Global Paper Packaging Outlook With a Focus on the Latin American Markets RISI Latin American Conference August 2018 Amanda Miranda Fantinatti Economist, Latin America, Paper Packaging
Amanda Miranda Fantinatti Economist, Latin America, Paper Packaging afantinatti@risi.com Studied economics at the University of São Paulo and earned a Master s Degree in Economics at Fundação Getúlio Vargas (FGV). Based out of RISI s São Paulo office. Primarily responsible for developing the packaging sections for the Latin American forecasts and coverage of other markets such as Africa, Oceania and the Middle East. Cover key paperboard market segments as well as downstream dynamics in converting and end use markets. Previously served as an economist for Parcitas Investimentos. Prior to that, worked at Banco Safra de Investimentos and Brevan Howard Asset Management. Teaching assistant at FGV. 2
Agenda Containerboard Overview o Global Scenario Recovered Paper o Latin America Boxboard Overview o Latin America 3
Containerboard Overview
Global Containerboard Demand, 2017 Asia has the largest market, followed by North America and Western Europe Middle East 2% All Other 3% North America 18% Western Europe 14% Latin America 8% Eastern Europe 7% Asia 48% 5
North America 6
The North American Market Shows Strong Growth Containerboard apparent consumption, annual percent change 6% 5% Percentage Change 4% 3% 2% 1% 0% 2012 2015: 2.0% 2016 2019: 2.8% 1% 2% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 7
Demand Should Continue to Outstrip Supply in North America Through 2018 4% 3% 2% 1% 0% 1% 2% 3% Change in Demand Change in Capacity Operating Rates (R) 2011 2012 2013 2014 2015 2016 2017 2018 2019 99% 98% 97% 96% 95% 94% 93% 92% 8
North American Net Virgin Exports to Remain Flat Net Exports, Thousand Tonnes 6,000 5,000 Recycled Containerboard Virgin Containerboard 4,000 3,000 2,000 1,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 9
Europe 10
European Market Decelerating from Peak in 2017 Slowing not too dramatic due to supportive market trends (e commerce/ substitution of plastics) 10% 7% Western Europe Eastern Europe 5.7% 4% 2.8% 1% 2% 5% 2011 2012 2013 2014 2015 2016 2017 2018 2019 11
Containerboard, Western Europe Capacity utilization is slowly decreasing, above historical averages, supporting current price levels Thousand Tonnes 2,000 1,500 1,000 500 0 Demand Capacity Operating Rates (R) 97% 96% 95% 94% 93% 92% 91% 500 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 90% 12
Western Europe Will Continue to Be a Net Virgin Containerboard Importer 2,000 Net Imports in Thousand Tonnes 1,000 0 1,000 2,000 3,000 4,000 Recycled Containerboard Virgin Containerboard 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 13
China 14
China Seems Serious About Pollution, Eliminating Wastepaper Imports Facts Aim China banned mixed paper imports Strict 0.5% allowable contamination limit for its recycled paper imports Clean up the country s environment as China continues to modernize rapidly New proposal Entire ban of imported solid waste, included recovered paper before 2020 Another motive for the ban? Imported fiber supplies one third of China s containerboard production In 2017, China imported more than 20 million tonnes of recycled paper Containerboard production is capitalintensive while box production is laborintensive Choosing one s battles! 15
Chinese RCP Imports Million Tonnes Old Newspaper (ONP) Old Corrugated (OCC) Mixed Papers (MIX) High Grades (HGR) 2017 4.9 0.8 4.9 In 2017, China consumed 79.3 million tonnes of recovered paper (RCP), of which more than 30% was imported. Of the suppliers of RCP to China, the USA is definitely the most important. 15.1 16
