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Outlook for Global Boxboard
RISI European ConferenceAmsterdam – March 2017
How is the market coping with new capacity and evolving trade flows?
Alejandro MataSenior Economist, European Forest Products
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Alejandro Mata
• Bachelor’s degree in Engineering, MBA degree earned in 2007
• Worked in business and market intelligence functions for one of Europe’s leading paper producers
• Have been analyzing and forecasting the industry since 2009
• Author of the Paper Trader Europe and Paper Packaging Monitor Europe, the European Graphic 5‐Year and 15‐Year Forecasts and the Packaging Paper 5‐Year and 15‐Year Forecasts
Economist, European Forest Products
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3© Copyright 2017 RISI, Inc. | Proprietary Information
What’s on the Agenda for Today….
Who might be impacted?
What are the possible scenarios and…
What if the USA raises more trade barriers?
Global and regional developments
How disruptivewill China continue to be?
4
Many Uncertainties Prevail…
Hard
Soft
• The UK refusing to compromise on the free movement of people
• Leaving the EU single market• Trading with the EU as if it were any other country outside
Europe, based on World Trade Organization
Rise of Trade Tariffs
Single Market?
Tariffs? Movementof People?
Customs Union
EU Budget
Full
Full
Partial
NoWTO
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Boxboard
5© Copyright 2017 RISI, Inc. | Proprietary Information
All paperboard except containerboard
Western Europe – based on how it is constructed
United States – based on converted products
Asia – A mix (grey areas artboard, coated white top)
RISI’s solution: An entirely new classification system based on available trade data
3 3
11
6
4
17
1
12
SOLID BLEACHED
SOLID UNBLEACHED
MULTI‐PLY VIRGIN
POLY COATED SOLID RECYCLED
MULTI‐PLY RECYCLED
SOLID VIRGIN RECYCLED
Boxboa
rd Dem
and
(Million Tonn
es)
Coated Virgin:23 Million Tonnes
Coated Recycled:21 Million Tonnes
Uncoated:13 Million Tonnes
World Boxboard Demand in 2015
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57.6 Million Tonnes
Boxboard Demand in Key Regions, 2015Nearly a majority of world demand comes from Asia
7© Copyright 2017 RISI, Inc. | Proprietary Information
26.7
11.8
9.2
4.13.0
1.2 1.10.4
‐
5.0
10.0
15.0
20.0
25.0
30.0
Asia NorthAmerica
WesternEurope
EasternEurope
Latin America Middle East Africa Oceania
Boxboa
rd Dem
and
(Million Tonn
es)
Large markets, fast growthLarge markets, fast growth
Large, mature marketsLarge, mature markets
Lower consumption levels, high growth
Lower consumption levels, high growth
Boxboard Demand Growth Restrained
8
China Slowdown
Recession in Brazil
Consumer spending down
Influence of e‐commerce
‐4.0%
‐2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
‐2.0
‐1.0
0.0
1.0
2.0
3.0
4.0
5.0
BOXB
OAR
D DEM
AND GRO
WTH
(M
ILLION TONNES)
Demand Change % Change
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Amazon Frustration‐Free Packaging
10
Boxboard Demand per Main Category
0
2
4
6
8
10
12
14
16
2010 2011 2012 2013 2014 2015 2016 2017* 2018*
Coated Recycled Board Demand (Million Tonnes)North America Europe Asia Latin America RoW
+3.4%**+2.8%***
+1.4%** +1.4%***
-0.1%** +0.4%***
* Forecast ** CAGR 10-16 *** CAGR 16-18
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+ 1.6%*
* CAGR 2016 - 2018
+ 2.3%*
+ 3.4%*
0.00 10.00 20.00 30.00
Ctd. Virgin
Ctd. Recycled
Uncoated
Boxboard Demand (Million Tonnes)
2018 2017 2016
11
Boxboard Demand per Main Category
0
2
4
6
8
10
12
2010 2011 2012 2013 2014 2015 2016 2017* 2018*
Coated Virgin Board Demand (Million Tonnes)North America Europe Asia Latin America RoW
+6.8%**
+4.7%***
+2.8%**+2.7%***
0.7%**+1.5%***
* Forecast ** CAGR 10-16 *** CAGR 16-18
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+ 1.6%*
* CAGR 2016 - 2018
+ 2.3%*
+ 3.4%*
0.00 10.00 20.00 30.00
