RISI North American Outlook

Transcription

1 RISI North American Outlook Containerboard and Boxboard North American Conference October 2018 Ken Waghorne VP, Global Packaging

2 A Renaissance for the North American Containerboard and Boxboard Markets Domestic demand growing solidly Ongoing recovery in manufacturing Boosted by new opportunities for growth Trade balance is shifting dramatically in both markets Policy shifts in China leading to major changes When will capacity expansion catch up to demand growth? 2

3 Industrial Production of Processed Foods and Other Nondurable Goods Has Rallied Since 2016 Annual Growth, Percent Nondurable Goods Processed Foods Consumer Spending on Foods

4 US Corrugated Box Shipments and Containerboard Cutup Has Outpaced Manufacturing Since Annual Growth, Percent Industrial Production Corrugated Containerboard E commerce is boosting the impact of the rally in manufacturing

5 How Large Is the Boost from E commerce? Hard data are difficult to find, leading to subjective estimates 390, , , , , , , ,000 Box Shipments Relative Nondurable Goods Production Discernable upturn in ratio of shipments to nondurable goods production since 2014 What would 2017 shipments have been if this ratio remained at level? 5

6 How Large Is the Boost from E commerce? Box shipments would have increased 2.5% from 2014 low in 2017 just from growth in nondurable goods production Million Square Feet 390, , , , , , ,000 Baseline Actual Actual shipments were up 5.9% instead E commerce estimated to have added billion square feet of corrugated box demand in four years Not counting any growth in nonbox uses of corrugated sheet 6

7 Downside from E commerce: Product Design Will Eventually Shift From the Amazon Frustration Free Packaging webpage: Overpackaging will begin to abate, leading to a more moderate boost to corrugated demand Boxboard demand could be undercut if packaging gets an e commerce redesign 7

8 Boxboard Has Opportunities That Could Offset Potential Losses to E commerce The June issue of National Geographic kicks off a multi year effort at raising awareness of the global plastics crisis Numerous governments have initiated actions attempting to constrain plastic waste 8

9 In the Last Four Years, Numerous Plastic Products Have Started to Be Replaced with Paperboard Mandates in place: Could these be next? 9

10 What Does This Mean for Domestic Demand? Continued Growth as Long as the Economy Is Hot 5.0 Containerboard Market Growth, Percent 5.0 Boxboard Market Growth, Percent Ind. Prod. Nondurable Goods Corrugated Containerboard Ind. Prod. Processed Foods Folding Other Boxboard

11 International Trade Issues China s policy shifts regarding recovered paper imports are having global implications 11

12 The Impact of China s RCP Import Policy Changes Will China be able to ban ALL RCP imports by 2020? China RCP Imports, Million Tonnes Regulatory Loss Other RCP Mixed Paper Boxboard producers were hit hard by the ban on mixed paper imports Containerboard producers are struggling with the ongoing issues with OCC 12

13 China s Trade Position Is Shifting Dramatically Boxboard was the first to be affected Boxboard Net Exports, Million Tonnes Exports peaked at 1.5 million tonnes in 2016 Before dropping 100,000 tonnes in 2017 Similar declines likely for

14 China s Trade Position Is Shifting Dramatically Changes in the containerboard market will dwarf the shift for boxboard Chinese Net Imports, Million Tonnes Loss of imported OCC will Boxboard have devastating impact on 5.0 Containerboard Chinese production Global containerboard 2.0 imports totaled just million tonnes in % increase in global import 2.0 demand

15 What Does This Mean for the North American Packaging Markets? Boxboard trade balance shifting in producers favor 1,400 1,200 US Boxboard Imports, Thousand Tons Folding Other Boxboard 3,000 2,500 US Boxboard Exports, Thousand Tons Folding Other Boxboard 1, ,000 1,500 1,

16 What Does This Mean for the North American Packaging Markets? Strong increase in US containerboard exports Thousand Tonnes US Kraftliner Exports by Destination YTD through July Mexico China Italy Canada Guatemala US Containerboard Exports, Million Tons Kraftliner Recycled Liner Virgin Medium Recycled Medium

17 Capacity Expansions 17

18 Chinese Firms Are Investing in North American Assets as a Hedge Against Potential Zero RCP Import Policy Company Mill Grade Type Announced Nine Dragons Rumford, ME Graphic paper Conversion? May 2018 Nine Dragons Biron, WI Graphic paper Conversion? May 2018 Nine Dragons Fairmont, WV Deinked pulp OCC/mixed pulp? September 2018 Global Win Wickliffe, KY Graphic paper restart Conversion August 2018 Sun Paper Arkadelphia, AR Kraftliner Greenfield April 2016 / January 2018 More to come? Three are rumored to be in the works Recycled pulp or conversion? 18

19 Seven Large Containerboard Expansions Were Listed in the May 2018 AF&PA Capacity Report Company Mill Grade Change (000 Tons) Year PCA Wallula, WA Kraftliner conversion Verso Jay, ME Kraftliner conversion IP Selma, AL Kraftliner conversion WestRock Florence, AL Replacement kraftliner machine 27 net 2020 Midwest Paper Combined Locks, WI Recycled conversion 220 est Pratt Wapakoneta, OH New recycled mill Green Bay Green Bay, WI Replacement recycled mill 445 net

20 The List of Planned Containerboard Expansions Extends Beyond the AF&PA List Company Mill Grade Change (000 Tons) Year Announced Mills Cascades Ashland, VA Recycled conversion McKinley/Bio Pappel Port Angeles, WA Recycled conversion 160 On prolonged hold Announced Incremental Traditional Creep Assumed All 450 Annual Under study: Domtar Will they or won t they???? 2020 or beyond? Other conversions If Chinese buying doesn t ramp up???? 20

21 Major Capacity Changes in the Boxboard Market Are Much More Limited Than Containerboard Company Mill Grade Change (000 Tons) Year Paperworks Philadelphia, PA Coated Recycled WestRock Santa Clara, CA Coated Recycled Sappi Skowhegan, ME SBS

22 Bottom Line: The Demand/Supply Balance Is Not Expected to Loosen Before 2020 Production growth vs capacity growth and operating rates Containerboard Boxboard Million Tons Production Capacity Operating Rate (R) 100% 95% 90% 85% Thousand Tons Production Capacity Operating Rate (R) 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% % % 22

23 North American Containerboard and Boxboard Summary Domestic demand will continue to grow strongly through 2020 Barring an earlier than expected economic slowdown Trade shifts should boost production for both segments Policy shifts in China leading to major changes Operating rates should remain well above historical norm Even with the large amount of planned containerboard capacity that is scheduled to come online 23

24 Thank you! Questions? For more information on RISI s global paper packaging and containerboard coverage, visit 24