Chinese Containerboard Net Imports 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 500 Recycled Containerboard Virgin Containerboard 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 17
China: Major Revisions to the Forecast Chinese containerboard demand growth in 2018 April forecast: +3.8% Preliminary August forecast: 2.0% Reasons Weakening economy Trade war Substitution effects 18
Latin America 19
Containerboard Demand Growth in Latin America Thousand Tonnes, Percentage Change 16,000 14,000 12,000 10,000 8,000 Domestic Production Net Imports Percentage Growth (R) 20% 15% 10% 5% 6,000 4,000 2,000 0 Avg 2003 2010: 5% Avg 2011 2018: 2.4% 0% 5% 10% 20
Latin American Containerboard Consumption Thousand Tonnes, Percentage of Total Consumption, 2017 4,365 33% 4,312 33% Kraftliner Recycled Liner Semichemical Medium Recycled Medium 800 6% 3,743 28% 21
Share of Virgin Containerboard Demand Varies by Region Latin American classifications are not as strict in the USA 70% 60% 50% 40% 30% 20% 10% 0% North America Western Europe Latin America Eastern Europe All Others 22
The 10 Largest Latin American Containerboard Markets by Volume, 2017 3% 2% 2% 5% 3% 4% 4% 4% 7% 35% Mexico Brazil Argentina Chile Colombia Ecuador Guatemala Costa Rica Caribbean Islands Venezuela All Others 31% 23
The Latin American Packaging Markets Are Far from Homogeneous Latin American containerboard apparent consumption is concentrated in just a few countries 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Mexico Brazil Argentina Chile Colombia Ecuador All Others 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 24
Changes in Latin American Containerboard Consumption by Major Country 600 400 200 0 200 2011 2012 2013 2014 2015 2016 2017 2018 2019 5% 4% 3% 2% 1% 0% 1% 2% Mexico Brazil Argentina Chile Colombia Ecuador All Others % Change (R) 25
Upside Risks: E Commerce E commerce boosting containerboard sales in the world Internet Users Who Bought Goods and/or Services Online in the Last 12 Months in Brazil 2007 2010 2017 16% Source: www.cetic.br. Total 19% 35% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2010 By Income Minimum Wage 2017 Up to 1 MW 1 MW to 2 MW 2 MW to 3 MW 3 MW to 5 MW 5 MW to 10 MW More than 10 MW 26
Downside Risks: Growth Momentum Worsened; Uncertainty Mount World: Trade War Brazil: Truckers Strike 500 Paper Packaging Production in Brazil 90 Tonnes, IBÁ 460 420 380 340 Packaging & Wrapping May 2018 Cardboard (R) 300 2016 2017 2018 80 70 60 50 40 30 27
Downside Risks: Growth Momentum Worsened in Brazil and Argentina 3.5 3.0 Brazilian Annual GDP Growth Expectations Survey, BCB 3.20 2018 2019 Argentinean Annual GDP Growth Expectations Survey, BCRA Percent 2.5 2.0 1.5 1.50 1.0 2014 2015 2016 2017 2018 28
Uncertainty in RCP Policies to Boost Exports? Latin American Net Imports and Imports Share 5,000 4,000 Brazil Net Imports Other Latin American Net Imports Mexico Net Imports Imports/APC (R) 30% 28% Thousand Tonnes 3,000 2,000 1,000 0 26% 24% 22% Percent 1,000 267 334 385 2002 2004 2006 2008 2010 2012 2014 2016 2018 20% 29
Argentina Is the Largest Destination for Brazilian Kraftliner Exports Thousand Tonnes 160 140 120 100 80 60 40 20 Argentina Belgium 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Italy Ecuador Chile All Others 30
Containerboard Supply Outlook in Latin America Thousand Tonnes, Percentage Change 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Capacity Production Operating Rate (R) 100% 95% 90% 85% 80% 75% 70% 31
