Global Containerboard Outlook With a focus on the European market RISI European Conference March 2017 Gleb Sinavskis Associate Economist, European Paper Packaging
Gleb Sinavskis Associate Economist, European Paper Packaging Previous experience in the financial services industry Masters in Economics from Uppsala University gsinavskis@risi.com Co author of the European Packaging Paper 5 Year and 15 Year Forecasts 2
Agenda Asia North America Latin America Africa, the Middle East, Oceania Europe Conclusions 3
Global Containerboard Demand Asia has the largest market, followed by North America and Western Europe 8% 7% 5% Far East North America 14% 47% Western Europe Latin America Emerging Europe 19% All Others 4
Share of Virgin Containerboard in Demand Varies by Region Share of Virgin in Regional Containerboard Demand 70% 60% 50% 40% 30% 20% 10% 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 250,000 200,000 150,000 100,000 50,000 27% 22.6% 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Virgin Containerboard Recycled Containerboard 6
Global Virgin Containerboard Demand Is Dominated by North America 6% 6% 17% Far East North America 12% Western Europe Latin America Emerging Europe 12% All Others 47% 7
Asia 8
Capacity Growth in Asia Is Expected to Outpace Demand in 2017 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2011 2012 2013 2014 2015 2016 2017 2018 Demand Capacity Operating Rates 0.90 0.89 0.88 0.87 0.86 0.85 0.84 0.83 0.82 0.81 0.80 9
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 Other Countries Vietnam Japan Thailand Indonesia India Taiwan South Korea China 10,000 0 2012 2013 2014 2015 2016 2017 2018 10
OCC Prices in China Increased Dramatically in Late 2016 Euros per Tonne 300 250 200 150 100 50 OCC (1.05) Imports from Europe (Net Price) OCC, Imports from Japan (Net) OCC, Imports from the USA (Net) OCC, Post consumer (Domestic, Net Price) 0 Q2 2012 Q3 2012 Q4 2012 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 2017 Feb 11
Net Exports of Recycled Containerboard in Asia Are Expected to Grow in 2017 Net Exports, Thousand Tonnes 1,000.0 500.0 0.0 2011 2012 2013 2014 2015 2016 2017 2018 500.0 1,000.0 1,500.0 2,000.0 Virgin Containerboard Recycled Containerboard 12
North America 13
Operating Rates in North America Are Rising as Demand Is Outpacing Capacity Growth Change in Thousand Tonnes, Percent 1,400 1,200 1,000 800 600 400 200 0 200 400 600 2011 2012 2013 2014 2015 2016 2017 2018 Demand Capacity Operating Rates 98.0% 97.5% 97.0% 96.5% 96.0% 95.5% 95.0% 94.5% 94.0% 93.5% 93.0% 92.5% 14
North American Containerboard Capacity Growth Is Dominated by Recycled Grades Thousand Short Tons Company Location Country Capacity Date Grade SP Fiber Technologies Newberg Mill USA 75 2015 Q1 Recycled Linerboard SP Fiber Technologies Newberg Mill USA 75 2015 Q1 Recycled Medium International Paper Valliant Mill USA 360 2015 Q2 Recycled Medium WestRock Newberg Mill USA -16 2015 Q4 Recycled Linerboard Alsip MiniMill Alsip mill USA 190 2015 Q4 Recycled Medium WestRock Newberg Mill USA -123 2015 Q4 Recycled Medium WestRock Coshocton Mill USA -310 2015 Q4 Semichemical Medium Pratt Paper Valparaiso Mill USA 370 2015 Q4 Recycled Containerboard WestRock Uncasville Mill USA -165 2016 Q1 Recycled Medium Kruger Trois Rivieres Mill Canada 397 2017 Q2 Recycled Containerboard 15
Recycled Containerboard Is Gaining More 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 16
Accident at International Paper s Pensacola Mill in Cantonment, Florida An explosion on the evening of January 22 caused significant structural damage to the pulp digester and the power house Paper capacity is 486,000 metric tonnes per year of lightweight fully virgin kraft linerboard RISI currently estimates a reduction in capacity of 270,000 275,000 tonnes due to the accident This is expected to affect North American exports to Europe and global kraftliner supply/demand balances 17
Net Exports of Virgin Containerboard from North America Are Expected to Drop in 2017 Change in Net Exports, Million Tonnes 0.25 0.20 0.15 0.10 0.05 0.00 0.05 13 14 15 16 17 18 0.10 0.15 0.20 0.25 Virgin Containerboard Recycled Containerboard 18
Latin America 19
Demand Growth in Latin America Accelerates as Brazilian Economy Recovers Change in Thousand Tonnes, Percent 500 90.0% 400 300 200 100 0 100 200 2011 2012 2013 2014 2015 2016 2017 2018 Demand Capacity Operating Rates 89.0% 88.0% 87.0% 86.0% 85.0% 84.0% 83.0% 82.0% 20
