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Market Overview for Corrugated Paper and Boxes
Presented by Don Crossley, Advance Packaging Corporation’s President & Owner
Advance Packaging Corporation
• Started in 1966
• Independent Corrugator and Box Plant
• Market: Domestic US, primarily Midwest
• 80,000 tons of corrugated paper consumed annually, $53,000,000 spend
• Crossley: 38 years industry experience
• Paper buyer for 20 years
Industry Metrics
Shipment Statistics
• Corrugated industry shipments totaled more
than 376.4 billion square feet in 2016 an
increase of 2.1% from 2015
• The value of industry shipments increased
to $30.8 billion
• 80% of industry shipments came from
corrugator plants and 20% came from sheet
plants
Source: Numera, FBA
End-use markets - 2016
Food manufacturing31%
Wholesale trade16%Paper manufacturing*
9%
Agriculture, forestry, fishing and hunting
8%
Beverage manufacturing
6%
Plastics and rubber products
manufacturing5%
Chemicals manufacturing
5%
Other manufacturing10%
E-Commerce4%
Other3%
Retail trade (excl. e-commerce)
3%
*Pre-2015 this held a larger market share, but manufacture of corrugated sheets has not been included in the 2015 or 2016 reports
Source: 2016 Fibre Box Association Industry Annual Report
30370.0
30067.9
31763.4
31350.6
31902.4 31800.7
30210.6
27592.9
29794.430005.4 30079.5
30287.1
30648.7
31020.831238.7
25000.0
26000.0
27000.0
28000.0
29000.0
30000.0
31000.0
32000.0
33000.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Total Industry Consumption of Liner and Medium (Thousands of Tons)
Source: Alternative Paper Solutions
Total Capacity for North
American Producers
(Thousands of Tons)
1. IP 12667
2. WestRock 7336
3. Georgia-Pacific 4155
4. PCA 3762
5. Kapstone 1700
6. Pratt 1465
7. All Others 8797
Year Acquirer Target Assets OwnerEstimated Capacity
(ktpy)
2007 Georgia-Pacific Brewton Smurfit-Stone 275
2007 KapStone P&P Roanoke Rapids International Paper 105
2008 International Paper Weyerhaeuser (8 mills) Weyerhaeuser 5 700
2008 RockTenn Co SolvaySouthern Container
Corp730
2008 Temple-Inland NewportPremier Boxboard
Limited195
2008 KapStone P&P North Charleston MeadWestvaco 405
2011 KapStone P&P Cowpens U.S. Corrugated 220
2011 RockTenn Smurfit-Stone (12 mills) Smurfit-Stone 5 875
2012 International Paper Temple-Inland (7 mills) Temple-Inland 3 655
2012 Hood Container Corp. New Johnsonville IP /Temple-Inland 340
Market consolidation since 2007
Source: Numera, FBA
Market consolidation since 2007
Year Acquirer Target Assets OwnerEstimated Capacity
(ktpy)
2012 New-Indy Containerboard Ontario IP /Temple-Inland 330
2012 New-Indy Containerboard Oxnard International Paper 185
2012 Smurfit Kappa ForneyOrange County
Container290
2013 KapStone P&P Longview Longview Fiber 640
2013 PCA DeRidder and Wallula Boise 685
2014 RockTenn Tacoma Simpson Paper 330
2015 WestRock Newberg and Dublin SP Fiber 225
2015 Hood Container St. FrancisvilleAmzak Capital/
KPAQ145
2017 McKinley Paper (Bio-Pappel) Port Angeles Nippon Paper 200
2017 DS Smith Buyout (80% equity purchase) Interstate Resources 425
Market consolidation since 2007
Market consolidation since 2007
Source: Numera, FBA
Source: 2016 Fibre Box Association Industry Annual Report
806 806
775761 755
738 743733
694 690
554535
523
496 489 489477 473 472 465
400
500
600
700
800
900
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Plant Consolidation over the Last 10 Years
Sheet Plants Corrugator Plants
Source: Numera, FBA
Major capacity changes since 2014
Going forward, six major expansions are expected in the North American containerboard market. Three of these
(Wallula WA, Port Angeles WA , and DeRidder LA) are considered certain and should start up in 2018.
Three more mill projects remain on the horizon (Milwaukee WI, a SAICA project, and Fitchburg MA), but are still being
considered “uncertain” for now. We are currently considering the SAICA project as highly unlikely, given that it has been
some time since any updates were released.
