Global Containerboard Outlook European Conference March 2018 Gleb Sinavskis Economist, European Paper Packaging Copyright 2018 RISI, Inc. Proprietary Information
Gleb Sinavskis Economist, European Paper Packaging gsinavskis@risi.com Previous experience in the financial services industry Masters in Economics from Uppsala University, Sweden Author/co author of the Paper Packaging Monitor Europe and European Paper Packaging 5 and 15 Year Forecasts Copyright 2018 RISI, Inc. Proprietary Information 2
Agenda Global Overview Asia North America Europe Conclusion Copyright 2018 RISI, Inc. Proprietary Information 3
Synchronized Global Economic Growth Copyright 2018 RISI, Inc. Proprietary Information 4
Growing Global Population and Urbanization Copyright 2018 RISI, Inc. Proprietary Information 5
Rising Share of E Commerce in Global Retail Sales 5,000 30.0% 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 24.6% 8.7% 23.2% 10.1% 21.1% 11.6% 19.1% 13.1% 17.4% 14.6% 16.1% 15.5% 25.0% 20.0% 15.0% 10.0% 5.0% Retail E Commerce Sales Percentage Change Percentage of Total Retail Sales 0 2016 2017 2018 2019 2020 2021 0.0% Source: emarketer, June 2017 Copyright 2018 RISI, Inc. Proprietary Information 6
Global Containerboard Demand Growth Is Above Average in 2018 2019 Apparent Consumption, Thousand Tonnes 200 180 160 140 120 100 80 60 40 20 0 Virgin Containerboard Recycled Containerboard Demand Growth, % 2011 2012 2013 2014 2015 2016 2017 2018 2019 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Copyright 2018 RISI, Inc. Proprietary Information 7
Recycled Containerboard Capacity Growth Continues to Outpace Virgin Capacity, MillionTonnes 200 180 160 140 120 100 80 60 40 20 0 Virgin Containerboard Recycled Containerboard 26% 22.5% 2011 2012 2013 2014 2015 2016 2017 2018 2019 Copyright 2018 RISI, Inc. Proprietary Information 8
Global Containerboard Demand Asia has the largest market, followed by North America and Western Europe 7% 5% Far East 14% 8% 48% North America Western Europe Latin America Emerging Europe 18% All Other Copyright 2018 RISI, Inc. Proprietary Information 9
Global Virgin Containerboard Demand Is Dominated by North America 41 million tonnes in 2017 6% 6% 17% Far East 12% 12% North America Western Europe Latin America Emerging Europe 47% All Other Copyright 2018 RISI, Inc. Proprietary Information 10
Asia Copyright 2018 RISI, Inc. Proprietary Information 11
China Continues to Account for More Than 60% of Asian Demand Apparent Consumption, Thousand Tonnes 100,000 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 2019 Other Countries Japan Thailand Indonesia India Taiwan South Korea China Copyright 2018 RISI, Inc. Proprietary Information 12
OCC Price Volatility in China US Dollars per Tonne 490 440 390 340 OCC (1.05) Imports from Europe (Net Price) OCC, Imports from Japan (Net) 290 240 OCC, Imports from the USA (Net) 190 140 OCC, Post Consumer (Domestic, Net Price) Jan 2013 Apr 2013 Jul 2013 Oct 2013 Jan 2014 Apr 2014 Jul 2014 Oct 2014 Jan 2015 Apr 2015 Jul 2015 Oct 2015 Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Oct 2017 Jan 2018 Copyright 2018 RISI, Inc. Proprietary Information 13
Containerboard Prices in China Increased Substantially, Driven by Escalating Costs US Dollars per Tonne 1,000 900 Kraft Top Liner, 170 g, East China 800 700 600 Testliner, 140 g, East China 500 400 High Strength Corrugated Medium, 120 g, East China Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 Nov 2014 Jan 2015 Mar 2015 May 2015 Jul 2015 Sep 2015 Nov 2015 Jan 2016 Mar 2016 May 2016 Jul 2016 Sep 2016 Nov 2016 Jan 2017 Mar 2017 May 2017 Jul 2017 Sep 2017 Nov 2017 Jan 2018 Copyright 2018 RISI, Inc. Proprietary Information 14
Monthly Imports in China in 2016 2017 by Grade Tonnes 250,000 Recycled Liner Recycled Medium Semichemical Medium Kraftliner 200,000 150,000 100,000 50,000 0 Copyright 2018 RISI, Inc. Proprietary Information 15
Monthly Imports in China in 2016 2017 by Region Tonnes 250,000 200,000 Far East & Oceania North America Russia & CIS Southeastern Europe (Turkey) Western Europe Middle East 150,000 100,000 50,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Copyright 2018 RISI, Inc. Proprietary Information 16
Chinese Imports Forecast Has Significant Upward Pressure 3.0 Chinese Imports Million Tonnes 2.5 2.0 1.5 1.0 0.5 0.0 2012 2013 2014 2015 2016 2017 2018 2019 Copyright 2018 RISI, Inc. Proprietary Information 17
Announced Capacity Additions in China Outpace Demand Growth Change in Million Tonnes 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0.5 1.0 2013 2014 2015 2016 2017 2018 2019 Demand Capacity Operating Rate 93% 92% 91% 90% 89% 88% 87% 86% 85% 84% 83% Copyright 2018 RISI, Inc. Proprietary Information 18
