Global Containerboard Outlook - RISI · For more information on RISI’s global paper packaging and...

Global Containerboard Outlook

With a focus on the Asian market

Ken WaghorneVP, Global Packaging

RISI Asian Conference

May 2017

© Copyright 2017 RISI, Inc. | Proprietary Information

2© Copyright 2016 RISI, Inc. | Proprietary Information

• 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

VP Global Packaging

Ken Waghorne

[email protected]

• Global Overview

• Asia

• Europe

• North America

• Latin America

• Africa, the Middle East, Oceania

• Conclusions

3

Agenda



Global Containerboard DemandAsia has the largest market, followed by North America and Western Europe

47%

19%

14%

8%

7%5%

Far East

North America

Western Europe

Latin America

Emerging Europe

All Others

162 Million Tonnes in 2016


Share of Virgin Containerboard Demand Varies by Region

9%

61%

21%

38%

21%

30%

0%

10%

20%

30%

40%

50%

60%

70%

Far East NorthAmerica

WesternEurope

LatinAmerica

EmergingEurope

All Others


Global Capacity Will Grow Mostly in Recycled ContainerboardGlobal Capacity, Thousand Tonnes

23%27%

0

50,000

100,000

150,000

200,000

250,000

2010 2011 2012 2013 2014 2015 2016 2017 2018

Virgin Containerboard Recycled Containerboard


Global Virgin Containerboard Demand Is Dominated by North America

17%

47%

12%

12%

6%6%

Far East

North America

Western Europe

Latin America

Emerging Europe

All Others

40 Million Tonnes in 2016

8

Asia



China Continues to Account for More Than 60% of Asian Demand Apparent Consumption, Thousand Tonnes

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2012 2013 2014 2015 2016 2017 2018

Other Countries

Vietnam

Japan

Thailand

Indonesia

India

Taiwan

South Korea

China

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

Tonnage (Million)

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

Other Asia 2+ 0.4+


Capacity Growth in Asia Is Expected to Outpace Demand in 2017

80%

81%

82%

83%

84%

85%

86%

87%

88%

89%

90%

0

1

2

3

4

5

6

2011 2012 2013 2014 2015 2016 2017 2018

Mill

ion

To

nn

es

Demand Capacity Operating Rates


Net Exports of Recycled Containerboard in Asia Are Expected to Grow in 2017Net Exports, Thousand Tonnes

-2,000

-1,500

-1,000

-500

0

500

2011 2012 2013 2014 2015 2016 2017 2018


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


The Containerboard Price Surge in China Eased Off a Bit in MarchRenminbi per Tonne

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

J-1

2

A-1

2

J-1

2

O-1

2

J-1

3

A-1

3

J-1

3

O-1

3

J-1

4

A-1

4

J-1

4

O-1

4

J-1

5

A-1

5

J-1

5

O-1

5

J-1

6

A-1

6

J-1

6

O-1

6

J-1

7

A-1

7

Kraft Top Liner 170 g (Left Axis)

OCC, Imports from the USA (Net)

OCC, Post-consumer (Domestic, Net Price)


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

16

Europe


Total Containerboard, Western EuropeDemand Growth Is Slowing Down in 2016 and 2017


3.6%2.5%

1.7%1.8%

87%

88%

89%

90%

91%

92%

93%

94%

95%

18

20

22

24

26

28

30

2011 2012 2013 2014 2015 2016 2017 2018

Mill

ion

To

nn

es

Capacity Demand (APC) Production Operating Rate

Trade Trends in Western EuropeVirgin Containerboard Imports to Decline in 2017


-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2011 2012 2013 2014 2015 2016 2017 2018

Mill

ion

To

nn

es

Net Exports of Containerboard


Containerboard Demand Growth in Emerging Europe to Accelerate Toward 2018


3.4%3.8%

3.9%4.5%

5.5

6.5

7.5

8.5

9.5

10.5

11.5

12.5

13.5

2012 2013 2014 2015 2016 2017 2018

Mill

ion

To

nn

es

Capacity Demand (APC) Production

Dynamic Changes in Regional Net Imports in Emerging EuropeNet Imports, Thousand Tonnes


-600

-400

-200

0

200

400

600

800

1,000

2012 2013 2014 2015 2016 2017 2018

Eastern Europe Central Europe Southeastern Europe

21

North America



Recycled Containerboard Is Gaining Market Share in North America Over TimeApparent Consumption, Thousand Tonnes

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2011 2012 2013 2014 2015 2016 2017 2018

Kraftliner Semichemical Medium Testliner Recycled Medium


Demand Is Currently Outpacing Capacity Growthin North America Change in Thousand Tonnes, Percent

92%

93%

94%

95%

96%

97%

98%

99%

-600

-400

-200

0

200

400

600

800

1,000

1,200

1,400

1,600

2011 2012 2013 2014 2015 2016 2017 2018


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


North American Net Exports of Virgin Containerboard Should Drop in 2017Change in Net Exports, Million Tonnes

-0.25

-0.20

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

0.25

0.30

2013 2014 2015 2016 2017 2018



26

Latin America


Demand Growth in Latin America Accelerates as Brazilian Economy RecoversChange in Thousand Tonnes, Percent

82%

83%

84%

85%

86%

87%

88%

89%

90%

-200

-100

0

100

200

300

400

500

2011 2012 2013 2014 2015 2016 2017 2018



Brazil and Mexico Account for More Than 70% of Latin American Demand

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Tho

usa

nd

To

nn

es

Brazil Argentina Chile Mexico Rest of Latin America


Mexico will outpace Brazil in 2017-2018

Net Imports in Latin America Are Set to Grow in the FutureChange in Net Imports, Thousand Tonnes

-60

-40

-20

0

20

40

60

80

100

120

140

2013 2014 2015 2016 2017 2018



30

Africa, the Middle East and Oceania



African Demand Has the Best OutlookApparent Consumption, Thousand Tonnes

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2011 2012 2013 2014 2015 2016 2017 2018

Middle East Africa Oceania


Net Imports to Grow for Both the Middle East and Africa, Oceania to Export MoreNet Imports, Thousand Tonnes

-900

-400

100

600

1,100

2010 2011 2012 2013 2014 2015 2016 2017 2018

Middle East Africa Oceania

33

Conclusions



Global Demand Growth to Accelerate in 2018 After Slowdown in 2017Apparent Consumption, Thousand Tonnes

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2011 2012 2013 2014 2015 2016 2017 2018

Kraftliner Sem. Medium Rec. Liner

Rec. Medium Demand Growth, %


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

For more information on RISI’s global paper packaging and containerboard

coverage, visit www.risi.com.

Thank you!

36

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