Capacity Expansion Projects, 2018 2020 Company Mill Country Capacity Date Grade Thousand Tonnes Papelera del NOA Rio Blanco Argentina 30 2017 Medium Papelera del NOA Quilmes Argentina 80 2017 Recycled CNT PCM Guadalupe Mexico 78 2018 Recycled CNT Smurfit Kappa Los Reyes Mexico 100 1Q18 Medium Grupo Gondi Tlalnepantla Mexico 54 1Q18 Recycled CNT Grupo Gondi Guadalajara Mexico 41 1Q18 Recycled CNT Empaques Nova Umán Mexico 6 1Q18 Recycled CNT Copamex Anahuac Mexico n/a n/a Recycled CNT Cocelpa Araucária Brazil 288 1Q18 Medium Grupo Gondi Monterrey Mexico 400 4Q19 Recycled CNT Agroforestal Oberá n/a Argentina 500 n/a Kraftliner Papel Prensa Buenos Aires Argentina 170 n/a CNT Klabin Ortigueira Brazil 400 500 4Q20 Kraftliner 32
Boxboard Overview 33
Boxboard Definition = All Paperboard Except Containerboard Boxboard as a global product can be fairly difficult to classify given the variety of subgrades that are available, some of which are regionally specific. RISI s solution? An entirely new classification system based on available trade data. Solid bleached sulfate (SBS) Folding boxboard (FBB) and white lined chipboard (WLC) Coated unbleached kraft (CUK) Coated recycled board (CRB) Uncoated recycled board (URB) 34
Boxboard Demand Has Grown Steadily over the Past Decade in Latin America, Outpacing Real GDP Thousand Tonnes 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Domestic Production Net Imports Percentage Growth 2002 2004 2006 2008 2010 2012 2014 2016 2018 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2% 4% Percentage Change 35
Boxboard Consumption in Latin America Is Dominated by the Virgin Grades 494 16% Folding Boxboard/White Lined Chipboard (FBB/WLC) 594 19% 1,480 47% Solid Bleached Sulfate (SBS) Coated Unbleached Kraft (CUK) Coated Recycled Board (CRB) 50 2% 518 16% Uncoated Recycled Board (URB) 36
Mexico and Brazil Are the Largest Boxboard Consumers in the Region 4,000 3,500 Brazil Mexico Chile Colombia Argentina Venezuela All Others Thousand Tonnes 3,000 2,500 2,000 1,500 1,000 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 37
Latin America Is a Net Importer of Boxboard Despite the Substantial Exports out of Brazil and Chile Thousand Tonnes 1,400 1,200 1,000 800 600 400 200 0 200 400 600 Brazil and Chile Net Imports Rest of Latin America Net Imports Imports/APC 60% 50% 40% 30% 20% 10% Percent 38
The Challenging Economic Scenario Has Put Several Boxboard Capacity Expansion Projects on Hold Company Mill Country Capacity Thousand Tonnes Date Grade Ibema Turvo Brazil 30 2011 / Idled Virgin duplex MD Papéis Limeira Brazil 10 2013 / Idled Coated recycled Klabin Monte Alegre Brazil 50 2014 Virgin duplex Cartones Ponderosa San Juan del Rio Mexico 30 2012 Coated recycled GreenPaper San Nicolas los Garza Mexico 6 2013 Uncoated recycled Gondi Group Guadalajara Mexico 50 2014 Coated recycled MD Papéis Lapa Brazil 120 2015 / Idled Boxboard Papirus Limeira Brazil N/A 2015 / Idled Boxboard CMPC Maule Chile 93 2018 Virgin duplex GreenPaper San Nicolas los Garza Mexico 20 1Q 18 Recycled boxboard Klabin Ortigueira Brazil 400 500 1Q 23 Virgin duplex 39
Virgin Boxboard Market Share in Latin America CMPC 29% Suzano 13% IBEMA 5% Smurfit Kappa Group 2% Carvajal 1% Rest of Market 3% Klabin 47% 40
Take Home Points on the Paper Packaging Outlook Global Containerboard Demand shows strong growth, at a slower pace It will take a few years for the supply side to catch up with demand Pricing power should remain firmly in seller s hand through 2019 China seems serious about pollution, eliminating wastepaper imports Trade war strategy? A lot of uncertainty surrounding China s policies Latin America Reassessment in Latin America's 2018 growth outlook We are still optimistic on growth going ahead Economic recovery should boost regional paper packaging demand growth New investments expected for the near future Copyright 2016 RISI, Inc. Proprietary Information 41
Thank you! Questions? For more information Outlook for Brazil s Paper Packaging Markets www.risi.com/brazilpackaging World Boxboard Study: Americas www.risi.com/worldboxboard 42