Other Asian (Excl. China) Operating Rates Trending Up as Both Demand and Exports to China Grow Change in Million Tonnes 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2013 2014 2015 2016 2017 2018 2019 Demand Capacity Operating Rate 91% 90% 89% 88% 87% 86% 85% 84% Copyright 2018 RISI, Inc. Proprietary Information 19
North America Copyright 2018 RISI, Inc. Proprietary Information 20
North American Box Market Shows Strong Growth Percentage Change of Shipments 3.0 2.5 PERCENTAGE CHANGE 2.0 1.5 1.0 0.5 0.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 Copyright 2018 RISI, Inc. Proprietary Information 21
Operating Rates in North America to Stay High Change in Thousand Tonnes, Percent 1,500 1,000 500 0 500 Demand Capacity Operating Rates 2011 2012 2013 2014 2015 2016 2017 2018 2019 99% 98% 97% 96% 95% 94% 93% 92% Copyright 2018 RISI, Inc. Proprietary Information 22
North American Net Exports of Containerboard Will Increase Change in Net Exports, Million Tonnes 250 200 150 100 50 0 50 100 150 200 Virgin Containerboard Recycled Containerboard 2014 2015 2016 2017 2018 2019 Copyright 2018 RISI, Inc. Proprietary Information 23
North American Prices Rose, Gap Between Domestic and Export Prices Decreased Significantly US Dollars per Short Ton 730 680 630 580 530 480 430 380 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Feb 2018 US East, Unbleached Kraftliner, 42 lb, Open Market China, Unbleached Kraft Linerboard, 175 g+ Southern Europe, Unbleached Kraft Linerboard, 175+ g Central/South America, Unbleached Kraft Linerboard (FAS), 42 lb Copyright 2018 RISI, Inc. Proprietary Information 24
Europe Copyright 2018 RISI, Inc. Proprietary Information 25
Recycled Containerboard, Western Europe Operating rates will remain above 94% through 2019 30,018 99.0% MILLION TONNES 25,018 20,018 15,018 10,018 5,018 1.6% 3.9% 2.7% 1.8% 98.0% 97.0% 96.0% 95.0% 94.0% 93.0% 92.0% 18 2015 2016 2017 2018 2019 91.0% Demand (APC) Capacity Operating Rate Copyright 2018 RISI, Inc. Proprietary Information 26
Virgin Containerboard, Western Europe Operating rates will stay close to 98% in 2018 2019 7.0 99.0% MILLION TONNES 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 3.6% 3.9% 2.1% 2.6% 97.0% 95.0% 93.0% 91.0% 89.0% 2.0 2015 2016 2017 2018 2019 87.0% Demand (APC) Capacity Operating Rate Copyright 2018 RISI, Inc. Proprietary Information 27
Net Trade Trends in Western Europe Virgin containerboard net imports to increase slowly MILLION TONNES 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0.5 1.0 Virgin Containerboard Recycled Containerboard 2015 2016 2017 2018 2019 Copyright 2018 RISI, Inc. Proprietary Information 28
Germany: Prices Rose to Record Levels in 2017 Euros per Tonne 750 700 650 Testliner 2, 140 g, Germany 600 550 500 450 Unbleached Kraftliner, 175 g+, Germany Copyright 2018 RISI, Inc. Proprietary Information 29 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Feb 2018
Italy: Prices of Kraftliner Skyrocketed due to Higher Import Prices Euros per Tonne 700 650 600 550 500 450 400 350 300 Unbleached Kraftliner, 175+ g, Italy Testliner 2, 140 g, Italy Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Feb 2018 Copyright 2018 RISI, Inc. Proprietary Information 30
Price Gap Between Kraftliner and Testliner Increases Euros per Tonne 250 200 150 100 50 0 Gap Between Kraftliner 175+ and Testliner 2 Italy Germany Copyright 2018 RISI, Inc. Proprietary Information 31
Variable Production Costs Will Rise for Kraftliner Year over Year Percentage Change 7% 5% 3% 1% 1% 2015 2016 2017 2018 2019 3% 5% Kraftliner 175+ Testliner 2 Copyright 2018 RISI, Inc. Proprietary Information 32
Containerboard Demand Growth in Emerging Europe Will Accelerate in 2018 2019 Demand (APC) Production MILLION TONNES 13.5 12.5 11.5 10.5 9.5 8.5 7.5 6.5 5.5 5.5% 2015 2016 2017 2018 2019 Copyright 2018 RISI, Inc. Proprietary Information 33
Conclusions Copyright 2018 RISI, Inc. Proprietary Information 34
North American Operating Rates Should Remain High Through 2019 And remain well above the rest of the world 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% 80% Western Europe Emerging Europe Far East Latin America North America 2011 2012 2013 2014 2015 2016 2017 2018 2019 Copyright 2018 RISI, Inc. Proprietary Information 35
Take Home Points on Global Containerboard Elevated global demand growth will continue in 2018 2019 Demand growth is solid in both emerging and developed markets Chinese policies are reshuffling trade flows in both PfR and recycled containerboard A lot of uncertainty surrounding China s policies still exists Continued tighter supply/demand balances in virgin containerboard in the near term Higher operating rates in this segment Copyright 2018 RISI, Inc. Proprietary Information 36
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