1. ©2016, Forest2Market, Inc.
CLASH OF THE TITAN
THE COMPETITION BETWEEN THE PULP & PAPER AND
THE ENERGY INDUSTRY FOR WOODY BIOMASS
IN THE US SOUTH.

2. ©2016, Forest2Market, Inc.
WHO AM I?
Carl Dahl
• Invented the kraft pulp
process in 1884
• First US kraft mill:
Pensacola, FL in 1911
• Same basic process
used in most all pulp
mills today

3. ©2016, Forest2Market, Inc.
WHAT AM I?
The Recovery
Boiler Equipment
revolutionized the pulp
and paper industry.
Invented by G.H. Tomlinson
1931

4. ©2016, Forest2Market, Inc.
SOUTHERN
INDUSTRY TOOK OFF
US Pulp Fiber Consumption
1980-2007
Source: FRA and F2M
180
200
220
240
260
280
1980 1985 1990 1995 2000 2005
milliongreentons

5. ©2016, Forest2Market, Inc.
WHAT’S THE
POINT?
The pulp and paper industry is OLD.
• The first suppliers are still in business
The pulp and paper industry is ENTRENCHED.
• Long-term relationships abound
The pulp and paper industry OWNS THE SUPPLY CHAIN.
• They receive 9.5 million trucks of trees annually
• $10 billion business

6. ©2016, Forest2Market, Inc.
WHAT’S NEW?
THE GREENING OF THE WORLD
6

7. ©2016, Forest2Market, Inc.
US SOUTH
DEMAND
Tons of wood required at various co-firing rates
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
FL GA NC SC VA AL MS TN AR LA OK
tonsx1000
1%
5%
Based upon current technology and estimates,
every 1% of co-firing requires 10MM tons of wood.

8. ©2016, Forest2Market, Inc.
EUROPEAN
DEMAND
To meet green energy targets of 20% renewables by 2020, the
UK must import 20 million tons of pellets annually.
If 1/3 is sourced from eastern US, then 8-12 new pellet plants
are needed.
Total EU demand is expected to be 120 million tons by 2020 -
more than 10x the world’s installed manufacturing capacity.
8

9. ©2016, Forest2Market, Inc.
WHY THE US
SOUTH?
9

10. ©2016, Forest2Market, Inc.
PULP AND PAPER
Renewable Energy
10
• Economic drivers: GDP, demographics, population growth
• Largest producer of biomass energy in US
• Conflict: Customer of utility; compete for same raw material -
woodfuel
• Economic drivers: none - mandate driven
• Highly regulated and subsidized
• Conflict: Vendor to pulp/paper mill; compete for same raw
material - woodfuel

11. ©2016, Forest2Market, Inc.
PULP/PAPER MILLS HAVE A
STRONG DESIRE TO LIMIT
COMPETITION FOR WOOD FIBER
11
Fixed mill locations
High capital investment
No new greenfield permits likely
Wood fiber makes up 25-40% cost of goods sold
Earnings sensitive to movement in raw material price
It’s a good business!

12. ©2016, Forest2Market, Inc.
US PULP/PAPER MILLS HAVE
A STRONG WORLDWIDE
COST POSITION
12

13. ©2016, Forest2Market, Inc.
CURRENT ECONOMICS FAVOR PULP
MILLS OVER BIOENERGY MARKETS
13
Southern Bleached Softwood Kraft
Price: $1,000 per ton
Cost : $670 per ton
Manufacture - $500 per ton (includes woodfiber)
G&A - $50 per ton
Distribution - $70 per ton
Depreciation - $50 per ton
Profit: $330 per ton

14. ©2016, Forest2Market, Inc.
US ENERGY ECONOMICS
Bioenergy is not terribly competitive:
• 25-35 MW plant - $0.13-0.16/KwH
• 50 MW plant - $0.11-0.13/KwH
• 100 MW plant - $0.10-0.12/KwH
• 300 MW plant - $0.09/KwH (maybe?)
Wholesale power rates in US are $0.06-0.12/KwH.
14

15. ©2016, Forest2Market, Inc.
ECONOMICS -
PELLETS TO EU
15
Delivered wood cost 30 USD / Ton
Equivalent dry fiber cost in pellets 68 USD / Tonne
Manufacturing & transportation costs to port 67 USD / Tonne
Total Cost - FAS 135 USD / Tonne
F2M Analysis of Pellet Costs
Forest2Market estimates that pellets manufactured in the US
South and shipped to Europe are currently a break-even
proposition.
• 350,000 tonnes production ($85 million in capital)
• Rail pellets to port
• European customers
• Based upon March 2007 ENDEX pricing, approximate price FAS US
Port is 130 USD/tonne

16. ©2016, Forest2Market, Inc.
ECONOMICS –
PELLETS TO EU
Even with economic disadvantage, new demands are undeniable.
Forest2Market estimates that pellets manufactured in the US
South and shipped to Europe are currently a break-even
proposition.
16
• 350,000 tonnes production
($85 million in capital)
• Rail pellets to port
• European customers
• Based upon March 2007
ENDEX pricing, approximate
price FAS US Port is 130
USD/tonne

17. ©2016, Forest2Market, Inc.
EXPORT PELLET MARKET
IS PORT DEPENDENT
Where are the pulp mills? Near ports.
Only a handful of US ports have the infrastructure to
accommodate wood pellet exports
• Depth
• Port storage and handling
Favorable growth/drain ratios in surrounding timber basin
Space for expansion
Favorable freight rates to EU
How will it play out?
17

18. ©2016, Forest2Market, Inc.
TWO-TIERED
MARKETS
Pulp and Paper
18
Export-driven coastal markets near deep water ports with
bulk handling capabilities.
Domestic market will likely be more biomass/bioelectic
centric.
Will become increasingly effective at acquiring subsidies to
offset effects of new demand
Grades will change
• Uncoated free sheet (copy paper) demand will continue to erode
• Fluff pulp and containerboard demand will increase

19. ©2016, Forest2Market, Inc.
CONTACT
19
Read Clash of the Titans: Competition for Woody Biomass in the US South.
Forest2Market
15720 Brixham Hill Ave
Suite 550
Charlotte, NC 28277