effective paper filler and reduces emissions and energy costs. o The prospects for these new technologies in China are bright and MTI are pursuing more than 20 opportunities in the region for PCC filler and new satellites.

Source: MTI The Confederation of European Paper Industries (CEPI)

Key statistics report 2017 Each year in July CEPI publishes the latest preliminary market and production data for the previous year. The latest data whether it is production, added-value or exports all indicate positive trends.

Investment: more than 5bn, a 7.5% increase from 2016 Exports: up 5.4% Paper & Board consumption: up 0.5% Paper & Board production: up 1.5% (92.3 million tonnes) Employment: up 0.1%

CEPI covers 18 countries – Austria, Belgium, Czech Republic, Finland, France, Germany, Hungary, Italy, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, The Netherlands and UK. Production of P&B by grade in CEPI Countries 2018 – 92.3 million tonnes

Other 2018 Production 92.3 million tonnes packaging Other Paper (compared with 2017) Papers & Board Newsprint, 4.6% 15.3% 6.1% Packaging +1.2% (52.5%) Uncoated Papers 15.2% Sanit Hou’ +1.0% (8.1%)

= Other P&B = 4.6% Wrappings 4.6% Coated Graphic -1.4% (34.8%) Papers, 13.5% o Uncoated WF Mechanical +1.2% o Coated CM paper unchanged Case Materials Sanitary and o Uncoat’ WF (office paper) -2.5% 32.6% Household o Coated WF grades -7.4% 8.1% o Newsprint (newspapers) -8.9% Increased production of packaging and board offets the decline in production of graphic papers

www.cepi.org/topics/statistics- The Confederation of European Paper Industries (CEPI) Preliminary figures o The production stability observed in Europe contrasts with the reduced global paper and board production, -0.6% in 2018 compared to 2017, to 417 million tonnes according to very first estimates. o This reduction was mainly driven by China, whose production decreased by close to 4%. Paper and board production in Japan, South Korea and the United States has also declined. o Production in Canada, Russia and several emerging countries, India, Indonesia and Mexico increased. National Statistics Bureau, P.R. China

Production in 2018 in China was 116.6mt, a decrease of 7% from 2017

Valmet forecast for paper and board to 2030 o World demand for paper and board is forecasted to grow 1.3% pa reaching 486 million tonnes in 2030

Consumption growth per paper grade 2016A-2030F Containerboard +62 million tonnes +2.4% Fine papers - 10 million tonnes -0.3% Cartonboard +15 million tonnes +2.0% Tissue +17 million tonnes +2.9% Newsprint - 8 million tonnes -2.8%

Source: RISI, Valmet Paper business line, Capital Markets Day, September 18, 2018 Global consumption of P&B 2016-2030f (ktpa)

250,000

200,000

150,000

100,000

50,000

0 2005 2010 2015 2020 2025 2030f

CONTAINERBOARD FINE PAPERS CARTONBOARD TISSUE NEWSPRINT Consumption for paper and board 2005-2016 and forecast until 2030 500,000

450,000 15,000 20,000 55,000 400,000 25,000 50,000 30,000 40,000 350,000 33,000 75,000 40,000 35,000 70,000 30,000 60,000 300,000 25,000 50,000 55,000 40,000 80,000 250,000 90,000 100,000 105,000 110,000 200,000 111,000 150,000 230,000 200,000 100,000 180,000 140,000 152,000 50,000 130,000 0 2005 2010 2015 2020 2025 2030f CONTAINERBOARD FINE PAPERS CARTONBOARD TISSUE NEWSPRINT ROW Latin America 2% Rest of Europe 5% 4% Global estimated production of Paper and Board China (based on 420 million tonnes) Europe 28% CEPI-18 22%

Rest of Asia 19% Thanks to Mike and Ismene North America and all others for a very 20% good meeting