Alliance One
International Leaf Supply & Demand TMA Annual Meeting & Conference Williamsburg, VA May 24, 2010
The Only Constant is Change • Consolidation • Regulation • Taxation • Restrictions • Weather
All increase pressure on the industry
2
Demand Trends
Balanced Supply and Demand •
Last several years world-wide leaf tobacco supply and demand has been fairly stable.
•
Global economic situation changing consumption and product mix patterns with many markets down-trading, few up-trading. Virginia brands increasing & Flue-cured component percentage in cigarettes increasing with Burley & Oriental decreasing.
•
Growing trend in the slim, super slim, and ultra slim cigarette segments as more consumers migrate to lower intake products and some shorter duration cigarettes.
4
General Consumption Trends • Reduced consumption being initiated by: – Smoking restrictions/bans – Taxation – Tobacco product regulation
• With increased consumption fueled by: – Population growth – Product extensions using Branding – Other tobacco product growth
5
General Trends • Manufacturers adjusting cigarette blends due to product mix demand. – Increasing yields – Optimizing by-product and reconstituted tobacco – Using less tobacco per stick
6
Global Cigarette Consumption T o ta l & Am er ic a n Blen d c on s um ption 7 ,0 0 0
2 ,0 0 0 1 ,9 5 0
6 ,0 0 0 1 ,9 0 0 5 ,0 0 0 billion pieces
1 ,8 5 0 4 ,0 0 0
1 ,8 0 0 1 ,7 5 0
3 ,0 0 0
1 ,7 0 0 2 ,0 0 0 1 ,6 5 0 1 ,0 0 0
1 ,6 0 0
0
1 ,5 5 0 1 99 5
19 97
1 9 99
To ta l (in cl. PR C )
2 00 1
20 0 3
To tal (excl. PR C )
20 05
2 00 7
2 00 9
Am . Ble nd (in cl. PR C )
20 11
2 0 13
2 01 5
Am. Ble nd (e xcl. PRC )
7
Supply Trends
2010 Crop Global Tobacco Type Estimates Other 6% Sun Cured 3% Dark Air Cured 2% Dark Fire Cured 1% Oriental 5%
Flue-cured excl China 32%
Burley 13%
Flue-cured in China 38%
9
Tobacco Supply Trends Flue-cured •
Global supply for 2010 fairly constant at 2009 levels with demand stable. El Nino weather pattern reducing Brazil quantity. US manufacturers reducing domestic requirements. India increasing. EU subsidies ending in 2010 however many country quantities remaining thereafter.
Burley •
Burley 2009 global supply increased rapidly in Africa. Malawi led growth with expectation of quantity reduction in 2010 to more stable levels over next several years.
•
Burley supply had been short but lower demand due to manufacturer requirement changes balancing supply.
10
Tobacco Supply Trends Oriental •
Current crop sizes are being driven by demand. Balanced supply demand.
11
Flue-cured World Total - Flue Cured (excl. China) 2,500,000 14.00
12.00
10.00
9.33 1,500,000
8.00 6.79 5.66
1,000,000
Durations
Supply & Consumption
2,000,000
6.00 4.09
4.13
4.01
3.66
3.57
4.00 2.99
500,000
2.83 2.30 2.00
-
2000
2001
2002
2003
2004
Duration (est. Months)
2005
2006
Supply (in M/T)
2007
2008
2009
2010
Consumption (in M/T)
12
Burley World Total - Burley 30.00
1,000,000
28.00 900,000 26.00 24.00
800,000
20.00 600,000 15.76
18.00
16.22 14.88
15.16
16.00
14.87
500,000
Durations
Supply & Consumption
22.00 700,000
14.00 11.28
400,000
12.00
10.58
300,000
10.00
8.55
7.94
8.00 6.04
5.91
200,000
6.00 4.00
100,000 2.00 0
2000
2001
2002
2003
Duration (est. Months)
2004
2005
Supply (in M/T)
2006
2007
2008
2009
2010
Consumption (in M/T)
13
Oriental World Total - Oriental 700,000
40.00 38.00 36.00 34.00 32.00 30.00
500,000
28.00 26.00 24.00
400,000 20.05
20.60
22.00
20.23 18.95
Durations
Supply & Consumption
600,000
20.00 18.00
300,000
15.14
16.00 13.03
200,000
14.00 12.00
9.68
10.00 8.00
5.82
6.00
100,000 2.24
4.00 1.08
0.50
-
2.00 -
2000
2001
2002
2003
2004
Duration (est. Months)
2005
2006
Supply (in M/T)
2007
2008
2009
2010
Consumption (in M/T)
14
Key Points Cigarette Consumption • Asia, Middle East, North Africa, Eastern Europe underpinning modest global growth • Virginia blends increasing, American blend decreasing, Oriental blend decreased • Manufacturer’s focus on Other Tobacco Products (OTP) • Industry consolidation continues with emphasis in individual markets
15
Key Points Leaf Supply & Demand • Global Supply & Demand fairly balanced • Uncommitted inventory levels and available durations remain at low levels • Lower priced tobaccos generally unavailable • Production costs up impacted by currencies, oil prices, financing • Weather’s role in crop quality & quantity
16
17
The Only Constant is Change • Consolidation • Regulation • Taxation • Restrictions • Weather
All increase pressure on the industry
2
Demand Trends
Balanced Supply and Demand •
Last several years world-wide leaf tobacco supply and demand has been fairly stable.