Source: 2016 Fibre Box Association Industry Annual Report
17481.7
16186
14694
15485.6 15518.7 15668.1 15696.7 15506.8 15487.2 15593.4
4481.9 45134166.5
5037.5 5047.6 4816.55109.9
5511.1 5638.2 5510.1
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Domestic Consumption Kraft and Recycled Liner (Thousands of Tons)
Kraft Liner Recycled Liner
Is Cost or demand driving prices increases over the past year?
Paper mills have been running greater than 95% operating rates. When you are running at that benchmark percentage or higher it is the supply demand that is driving the prices to increase. It also means that there is a strong possibility that a price increase could be on the horizon.
Source: Ralph Young, AICC
Price increase December 2016 Price increase May 2017 Just announced a $50/Ton Price
increase potentially for Fall 2017
Operating Rates
July 2017
• Linerboard Mills 97.3%
• Medium Mills 99.4%
Source: RISI Info Friday August 18th 2017 issue & RISI Info Tuesday August 22th, 2017
Projected 2018
• Linerboard Mills 96.6%
• Medium Mills 97.3%
Projected 2019
• Linerboard Mills 96.2%
• Medium Mills 96.3%
Mill Cost Structure and what drives it? What is a typical mill cost per ton for production of liner and medium?
Mill Cost per ton for Liner Production
Kraft $328
Recycled $362
Mill Cost per ton for
Medium Production
Virgin $325
Recycled $351
Source: Ralph Young, AICC
OCC Pricing and impact on final paper and box pricing. China OCC purchases impact on OCC domestic pricing.
• OCC is currently at $165/ton up 55.7% from July 2016
• DLK currently at $195/ton up from $105/ton in July 2016
• OCC price has declined by $2/ton in August and $14/ton in September
• OCC sold to China dropped by $40/ton because of a continued lack of imported license being issued by the Chinese government.
Source: RISI Info Friday August 18th 2017 issue and KeyBanc Capital Markets
Inventory Levels for Industry
Source: 2016 Fibre Box Association Industry Annual Report and Fibre Box Association 2017
2420.7
2182.9
2107
2181.92232.1 2223.3
2432.1
2324.2
2511
2357.92391.1
2341.3
2578.9
2489.3
2664.3
2546.6
2672.3
2426.12392.1
2301.5
1500
1700
1900
2100
2300
2500
2700
2900
Containerboard Inventory Levels for Liner and Medium (Thousands of Tons)
Weeks Supply for Industry
Source: 2016 Fibre Box Association Industry Annual Report and Fibre Box Association 2017
3.7
3.2
3.5
3.7
3.93.8
4.1
3.9
4.3
4 4
3.8
4.4
4.2
4.4
4.2
4.5
4
3.8
3.53.4
3.2
2.5
3
3.5
4
4.5
5
Weeks of Supply (Thousands of Tons)
Anatomy Of A Price Increase
• February, 2017 Kapstone Paper and Packaging announces a $50/ton increase in containerboard, 10% on finished goods and 12% on sheets effective March 13, 2017
• Within a few days all of the 4 major integrated producers of paper announced the same price increase on paper on the same date.
• RISI’s Pulp and Paper Week does not increase index prices in March Price Watch.
• Pulp and Paper Week shows a $50/ton increase in April Price Watch siting that “producers easily passed on this increase to non-contract buyers of paper.
Public Company Performance
Source: http://financials.morningstar.com/ratios/r.html?t=KS
1217
1748
2301
2789
3077 3143
0
500
1000
1500
2000
2500
3000
3500
4000
2012 2013 2014 2015 2016 2017 (est)
Kapstone Revenue (Millions)
63
127
172
106
86
75
0
20
40
60
80
100
120
140
160
180
200
2012 2013 2014 2015 2016 2017 (est)
Kapstone Net Income (Millions)
Summary And Recommendations
• Growing demand, low new capacity coming on line and continued consolidation for the industry points to continued upward pressure on pricing in next few years.
• Demand could spike further if Trump vow to bring more manufacturing back to US materializes.
• Opportunities now for further lightweighting of packaging becoming available. Make sure you are not over packing your goods.
• Have your vendor conduct a full packaging audit. This should tell you if your packaging styles, grades and quantities are appropriate.
• Make sure to align yourself with the right vendor model (sheet plant or corrugator) based on your annual packaging spend.
• For improved efficiencies, invest in tooling short term for long term savings.
• Look for alternative pricing trigger than tying price changes to Pulp and Paper Index.