Global Containerboard Outlook With a focus on the Asian market RISI Asian Conference May 2017 Ken Waghorne VP, Global Packaging
Ken Waghorne VP Global Packaging kwaghorne@risi.com One of the original Resource Information Systems, Inc. economists With RISI since 1983 Developed RISI packaging models Works with more than 200 packaging paper clients worldwide Assisted by five local economists in RISI regional offices Directs numerous single- and multi-client studies on paper packaging materials Copyright 2016 RISI, Inc. Proprietary Information 2
Agenda Global Overview Asia Europe North America Latin America Africa, the Middle East, Oceania Conclusions 3
Global Containerboard Demand Asia has the largest market, followed by North America and Western Europe 162 Million Tonnes in 2016 7% 5% Far East 14% 8% 47% North America Western Europe Latin America Emerging Europe 19% All Others 4
Share of Virgin Containerboard Demand Varies by Region 70% 60% 61% 50% 40% 30% 20% 21% 38% 21% 30% 10% 9% 0% Far East North America Western Europe Latin America Emerging Europe All Others 5
Global Capacity Will Grow Mostly in Recycled Containerboard Global Capacity, Thousand Tonnes 250,000 200,000 Virgin Containerboard Recycled Containerboard 150,000 100,000 50,000 27% 23% 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 6
Global Virgin Containerboard Demand Is Dominated by North America 40 Million Tonnes in 2016 6% 6% 17% Far East 12% North America Western Europe Latin America 12% Emerging Europe 47% All Others 7
Asia 8
China Continues to Account for More Than 60% of Asian Demand Apparent Consumption, Thousand Tonnes 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2012 2013 2014 2015 2016 2017 2018 Other Countries Vietnam Japan Thailand Indonesia India Taiwan South Korea China 9
Wave of Capacity Expansion Dominated by China China set for huge increase in capacity in 2017-18 with total of 7.8 MT at 23 projects Announcements of another 19 with 6.5 MT How much capacity will be shut? Due to new environmental regulations Forced temporary reductions will affect levels Outside of China, biggest development is capacity additions in Vietnam 5 projects (2 are small) in 2017 w/capacity of 1.2MT; 1 project in 2018 Thailand and Indonesia also have capacity additions in 2017 and 2018 No. of Projects 2016 China 10 2.5 Other Asia 2 0.3 1H17 China 7 1.8 Other Asia 4 1.4 2H17 China 7 2.5 Other Asia 2.04 2018 China 9 3.5 Tonnage (Million) Other Asia 2+ 0.4+ 10
Million Tonnes Capacity Growth in Asia Is Expected to Outpace Demand in 2017 6 5 4 3 2 1 0 Demand Capacity Operating Rates 2011 2012 2013 2014 2015 2016 2017 2018 90% 89% 88% 87% 86% 85% 84% 83% 82% 81% 80% 11
Net Exports of Recycled Containerboard in Asia Are Expected to Grow in 2017 Net Exports, Thousand Tonnes 500 0-500 -1,000-1,500-2,000 Virgin Containerboard Recycled Containerboard 2011 2012 2013 2014 2015 2016 2017 2018 12
Not a Lot of Room for Growth Since Most Recyled Trade Is Regional In 2016, 85% of Asian recycled linerboard exports and 91% of recycled medium exports went to Asia The Middle East and Africa were the next two leading destinations in 2016 The Middle East accounted for 12-18% in 2015, but then Indonesia pulled back exports Compete mostly with European suppliers in these markets Only 8-12% of Asia s recycled imports come from outside the region Mostly from Oceania and Western Europe There may be opportunities for recycled linerboard to displace kraftliner 2016 Recycled Linerboard Exports* Asia Middle East Africa Other 2016 Recycled Medium Exports* Asia Middle East Africa Other * Japan, South Korea, Taiwan, China, Indonesia and Thailand accounted for 96-98% of 2016 Asian exports 13
J-12 A-12 J-12 O-12 J-13 A-13 J-13 O-13 J-14 A-14 J-14 O-14 J-15 A-15 J-15 O-15 J-16 A-16 J-16 O-16 J-17 A-17 The Containerboard Price Surge in China Eased Off a Bit in March Renminbi per Tonne 5,000 4,500 4,000 Kraft Top Liner 170 g (Left Axis) OCC, Imports from the USA (Net) OCC, Post-consumer (Domestic, Net Price) 2,400 2,200 2,000 3,500 3,000 2,500 2,000 1,500 1,800 1,600 1,400 1,200 1,000 14
Will This Pattern Repeat in the Future? Anatomy of a Price Bubble Bubbles tend to follow periods of persistent oversupply and the inevitable price weakness Inventories far lower than normal Producers unable to pass through cost increases Unexpected shift in the demand/supply balance pushes prices upward At some point, panic buying sets in, driving prices through the roof Double ordering sets up sudden end to the bubble when inventories are overstocked Leading to eventual crash Prices find new equilibrium level Inventories are maintained slightly higher than before, just in case 15
