Fastmarkets RISI Global Boxboard Outlook

Transcription

1 Fastmarkets RISI Global Boxboard Outlook Forces shaping the boxboard industry 1

2 At the top of the business cycle? 2017 was a strong year, 2018 not so much Deceleration in the global economy Boxboard demand slowing Markets growing oversupplied 2

3 Consumer board How can I save more on groceries? Price Did I liked this product last time? Known brands are predictable Are these products good enough for my family? Do I really need it? What can I do to support the environment? Plastic or paper? 3

4 Voice of the customer is getting louder 4

5 Social media: The great influencer 5

6 E-commerce is changing the way products are packed

7 Million square meters The rise of the discount retailer Million SQM Sales area of EU grocery channels ,250 football fields Discounters In Europe, discounters generate 22% of all FMCG sales Private labels becoming the smart choice Discounters are good at satisfying basic needs They have a higher proportion of processed food than hypermarkets and supermarkets 7

8 Perception of private labels is not the same as 10 years ago (generic) After trying them, consumers often keep buying private labels, even when income increases Most consumers believe private labels offer excellent value for money The rise of the private label 35% 30% 25% 20% 15% 10% 5% 0% Global EU NA LATAM APAC Source: Nielsen Value share growth Rise of private labels will cause more expenditure on branding Could increase use of packaging (plastic??) 8

9 However, this might go against the current movement away from single-use plastics 9

10 An opportunity for fiber-based packaging? Consumer board manufacturers already offer solutions, although plastics (mostly PE) are still used for barrier properties Elopak launches Pure-Pak cartons made with Natura Life by Stora Enso 100% recyclable and can be recycled through existing channels 10

11 The bottom line is growth is weaker Change in demand, global boxboard Thousand tonnes 4,500 4,000 3,500 3,000 2,500 No, 2018 is not a mistake Demand growth was basically zero 2,000 1,500 1, Current Previous Million tonnes Lost opportunities between 2018 and

12 North America Europe Asia Rest of world Most of the losses are in Asia - 240,000 tonnes million tonnes - 355,000 tonnes - 210,000 tonnes Million tonnes Previous Current Million tonnes China in particular Demand declined 6% in 2018 No growth is expected for 2019 Growth only resuming in 2020 (+2.7%) What is driving the demand losses in China? Ongoing economic slowdown Imported fiber restrictions Higher prices China boxboard demand Current Before

13 Despite weak demand in 2018 Global boxboard demand and capacity changes Thousand tonnes 5,000 4,000 3, % 89.0% 88.0% 87.0% Global market balances Despite weak demand, operating rates increased to 86% in 2018 thanks to the removal of capacity 2,000 1, % 85.0% 84.0% Rest of world Capacity changes in ,000-2,000 Capacity Demand OR 83.0% 82.0% 81.0% 80.0% 79.0% North America Europe Asia Million tonnes

14 Global boxboard operating rates 100% 95% North America leading the way thanks to the removal of capacity Europe tightening, although still below the USA Overcapacity keeping operating rates low in Asia 90% 85% Asia is by far the largest region in the world 80% NORTH AMERICA EUROPE 75% 10% 21% ASIA REST OF WORLD 70% % 24% North America Asia Europe 14

15 Two large net exporting regions: Net trade as proportion of production China is changing global trade patterns once again (fiber import ban since 2017) 20% Asia has grown less reliant on imports to satisfy domestic demand. However, things are changing The reduction in North American net exports could also mean an increase in imports Europe is slowly becoming a larger player in overseas markets 15% 10% 5% 0% -5% -10% -15% % Asia North America Europe 15

16 CUK prices above SBS for the first time in history 16

17 Demand growth returning to historical average Thousand tonnes % 96.0% 95.5% 95.0% 94.5% 94.0% 93.5% Boxboard North America Clear tightening of the market since 2017 Capacity reductions playing an important role Conversion works at Sappi reversing the trend % 92.5% Demand slowing during the second half of the year Demand Capacity OR 92.0% 91.5% Demand for liquid packaging and food service grades growing less than 1% in 2019 and

18 Tightening driven by demand Thousand tonnes % 97% 96% 96% 95% Virgin boxboard Strong demand for CUK, aided by closure at GPI Santa Clara mill (formerly CBR) Demand Capacity OR 95% 94% 94% 93% 93% 92% CUK influenced by beverage carriers and food service board Demand growth slowing during second half of 2018, affecting overall growth in 2019 as well Sappi conversion eroding operating rates 18

19 USD per tonne 1,300 1,250 1,200 1,150 1,100 CUK prices above SBS in the USA Historical premium for SBS close to US$60/tonne Currently, CUK prices almost US$90/tonne above SBS Factors behind higher CUK prices Far more concentrated supply for CUK (2 vs 8) Perception that brown products are more environmental friendly CUK increasing popularity within food service board Producers implemented another $50/tonne increase in February 1,050 1, Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 CUK Jan 2016 SBS Jul 2016 Jan 2017 Jul 2017 Jan 2018 Jul 2018 Jan 2019 Factors holding SBS prices down Imports of multi-ply from Europe and Asia affecting domestic SBS markets Sappi conversion at Somerset mill SBS prices dropped $20/tonne in February 19