Ctd. Virgin
Ctd. Recycled
Uncoated
Boxboard Demand (Million Tonnes)
2018 2017 2016
Capacity Growing More Than Demand
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0.78
0.8
0.82
0.84
0.86
0.88
0.9
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Ope
ratin
g R
ate
Gro
wth
in M
illio
n T
onne
s
Demand
Capacity
Operating Rate
13© Copyright 2017 RISI, Inc. | Proprietary Information
USA & CANADA
Uncoated31%
Coated Recycled
18%
Coated Virgin51%
Analysis excludes uncoated (all regions)
US economy is improving‐ Good consumption and employment‐ Industrial production still weak
Virgin grades dominate the market
Food service sector contributing most of the growth
USA becoming more attractive for exporters (virgin & recycled)
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Why Are Imports Rising?
4,000
5,000
6,000
7,000
8,000
9,000
2011 2012 2013 2014 2015 2016 2017 2018
Capacity Production Demand • Better demand due to strong upturn in consumer spending (including food consumed at home)
• High prices stimulating searches for alternatives (containerboard)
• E‐commerce to have a negative effect—less shelf‐ready packaging needed
• Capacity closures in North America
• Production flat while demand rising = local producers losing market share to overseas suppliers
Traditionally a tough market to enter
Percentage of folding carton market integrated with boxboard supply
Riegelwood (‐180,000 tonnes)
15© Copyright 2017 RISI, Inc. | Proprietary Information
0
20
40
60
80
100
120
140
160
2012 2013 2014 2015 2016
THOUSA
ND TONNES
US Imports Clay Coated Multi‐Ply
RoW Sweden Finland China Canada
Capacity Changing Trade FlowsIncreasing
Finland Sweden China
Imports rising due to:
Capacity expansions in Asia and Europe
Demand slowdown in China
Strong US dollar boosting prices in the United States
DecreasingImports rising more than
10% each year(two‐year forecast)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
MILLION TONNES
North American Exports
US SBS US CUK All Other NA Exports
Exporters Under Pressure
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SBS producers competing with FBB and Ivoryboard
Lower exports due to:
Capacity closures in North America
Increased pressure on SBS following capacity increases in Asia and Europe
Strong dollar affecting cost competitiveness
Asia36%
Canada18%
L.Am.14%
RoW32%
US Producers Not Longer Low Cost
17© Copyright 2017 RISI, Inc. | Proprietary Information
350
400
450
500
550
600
‐ 2,000 4,000 6,000 8,000
10,000 12,000 14,000
Latin America North America Europe Asia
Global Virgin Cartonboard Cash Cost Comparison
Global cost curve is flatter than before
North America cost to produce impacted by strong US dollar
North America has lost its cost competitiveness and is now more exposed to capacity increases in Europe and Asia
0.8
1
1.2
1.4
1.6
95 97 99 01 03 05 07 09 11 13 15 17
USD/EUR
BeforeAfter
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Asia (China) China is the largest market in Asia,
accounting for 60% of overall demand and most of the growth year on year
Growth in capacity has slowed down to a fraction of what it was a few years ago
Demand is also growing more slowly, leading to very low operating rates
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2012 2013 2014 2015 2016 2017 2018
Supply and Demand Growth in China
Demand Supply
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
0.0
0.5
1.0
1.5
2.0
2.5
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18Boxboa
rd Dem
and Growth (M
illion Tonn
es)
China Rest of Asia Percent (R)
Asia Still Growing, But More Slowly
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‐2,000
‐1,000
0
1,000
2,000
3,000
4,000
5,000
Capa
city Growth, Tho
usan
d Tonn
es
Virgin Recycled Global Demand Growth
Chinese Capacity Growth Increasingly Concentrated in Ivoryboard
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Growth in excess of global demand growth!