Europe 16
Million Tonnes Total Containerboard, Western Europe Demand Growth Is Slowing Down in 2016 and 2017 30 95% 28 26 24 22 20 3.6% 2.5% 1.7% 1.8% 94% 93% 92% 91% 90% 89% 88% 18 2011 2012 2013 2014 2015 2016 2017 2018 Capacity Demand (APC) Production Operating Rate 87% 17
Million Tonnes Trade Trends in Western Europe Virgin Containerboard Imports to Decline in 2017 2.5 Net Exports of Containerboard 2.0 1.5 1.0 0.5 0.0-0.5-1.0 Virgin Containerboard Recycled Containerboard 2011 2012 2013 2014 2015 2016 2017 2018 18
Million Tonnes Containerboard Demand Growth in Emerging Europe to Accelerate Toward 2018 13.5 12.5 11.5 10.5 Capacity Demand (APC) Production 3.4% 3.8% 3.9% 4.5% 9.5 8.5 7.5 6.5 5.5 2012 2013 2014 2015 2016 2017 2018 19
Dynamic Changes in Regional Net Imports in Emerging Europe Net Imports, Thousand Tonnes 1,000 800 600 400 200 0-200 -400-600 Eastern Europe Central Europe Southeastern Europe 2012 2013 2014 2015 2016 2017 2018 20
North America 21
Recycled Containerboard Is Gaining Market Share in North America Over Time Apparent Consumption, Thousand Tonnes 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2011 2012 2013 2014 2015 2016 2017 2018 Kraftliner Semichemical Medium Testliner Recycled Medium 22
Demand Is Currently Outpacing Capacity Growthin North America Change in Thousand Tonnes, Percent 1,600 1,400 1,200 1,000 800 600 400 200 0-200 -400-600 Demand Capacity Operating Rates 2011 2012 2013 2014 2015 2016 2017 2018 99% 98% 97% 96% 95% 94% 93% 92% 23
Accident at International Paper s Pensacola Mill in Cantonment, Florida An explosion on the evening of January 22, 2017, caused significant structural damage to the pulp digester and the power house Paper capacity is 486,000 metric tons per year of lightweight fully virgin kraft linerboard Machine was down a little over two months, leading to a reduction in capacity of roughly 100,000 tonnes The consequences were a significant tightening of the global kraftliner supply/demand balances in the first half of 2017 24
North American Net Exports of Virgin Containerboard Should Drop in 2017 Change in Net Exports, Million Tonnes 0.30 0.25 0.20 0.15 0.10 0.05 0.00-0.05-0.10-0.15-0.20-0.25 Virgin Containerboard Recycled Containerboard 2013 2014 2015 2016 2017 2018 25
Latin America 26
Demand Growth in Latin America Accelerates as Brazilian Economy Recovers Change in Thousand Tonnes, Percent 500 400 300 200 100 0-100 -200 Demand Capacity Operating Rates 2011 2012 2013 2014 2015 2016 2017 2018 90% 89% 88% 87% 86% 85% 84% 83% 82% 27
Thousand Tonnes Brazil and Mexico Account for More Than 70% of Latin American Demand Mexico will outpace Brazil in 2017-2018 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Brazil Argentina Chile Mexico Rest of Latin America 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 28
Net Imports in Latin America Are Set to Grow in the Future Change in Net Imports, Thousand Tonnes 140 120 100 80 60 40 20 0-20 -40-60 Virgin Containerboard Recycled Containerboard 2013 2014 2015 2016 2017 2018 29
Africa, the Middle East and Oceania 30
African Demand Has the Best Outlook Apparent Consumption, Thousand Tonnes 4,000 3,500 Middle East Africa Oceania 3,000 2,500 2,000 1,500 1,000 500 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 31
Net Imports to Grow for Both the Middle East and Africa, Oceania to Export More Net Imports, Thousand Tonnes 1,100 Middle East Africa Oceania 600 100-400 -900 2010 2011 2012 2013 2014 2015 2016 2017 2018 32
Conclusions 33
Global Demand Growth to Accelerate in 2018 After Slowdown in 2017 Apparent Consumption, Thousand Tonnes 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2011 2012 2013 2014 2015 2016 2017 2018 Kraftliner Sem. Medium Rec. Liner Rec. Medium Demand Growth, % 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 34
Take Home Points on Global Containerboard Global demand growth will slow in 2017, but will improve in 2018 Emerging markets will accelerate toward 2018 Massive capacity expansions to happen in recycled containerboard across the globe Putting pressure on fiber costs Globally tighter supply/demand balances in virgin containerboard in the near term Higher operating rates in this segment 35
Thank you! Any questions? For more information on RISI s global paper packaging and containerboard coverage, visit www.risi.com. 36