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Global Containerboard Outlook
With a focus on the Asian market
Ken WaghorneVP, Global Packaging
RISI Asian Conference
May 2017
© Copyright 2017 RISI, Inc. | Proprietary Information
2© Copyright 2016 RISI, Inc. | Proprietary Information
• One of the original Resource Information Systems, Inc. economists
• With RISI since 1983• Developed RISI packaging models• Works with more than 200
packaging paper clients worldwide• Assisted by five local economists
in RISI regional offices• Directs numerous single- and
multi-client studies on paper packaging materials
VP Global Packaging
Ken Waghorne
• Global Overview
• Asia
• Europe
• North America
• Latin America
• Africa, the Middle East, Oceania
• Conclusions
3
Agenda
© Copyright 2017 RISI, Inc. | Proprietary Information
4© Copyright 2017 RISI, Inc. | Proprietary Information
Global Containerboard DemandAsia has the largest market, followed by North America and Western Europe
47%
19%
14%
8%
7%5%
Far East
North America
Western Europe
Latin America
Emerging Europe
All Others
162 Million Tonnes in 2016
5© Copyright 2017 RISI, Inc. | Proprietary Information
Share of Virgin Containerboard Demand Varies by Region
9%
61%
21%
38%
21%
30%
0%
10%
20%
30%
40%
50%
60%
70%
Far East NorthAmerica
WesternEurope
LatinAmerica
EmergingEurope
All Others
6© Copyright 2017 RISI, Inc. | Proprietary Information
Global Capacity Will Grow Mostly in Recycled ContainerboardGlobal Capacity, Thousand Tonnes
23%27%
0
50,000
100,000
150,000
200,000
250,000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Virgin Containerboard Recycled Containerboard
7© Copyright 2017 RISI, Inc. | Proprietary Information
Global Virgin Containerboard Demand Is Dominated by North America
17%
47%
12%
12%
6%6%
Far East
North America
Western Europe
Latin America
Emerging Europe
All Others
40 Million Tonnes in 2016
9© Copyright 2017 RISI, Inc. | Proprietary Information
China Continues to Account for More Than 60% of Asian Demand Apparent Consumption, Thousand Tonnes
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2012 2013 2014 2015 2016 2017 2018
Other Countries
Vietnam
Japan
Thailand
Indonesia
India
Taiwan
South Korea
China
Wave of Capacity Expansion Dominated by China
• China set for huge increase in capacity in 2017-18 with total of 7.8 MT at 23 projects
▪ Announcements of another 19 with 6.5 MT
• How much capacity will be shut?
▪ Due to new environmental regulations
▪ Forced temporary reductions will affect levels
• Outside of China, biggest development is capacity additions in Vietnam
▪ 5 projects (2 are small) in 2017 w/capacity of 1.2MT; 1 project in 2018
• Thailand and Indonesia also have capacity additions in 2017 and 2018
10© Copyright 2017 RISI, Inc. | Proprietary Information
No. of Projects
Tonnage (Million)
2016 China 10 2.5
Other Asia 2 0.3
1H17 China 7 1.8
Other Asia 4 1.4
2H17 China 7 2.5
Other Asia 2 .04
2018 China 9 3.5
Other Asia 2+ 0.4+
11© Copyright 2017 RISI, Inc. | Proprietary Information
Capacity Growth in Asia Is Expected to Outpace Demand in 2017
80%
81%
82%
83%
84%
85%
86%
87%
88%
89%
90%
0
1
2
3
4
5
6
2011 2012 2013 2014 2015 2016 2017 2018
Mill
ion
To
nn
es
Demand Capacity Operating Rates
12© Copyright 2017 RISI, Inc. | Proprietary Information
Net Exports of Recycled Containerboard in Asia Are Expected to Grow in 2017Net Exports, Thousand Tonnes
-2,000
-1,500
-1,000
-500
0
500
2011 2012 2013 2014 2015 2016 2017 2018
Virgin Containerboard Recycled Containerboard
Not a Lot of Room for Growth Since Most Recyled Trade Is Regional• In 2016, 85% of Asian recycled linerboard
exports and 91% of recycled medium exports went to Asia
• The Middle East and Africa were the next two leading destinations in 2016
▪ The Middle East accounted for 12-18% in 2015, but then Indonesia pulled back exports
▪ Compete mostly with European suppliers in these markets
• Only 8-12% of Asia’s recycled imports come from outside the region
▪ Mostly from Oceania and Western Europe
• There may be opportunities for recycled linerboard to displace kraftliner
13© Copyright 2017 RISI, Inc. | Proprietary Information
2016 Recycled Linerboard Exports*
Asia
Middle East
Africa
Other
2016 Recycled Medium Exports*
Asia
Middle East
Africa
Other
* Japan, South Korea, Taiwan, China, Indonesia and Thailand accounted for 96-98% of 2016 Asian exports
14© Copyright 2017 RISI, Inc. | Proprietary Information
The Containerboard Price Surge in China Eased Off a Bit in MarchRenminbi per Tonne
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
J-1
2
A-1
2
J-1
2
O-1
2
J-1
3
A-1
3
J-1
3
O-1
3
J-1
4
A-1
4
J-1
4
O-1
4
J-1
5
A-1
5
J-1
5
O-1
5
J-1
6
A-1
6
J-1
6
O-1
6
J-1
7
A-1
7
Kraft Top Liner 170 g (Left Axis)
OCC, Imports from the USA (Net)
OCC, Post-consumer (Domestic, Net Price)
15© Copyright 2017 RISI, Inc. | Proprietary Information
Will This Pattern Repeat in the Future?Anatomy of a Price Bubble
• Bubbles tend to follow periods of persistent oversupply and the inevitable price weakness
▪ Inventories far lower than normal
▪ Producers unable to pass through cost increases
• Unexpected shift in the demand/supply balance pushes prices upward