Brazil and Mexico Account for More Than 70% of Latin American Demand Mexico will outpace Brazil in 2017 2018 14,000 Brazil Argentina Chile Mexico Rest of Latin America 12,000 10,000 8,000 6,000 4,000 2,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 21
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 13 14 15 16 17 18 40 60 Virgin Containerboard Recycled Containerboard 22
Africa, the Middle East and Oceania 23
African Demand Has the Best Outlook Apparent Consumption, Thousand Tonnes 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Middle East Africa Oceania 24
Net Imports to Grow for Both the Middle East and Africa, Oceania to Export More Net imports, Thousand Tonnes 1,100 600 100 2010 2011 2012 2013 2014 2015 2016 2017 2018 400 900 Middle East Africa Oceania 25
Europe 26
Containerboard Expansion Projects for 2015 2018 in Europe Thousand Tonnes Company Location Country Capacity Year Quarter Metsä Board Husum Mill Sweden 300 2015 2 Aviretta Ettringen Mill Germany 180 2015 2 Modern Karton Çorlu Mill Turkey 400 2015 3 Stora Enso Varkaus Mill Finland 390 2015 4 Parenco Renkum Mill Netherlands 385 2016 3 EcoPaper Zarnesti Mill Romania 280 2016 3 Rafael Hinojosa Sarria de Ter Mill Spain 90 2016 4 Papierfabrik Schoellershammer Düren Mill Germany 250 2016 4 Pro-Gest Mantova Mill Italy 550 2017 Leipa Schwedt Mill Germany 450 2017 4 International Paper Madrid Mill Spain 380 2017 H2 Heinzel Group Laakirchen Mill Austria 450 2017 H2 Hamburger Spremberg Mill (?) Germany or Turkey 450-493 2017 or 2018 Burgo Avezzano Mill Italy 200 2017(?) 27
Capacity Expansions Will Be Concentrated in the Central Part of Europe 28
Total Containerboard, Western Europe Demand Growth Is Slowing Down in 2016 and 2017 30 95.0% 28 94.0% 93.0% MILLION TONNES 26 24 22 3.6% 2.5% 1.7% 1.8% 92.0% 91.0% 90.0% 89.0% 20 88.0% 18 2011 2012 2013 2014 2015 2016 2017 2018 Capacity Demand (APC) Production Operating Rate 87.0% 29
Western European Virgin Containerboard Operating Rates Increasing in 2017 as Imports Decline 5.5 98% 5.0 5.3% 4.6% 2.4% 1.1% 96% 94% MILLION TONNES 4.5 4.0 3.5 92% 90% 88% 86% 3.0 2011 2012 2013 2014 2015 2016 2017 2018 Capacity Demand Production Operating Rate 84% 30
Western European Recycled Containerboard Operating Rates to Decline Toward 2018 due to Capacity Boom 96% 24 95% 22 94% 93% MILLION TONNES 20 18 16 3.2% 2.0% 1.5% 2.0% 92% 91% 90% 89% 14 88% 87% 12 2011 2012 2013 2014 2015 2016 2017 2018 Capacity Demand Production Operating Rate 86% 31
Trade Trends in Western Europe Virgin Containerboard Imports to Decline in 2017 2.5 Net Exports of Containerboard 2.0 MILLION TONNES 1.5 1.0 0.5 0.0 0.5 2011 2012 2013 2014 2015 2016 2017 2018 1.0 Virgin Containerboard Recycled Containerboard 32
Western European Kraftliner Operating Rates vs Variable Production Costs Production Costs Unbleached Linerboard (Kraftliner 175+ gsm) Operating Rates Kraftliner EUROS PER TONNE 500 480 460 440 420 400 380 360 340 320 300 2011 2012 2013 2014 2015 2016 2017 2018 0.98 0.96 0.94 0.92 0.90 0.88 0.86 0.84 0.82 33
Western European Recycled Liner Operating Rates vs Variable Production Costs EUROS PER TONNE 500 480 460 440 420 400 380 360 340 320 Production Costs Testliner 2 Operating Rates Testliner 0.98 0.96 0.94 0.92 0.90 0.88 0.86 0.84 300 2011 2012 2013 2014 2015 2016 2017 2018 0.82 34
Containerboard Demand Growth in Emerging Europe to Accelerate Toward 2018 13.5 MILLION TONNES 12.5 11.5 10.5 9.5 8.5 3.4% 3.8% 3.9% 4.5% 7.5 6.5 5.5 2012 2013 2014 2015 2016 2017 2018 Capacity Demand (APC) Production 35
Dynamic Changes in Regional Net Imports in Emerging Europe Net Imports, Thousand Tonnes 1,000 Eastern Europe Central Europe Southeastern Europe 800 600 400 200 0 200 2012 2013 2014 2015 2016 2017 2018 400 600 36
Conclusions 37
Global Demand Growth to Accelerate in 2018 after Slowdown in 2017 Apparent Consumption, Thousand Tonnes 180,000 4.0% 160,000 140,000 120,000 100,000 80,000 60,000 40,000 3.5% 3.0% 2.5% 2.0% 20,000 0 2011 2012 2013 2014 2015 2016 2017 2018 Kraftliner Sem. Medium Rec. Liner Rec. Medium Demand Growth, % 1.5% 38
Take Home Points on Global Containerboard Global demand growth will slow in 2017, but will improve in 2018 Emerging markets to 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 39
Thank you! 40