20 Tightening driven by capacity Thousand tonnes % 93% 93% Recycled Boxboard Capacity closures leading the tightening of the market 0 92% 92% Demand expected to decline 6.3% this year, partly due to conversions % 91% 90% Weak domestic demand and higher imports causing capacity to drop 11% between 2017 and Demand Capacity OR 90% 20

21 China fiber import bans changing industry landscape 21

22 Demand growth returning to historical average Thousand tonnes 4,000 3,000 2,000 1,000 82% 81% 80% 79% Boxboard Asia Consumption of paper and board still constrained High paper prices contributing to the accelerated decline in ,000-2, Demand Capacity OR 78% 77% 76% 75% Investment has decelerated Removal of more than 1.6 million tonnes in 2018 driving operating rates above 80% China fiber import ban changing the landscape 22

23 Production affected due to lack of fiber Production costs to increase, leading to higher paper prices Exports will decline as Chinese competitiveness dwindles Demand to be affected by higher prices Oh Sheet! Global markets will remain tighter than they have been 23

24 Demand growth returning to historic average Thousand tonnes 4,000 3,000 2,000 1, % 81% 80% 79% 78% Boxboard China Demand declining almost 1 million tonnes in 2018 Production dropping more than 1.2 million tonnes due to weak demand, capacity closures and downtime (lack of fiber) -1,000-2,000 77% 76% China s exports retreating (lack of competitiveness in global markets) -3, Demand Capacity OR 75% Capacity dropping 9% due to bankruptcies and forced closures (mostly duplex) 24

25 Chinese producers are less competitive in global markets China went from being one of the lowest to the highest cost producer in the world North America, on the other hand, reduced its average cash costs significantly Global cash cost comparison 2017 vs 2018 Thousand tonnes 2,000 1,500 1, Chinese boxboard net imports Million tonnes % Cash costs, EUR/FMT -1,000-1, ,000 0 North America Europe Asia China 0 Capacity

26 2017 was a strong year; demand has since weakened 26

27 Demand growth affected by weakness in economic growth Additional factors such as Brexit and trade disputes not helping Capacity still growing more than demand Exports taking some of the added capacity 100.0% 98.0% 96.0% European demand growth slowing down After a strong first half of the year, demand clearly slowed down during the second half Operating rates Million tonnes Demand Capacity 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% Now Before 27

28 Demand growth returning to historical average Thousand tonnes % 92% 91% Virgin boxboard 1.5-2% % 89% 88% 87% Good performance on food service board Capacity is set to increase % 85% 84% Strong growth on exports to keep operating rates rising, although slower than before Demand Capacity OR 28

29 Recycled board growing at slower pace Thousand tonnes % 93% 92% Recycled boxboard 1-1.5% 50 92% 91% No major changes in capacity foreseen % 90% Exports rising slightly, but most increases will not be seen here % 89% Producer s margins improving Demand Capacity OR 29

30 European capacity starts, A few additional noteworthy changes Iggesund postponing 100,000 capacity increase in Sweden (SBS) Stora Enso pending decision regarding Oulu conversion (450,000 tonne CUK and 400,000 tonne kraftliner) COMPANY MILL COUNTRY CAPACITY DATE Kotkamills Folding boxboard 400,000 (FI) Husum Folding boxboard 400,000 (SE) Sappi Maastricht Netherlands 150, BillerudKorsnӓs Gruvӧn Sweden 550, Bellesbumprom Dobrush Belarus 200, ?? Kipas Sӧke Turkey 720,000 Q Kama Krasnokamsk Russia 220, Dobrush Virgin cartonboard 200,000 (BLR) Kipas Virgin and recycled cartonboard/ linerboard 720,000 (TK) Gruvön Virgin cartonboard 550,000 (SE) Kama Folding boxboard 220,000 (RU) 30

31 Global virgin boxboard prices Asia Euros per tonne Strengthening of the USD Prices coming down due to demand weakness (higher paper prices?) Weaker exports not helping either More capacity under way will keep downward pressure on prices Europe 900 Prices went up by 30-35/tonne in January and February Higher market pulp prices Increase announced by producers was for up to 85/tonne Asia Germany US North America CUK prices rising by an additional $50/ton while SBS dropping $20/ton 31

32 Global recycled boxboard prices Asia Latest increases due to PfR price volatility Euros per tonne Strengthening of the USD Prices rising as consumption returns after buyers delayed purchases before the holidays to make sure prices indeed hit bottom (declining still in Q4 2018) Europe Prices will remain flat due to demand weakness Chinese fiber restrictions PfR prices are expected to remain under downward pressure due to China s imported fiber ban 300 North America Germany US Asia Higher operating rates have allowed prices to move up by $150/ton in 2018 Tight market conditions are the driving force behind the increases 32

33 Take home points Boxboard demand growth is slowing down We estimate 2.5 million tonnes of lost opportunities by 2020 Asia clearly underperforming the rest of the world Chinese demand declining by almost 1.0 million tonne in 2018 Fiber import ban affecting competitiveness of Chinese producers Chinese exports trending down, also because of weak global demand CUK prices in North America above SBS This will drive demand back to SBS in the coming months Virgin boxboard market balances affected by conversions of capacity European demand returning to its average growth of 1.5-2% per year New capacity entering the market will keep operating rates flat to down 33

34 Thank you PAPER PACKAGING MONITOR EUROPE 34