• At some point, panic buying sets in, driving prices through the roof
• Double ordering sets up sudden end to the bubble when inventories are overstocked
▪ Leading to eventual crash
• Prices find new equilibrium level
▪ Inventories are maintained slightly higher than before, just in case
Total Containerboard, Western EuropeDemand Growth Is Slowing Down in 2016 and 2017
17© Copyright 2017 RISI, Inc. | Proprietary Information
3.6%2.5%
1.7%1.8%
87%
88%
89%
90%
91%
92%
93%
94%
95%
18
20
22
24
26
28
30
2011 2012 2013 2014 2015 2016 2017 2018
Mill
ion
To
nn
es
Capacity Demand (APC) Production Operating Rate
Trade Trends in Western EuropeVirgin Containerboard Imports to Decline in 2017
18© Copyright 2017 RISI, Inc. | Proprietary Information
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2011 2012 2013 2014 2015 2016 2017 2018
Mill
ion
To
nn
es
Net Exports of Containerboard
Virgin Containerboard Recycled Containerboard
Containerboard Demand Growth in Emerging Europe to Accelerate Toward 2018
19© Copyright 2017 RISI, Inc. | Proprietary Information
3.4%3.8%
3.9%4.5%
5.5
6.5
7.5
8.5
9.5
10.5
11.5
12.5
13.5
2012 2013 2014 2015 2016 2017 2018
Mill
ion
To
nn
es
Capacity Demand (APC) Production
Dynamic Changes in Regional Net Imports in Emerging EuropeNet Imports, Thousand Tonnes
20© Copyright 2017 RISI, Inc. | Proprietary Information
-600
-400
-200
0
200
400
600
800
1,000
2012 2013 2014 2015 2016 2017 2018
Eastern Europe Central Europe Southeastern Europe
22© Copyright 2017 RISI, Inc. | Proprietary Information
Recycled Containerboard Is Gaining Market Share in North America Over TimeApparent Consumption, Thousand Tonnes
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2011 2012 2013 2014 2015 2016 2017 2018
Kraftliner Semichemical Medium Testliner Recycled Medium
23© Copyright 2017 RISI, Inc. | Proprietary Information
Demand Is Currently Outpacing Capacity Growthin North America Change in Thousand Tonnes, Percent
92%
93%
94%
95%
96%
97%
98%
99%
-600
-400
-200
0
200
400
600
800
1,000
1,200
1,400
1,600
2011 2012 2013 2014 2015 2016 2017 2018
Demand Capacity Operating Rates
Accident at International Paper’s Pensacola Mill in Cantonment, Florida
• An explosion on the evening of January 22, 2017, caused significant structural damage to the pulp digester and the power house
• Paper capacity is 486,000 metric tons per year of lightweight fully virgin kraft linerboard
• Machine was down a little over two months, leading to a reduction in capacity of roughly 100,000 tonnes
• The consequences were a significant tightening of the global kraftliner supply/demand balances in the first half of 2017
24© Copyright 2017 RISI, Inc. | Proprietary Information
North American Net Exports of Virgin Containerboard Should Drop in 2017Change in Net Exports, Million Tonnes
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
0.20
0.25
0.30
2013 2014 2015 2016 2017 2018
Virgin Containerboard Recycled Containerboard
25© Copyright 2017 RISI, Inc. | Proprietary Information
Demand Growth in Latin America Accelerates as Brazilian Economy RecoversChange in Thousand Tonnes, Percent
82%
83%
84%
85%
86%
87%
88%
89%
90%
-200
-100
0
100
200
300
400
500
2011 2012 2013 2014 2015 2016 2017 2018
Demand Capacity Operating Rates
27© Copyright 2017 RISI, Inc. | Proprietary Information
Brazil and Mexico Account for More Than 70% of Latin American Demand
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Tho
usa
nd
To
nn
es
Brazil Argentina Chile Mexico Rest of Latin America
28© Copyright 2017 RISI, Inc. | Proprietary Information
Mexico will outpace Brazil in 2017-2018
Net Imports in Latin America Are Set to Grow in the FutureChange in Net Imports, Thousand Tonnes
-60
-40
-20
0
20
40
60
80
100
120
140
2013 2014 2015 2016 2017 2018
Virgin Containerboard Recycled Containerboard
29© Copyright 2017 RISI, Inc. | Proprietary Information
31© Copyright 2017 RISI, Inc. | Proprietary Information
African Demand Has the Best OutlookApparent Consumption, Thousand Tonnes
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Middle East Africa Oceania
32© Copyright 2017 RISI, Inc. | Proprietary Information
Net Imports to Grow for Both the Middle East and Africa, Oceania to Export MoreNet Imports, Thousand Tonnes
-900
-400
100
600
1,100
2010 2011 2012 2013 2014 2015 2016 2017 2018
Middle East Africa Oceania
34© Copyright 2017 RISI, Inc. | Proprietary Information
Global Demand Growth to Accelerate in 2018 After Slowdown in 2017Apparent Consumption, Thousand Tonnes
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2011 2012 2013 2014 2015 2016 2017 2018
Kraftliner Sem. Medium Rec. Liner
Rec. Medium Demand Growth, %
35© Copyright 2017 RISI, Inc. | Proprietary Information
Take Home Points on Global Containerboard
• Global demand growth will slow in 2017, but will improve in 2018▪ Emerging markets will accelerate toward 2018
• Massive capacity expansions to happen in recycled containerboard across the globe▪ Putting pressure on fiber costs
• Globally tighter supply/demand balances in virgin containerboard in the near term▪ Higher operating rates in this segment