Capacity expansions slowing down
Virgin boxboard expansion persisted through 2015, causing operating rates for ivoryboard to decline
‐2.5
‐2.0
‐1.5
‐1.0
‐0.5
0.0
0.5
1.0
1.5
2.0
NET
EXP
ORT
S (M
ILLION TONNES)
China Rest of Asia
Rest of Asia Also Getting Saturated
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‐4,000 ‐2,000 0 2,000 4,000
20022003200420052006200720082009201020112012201320142015201620172018
Asian Net Exports
Net Exports Exports Imports
Asia to become a net exporter as of this year
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Europe
Economic recovery under way. Although uncertainties persist
Virgin grades account for roughly 60% of the market
Biggest challenge Europe is facing is overcapacity
Operating rates will come down, although to remain above 90%
87%
88%
89%
90%
91%
92%
‐400
‐300
‐200
‐100
0
100
200
300
400
500
2012 2013 2014 2015 2016 2017 2018
Supply & Demand Growth
Demand Supply OR
Who will be impacted?
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0 100 200 300 400 500 600 700
Coated Multi-Ply
Coated Solid Board
Poly Coated
UK Demand per Grade, 2016
Production Net Imports
UK relies on imports to satisfy most of its demand requirements
It imports more than 80% of its consumption needs
Suppliers to the UK affected by weak pound
Strong pound and post‐Brexit tariffs might push production costs for end‐users up, changing demand trends for the UK
Possible further substitution
UK Imports Most of Its Requirements
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European Exports On The Rise?
6,000
7,000
8,000
9,000
10,000
11,000
12,000
2011 2012 2013 2014 2015 2016 2017 2018
Capacity Production Demand • Improved economy and higher consumption lifting demand
• Demand growth concentrated food and beverage industries
• Start‐ups at Husum and Kotkamills increasing the need to export more
• Operating rates will come down below 90% for virgin grades
Will Europe succeed in raising exports?
400
420
440
460
480
500
520
‐ 2,000 4,000 6,000 8,000
10,000 12,000 14,000
LatinAmerica
NorthAmerica
Europe Asia
Europe’s Boxboard Trade Surplus
25© Copyright 2017 RISI, Inc. | Proprietary Information
‐2
‐1
0
1
2
3
420
06
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Net Exports, M
illion Tonn
es
W. Europe E. Europe Total Europe
Net exports will manage to increase, although gains will not avoid a reduction in operating rates
Europeans have limited possibilities in North America (mature) and Latin America (small but growing markets)
Further capacity additions will increase pressure on exports
26
Western European Exports At Risk
Americas (15%)
Africa & Middle East (16%)
Asia (20%)
Emerging Europe (47%)
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Ivoryboard taking share in high‐growth markets
Take Home Points on the Outlook for Global Boxboard
• Headwinds will keep global boxboard demand growth restrained in 2016‐2017
• Slowing China, low commodity prices, soft consumer spending data
• The capacity overbuild in China and now Europe will continue to impact global trade
• Especially for virgin boxboard (SBS and FBB)• Chinese ivoryboard is competing in neighboring markets, particularly with commodity grades
• US producers insulated, but pressure is building• Export markets clearly challenged• Import situation continues to develop
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28
Questions?
2828 © Copyright 2017 RISI, Inc. | Proprietary Information
European Board Very Competitive Given Recent US Dollar Moves
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800
1,000
1,200
1,400
1,600
1,800
2012 2013 2014 2015 2016
NET
‐NET
USD
PRICE
PER
TONNE
Coated Ivoryboard(Premium)Brazilian Duplex, VirginBased
Strong US dollar granting “currency‐related” gains to Europe and Asia
Appreciation of the Brazilian Real causing intense cost inflation, forcing prices up
Low operating rates and import trends are keeping US prices steady