•
Global economic situation changing consumption and product mix patterns with many markets down-trading, few up-trading. Virginia brands increasing & Flue-cured component percentage in cigarettes increasing with Burley & Oriental decreasing.
•
Growing trend in the slim, super slim, and ultra slim cigarette segments as more consumers migrate to lower intake products and some shorter duration cigarettes.
4
General Consumption Trends • Reduced consumption being initiated by: – Smoking restrictions/bans – Taxation – Tobacco product regulation
• With increased consumption fueled by: – Population growth – Product extensions using Branding – Other tobacco product growth
5
General Trends • Manufacturers adjusting cigarette blends due to product mix demand. – Increasing yields – Optimizing by-product and reconstituted tobacco – Using less tobacco per stick
6
Global Cigarette Consumption T o ta l & Am er ic a n Blen d c on s um ption 7 ,0 0 0
2 ,0 0 0 1 ,9 5 0
6 ,0 0 0 1 ,9 0 0 5 ,0 0 0 billion pieces
1 ,8 5 0 4 ,0 0 0
1 ,8 0 0 1 ,7 5 0
3 ,0 0 0
1 ,7 0 0 2 ,0 0 0 1 ,6 5 0 1 ,0 0 0
1 ,6 0 0
0
1 ,5 5 0 1 99 5
19 97
1 9 99
To ta l (in cl. PR C )
2 00 1
20 0 3
To tal (excl. PR C )
20 05
2 00 7
2 00 9
Am . Ble nd (in cl. PR C )
20 11
2 0 13
2 01 5
Am. Ble nd (e xcl. PRC )
7
Supply Trends
2010 Crop Global Tobacco Type Estimates Other 6% Sun Cured 3% Dark Air Cured 2% Dark Fire Cured 1% Oriental 5%
Flue-cured excl China 32%
Burley 13%
Flue-cured in China 38%
9
Tobacco Supply Trends Flue-cured •
Global supply for 2010 fairly constant at 2009 levels with demand stable. El Nino weather pattern reducing Brazil quantity. US manufacturers reducing domestic requirements. India increasing. EU subsidies ending in 2010 however many country quantities remaining thereafter.
Burley •
Burley 2009 global supply increased rapidly in Africa. Malawi led growth with expectation of quantity reduction in 2010 to more stable levels over next several years.
•
Burley supply had been short but lower demand due to manufacturer requirement changes balancing supply.
10
Tobacco Supply Trends Oriental •
Current crop sizes are being driven by demand. Balanced supply demand.
11
Flue-cured World Total - Flue Cured (excl. China) 2,500,000 14.00
12.00
10.00
9.33 1,500,000
8.00 6.79 5.66
1,000,000
Durations
Supply & Consumption
2,000,000
6.00 4.09
4.13
4.01
3.66
3.57
4.00 2.99
500,000
2.83 2.30 2.00
-
2000
2001
2002
2003
2004
Duration (est. Months)
2005
2006
Supply (in M/T)
2007
2008
2009
2010
Consumption (in M/T)
12
Burley World Total - Burley 30.00
1,000,000
28.00 900,000 26.00 24.00
800,000
20.00 600,000 15.76
18.00
16.22 14.88
15.16
16.00
14.87
500,000
Durations
Supply & Consumption
22.00 700,000
14.00 11.28
400,000
12.00
10.58
300,000
10.00
8.55
7.94
8.00 6.04
5.91
200,000
6.00 4.00
100,000 2.00 0
2000
2001
2002
2003
Duration (est. Months)
2004
2005
Supply (in M/T)
2006
2007
2008
2009
2010
Consumption (in M/T)
13
Oriental World Total - Oriental 700,000
40.00 38.00 36.00 34.00 32.00 30.00
500,000
28.00 26.00 24.00
400,000 20.05
20.60
22.00
20.23 18.95
Durations
Supply & Consumption
600,000
20.00 18.00
300,000
15.14
16.00 13.03
200,000
14.00 12.00
9.68
10.00 8.00
5.82
6.00
100,000 2.24
4.00 1.08
0.50
-
2.00 -
2000
2001
2002
2003
2004
Duration (est. Months)
2005
2006
Supply (in M/T)
2007
2008
2009
2010
Consumption (in M/T)
14
Key Points Cigarette Consumption • Asia, Middle East, North Africa, Eastern Europe underpinning modest global growth • Virginia blends increasing, American blend decreasing, Oriental blend decreased • Manufacturer’s focus on Other Tobacco Products (OTP) • Industry consolidation continues with emphasis in individual markets
15
Key Points Leaf Supply & Demand • Global Supply & Demand fairly balanced • Uncommitted inventory levels and available durations remain at low levels • Lower priced tobaccos generally unavailable • Production costs up impacted by currencies, oil prices, financing • Weather’s role in crop quality & quantity
16
17
