london pulp week conference files

1. 2009 Hawkins Wright Symposium
Canadian Pulp Industry:
Transformation or Extinction?
CANFOR PULP LIMITED PARTNERSHIP

2. 2009 Hawkins Wright Symposium
Transformation or Extinction?
1. The Past: An Industry in Decline
2. The Present: Challenges & Opportunities
3. The Future: Transformation or Extinction?
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 2

3. Hawkins Wright Symposium – Canadian Pulp Industry: Transformation or Extinction?
Canfor Pulp Limited Partnership (CPLP)
► Canfor Pulp Limited Partnership (CPLP)
– $Cdn 800 million annual sales
– Ownership:
• Canfor Pulp Income Fund 49.8%
• Canfor Corporation 50.2%
► Canfor Pulp Income Fund (CFX.UN: TSX)
– Float of 35.5 million units
– 114,000 units trade on average per day
– Tax generation of ~ $ 50 million annually
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 3

4. Canadian Pulp Industry – Transformation or Extinction?
1. The Past: Unacceptable Historical Returns – Top 100
Return on Capital Employed is calculated as net income before unusual items, minority interest and
interest expense, on an after-tax basis, divided by average total assets less average non-interest
bearing current liabilities.
Source: PricewaterhouseCoopers
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 4

5. Canadian Pulp Industry – Transformation or Extinction?
1. The Past: Canadian Pulp & Paper ROCE
Source: Statistics Canada, April 2009
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 5

6. Canadian Pulp Industry – Transformation or Extinction?
1. The Past: Cdn NBSK Capacity was 8 Million admt in 2000
MILLS RUNNING
11
28 1 12
2
13
3 14
26
4
27 7 19
8
6 29
5
23
9
10
24 21
20
25 22
1. P&T - Mackenzie 17
2. Prince George 15 18
16
3. Cariboo Pulp - Quesnel
4. Campbell River 15. Dryden
5. Crofton 16. Thunder Bay
11. DMI - Peace River 23. Domtar Quevillion
12. Grand Prairie 17. Terrace Bay 24. Jonquiere
6. Port Mellon 18. Marathon 25. Smooth Rock Falls
13. ALPAC - Boyle
7. Harmac - Nanaimo 19. SFK - St. Félicien 26. Prince Albert
14. WF - Hinton
8. Kamloops 20. Saint John, NB 27. Gold River
9. Mercer - Castlegar 21. Neenah - Pictou, NS 28. Skeena
10. Tembec - Skookumchuck 22. UPM Miramichi 29. Western Squamish
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 6

7. Canadian Pulp Industry – Transformation or Extinction?
2. The Present: U.S. Housing Starts at 25% of the Peak
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 7

8. Canadian Pulp Industry – Transformation or Extinction?
2. The Present: Challenges - Changing Fibre Supply
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 8

9. Canadian Pulp Industry – Transformation or Extinction?
2. The Present: Challenges - Effect of the Pine Beetle:
Sawlog harvest / availability vs. sawmill demand
Region 2 (N. Interior) Potential Log Supply Vs Demand
18,000,000
16,000,000
14,000,000
12,000,000
Volume M3
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Years
Actual Harvest
Available Logs Mill Demand
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 9

10. Canadian Pulp Industry – Transformation or Extinction?
2. The Present: Challenges - Effect of Pine Beetle
Chip Supply vs. Regional Pulp Mill Demand
Region 2 (N. Interior) Chip Supply Vs Demand
7,000,000
6,000,000
5,000,000
Volume M3
4,000,000
3,000,000
2,000,000
1,000,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Years
Available Chips Pulp & Paper Mill Demand
Actual Supply
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 10

11. Canadian Pulp Industry – Transformation or Extinction?
2. The Present: Challenges - Competing Demand for Biomass
Growth of Pellet Plants
(Targeting European Market)
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Total Pellet Industry Demand (Local)
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 11

12. Canadian Pulp Industry – Transformation or Extinction?
2. The Present: Green Energy – The Challenge
► The Challenge:
– Canada (North America) does not have regulated markets for
GHG emissions (Carbon trading)
– Nor does it have hard targets for Green Energy purchases
(although some US states now do)
– As well, it is difficult to access market pricing for electricity sales
(most Provinces are controlled by state owned monopolies)
► The Result:
– There has been minimal investment in Green energy production
– Canadian companies have been at a disadvantage to their
European and American counterparts
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 12

13. Canadian Pulp Industry – Transformation or Extinction?
3. The Future: Green Energy – The Opportunity
Clear Green Energy Regulations
U.S. Green Energy Bill (July 2009)
► American Clean Energy and Security Act passed by Congress in July
► Main element: - GHG cap-and-trade system
– Designed to reduce emissions 17% from 2005 levels by 2020 and 83%
by 2050
► Secondary elements:
– Broader definition of biomass from federal forests
– Renewable Electricity Standards (RES)
• Federal system of tradable credits
• Investments in renewable energy required of large electricity suppliers
• RES goal of 6% in 2012, increasing 2% per year up to 20% in 2020
• Alternatives to RES includes conservation and/or penalties
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 13

14. Canadian Pulp Industry – Transformation or Extinction?
3. The Future: Green Energy – The Opportunity
Green Transformation Program – June 2009
► This is a $Cdn 1 billion Fund
► Goal is to support Investment to improve Energy Efficiency and reduce
Environmental Impact
► Key Program Components are:
– Company Allocations are based upon $Cdn 0.16/litre of black liquor fired
in Canadian operations since Jan, 2009
– Payments are only made to reimburse investment for pre-qualified capital
projects that improve environmental performance or energy efficiency
– Use it or lose it: Money must be spent by March 31, 2012
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 14

15. Canadian Pulp Industry – Transformation or Extinction?
3. The Future: Green Energy – The Opportunity
$1 Billion in Credits Awarded as Follows
Twenty-four companies have qualified for credits under the PPGT Program.
Company Credits Company Credits
Domtar Inc. $143.5 million Smurfit-Stone Container $29.6 million
Canfor Pulp $122.2 million Northern Pulp $28.1 million
West Fraser $88.4 million Nanaimo Forest Products $26.9 million
Alberta Pacific $62.9 million Tembec $24.2 million
Daishowa – Marubeni $59.1 million SFK Pulp $20.9 million
Mercer – Celgar $57.8 million Terrace Bay Pulp $19.2 million
Howe Sound $45.5 million Catalyst Paper $18.0 million
AV Group $36.4 million Tolko Industries $13.4 million
Irving $33.4 million Kruger $6.9 million
Abitibi-Bowater $33.2 million Neucel $6.5 million
Fraser Paper $33.1 million Cascades $6.1 million
Weyerhaeuser $32.4 million Meadow Lake $2.6 million
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 15

16. Thank You!
Joe.Nemeth@canforpulp.com
www.canforpulp.com C A N F O R P U L P L I M I T E D PA R T N E R S H I P PAGE 16