RISI North American Outlook · WestRock Florence, AL Replacement kraftliner machine 27 net 2020...

© Copyright 2018 RISI, Inc. | Proprietary Information

RISI North American OutlookContainerboard and Boxboard

Ken WaghorneVP, Global Packaging

North American ConferenceOctober 2018

A Renaissance for the North American Containerboard and Boxboard Markets

• Domestic demand growing solidly Ongoing recovery in manufacturing Boosted by new opportunities for growth

• Trade balance is shifting dramatically in both markets Policy shifts in China leading to major changes

• When will capacity expansion catch up to demand growth?

2© Copyright 2018 RISI, Inc. | Proprietary Information

Industrial Production of Processed Foods and Other Nondurable Goods Has Rallied Since 2016

‐1.0

‐0.5

0.0

0.5

1.0

1.5

2.0

2.5

11 12 13 14 15 16 17 18 19 20

Nondurable Goods

‐0.50.00.51.01.52.02.53.03.54.04.5

11 12 13 14 15 16 17 18 19 20

Processed Foods

3

Annual Growth, Percent


Consumer Spending on Foods

US Corrugated Box Shipments and Containerboard Cutup Has Outpaced Manufacturing Since 2014

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‐0.5

0.0

0.5

1.0

1.5

2.0

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Annual Growth, Percent

Industrial ProductionCorrugatedContainerboard

• E‐commerce is boosting the impact of the rally in manufacturing


How Large Is the Boost from E‐commerce?

320,000

330,000

340,000

350,000

360,000

370,000

380,000

390,000

04 05 06 07 08 09 10 11 12 13 14 15 16 17

Box Shipments Relative Nondurable Goods Production

• Discernable upturn in ratio of shipments to nondurable goods production since 2014

• What would 2017 shipments have been if this ratio remained at 2004‐2013 level?

5

Hard data are difficult to find, leading to subjective estimates


How Large Is the Boost from E‐commerce?

• Actual shipments were up 5.9% instead

• E‐commerce estimated to have added 20‐23 billion square feet of corrugated box demand in four years

• Not counting any growth in non‐box uses of corrugated sheet

6

Box shipments would have increased 2.5% from 2014 low in 2017 just from growth in nondurable goods production


330,000

340,000

350,000

360,000

370,000

380,000

390,000

10 11 12 13 14 15 16 17

Million Sq

uare Fee

t

Baseline Actual

Downside from E‐commerce: Product Design Will Eventually Shift

• Overpackaging will begin to abate, leading to a more moderate boost to corrugated demand

• Boxboard demand could be undercut if packaging gets an e‐commerce redesign

7

From the Amazon Frustration‐Free Packaging webpage:


Boxboard Has Opportunities That Could Offset Potential Losses to E‐commerce

• The June issue of National Geographic kicks off “a multi‐year effort at raising awareness of the global plastics crisis”

• Numerous governments have initiated actions attempting to constrain plastic waste


In the Last Four Years, Numerous Plastic Products Have Started to Be Replaced with Paperboard• Mandates in place: • Could these be next?


What Does This Mean for Domestic Demand? Continued Growth as Long as the Economy Is Hot


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Containerboard Market Growth, Percent

Ind. Prod. Nondurable GoodsCorrugatedContainerboard

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Boxboard Market Growth, Percent

Ind. Prod. Processed FoodsFoldingOther Boxboard

International Trade Issues

• China’s policy shifts regarding recovered paper imports are having global implications


The Impact of China’s RCP Import Policy Changes

0

5

10

15

20

25

30

2016 2017 2018 2019 2020

China RCP Imports, Million Tonnes

Other RCP

Mixed Paper

Regulatory Loss

• Boxboard producers were hit hard by the ban on mixed paper imports

• Containerboard producers are struggling with the ongoing issues with OCC

12

Will China be able to ban ALL RCP imports by 2020?


China’s Trade Position Is Shifting Dramatically

‐0.4‐0.20.00.20.40.60.81.01.21.41.6

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Boxboard Net Exports, Million Tonnes • Exports peaked at 1.5 million tonnes in 2016

• Before dropping 100,000 tonnes in 2017

• Similar declines likely for 2018‐2020

13

Boxboard was the first to be affected


China’s Trade Position Is Shifting Dramatically

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2010

2011

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2019

2020

Chinese Net Imports, Million Tonnes

Boxboard

Containerboard

14

Changes in the containerboard market will dwarf the shift for boxboard


• Loss of imported OCC will have devastating impact on Chinese production

• Global containerboard imports totaled just 18.6 million tonnes in 2016

• 30% increase in global import demand

What Does This Mean for the North American Packaging Markets?

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200

400

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800

1,000

1,200

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2013 2014 2015 2016 2017 2018 2019 2020

US Boxboard Imports, Thousand Tons

FoldingOther Boxboard

0

500

1,000

1,500

2,000

2,500

3,000

2013 2014 2015 2016 2017 2018 2019 2020

US Boxboard Exports, Thousand Tons

Folding Other Boxboard

15

Boxboard trade balance shifting in producers’ favor


What Does This Mean for the North American Packaging Markets?

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1

2

3

4

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8

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2013 2014 2015 2016 2017 2018 2019 2020

US Containerboard Exports, Million Tons

KraftlinerRecycled LinerVirgin MediumRecycled Medium

16

Strong increase in US containerboard exports


0

100

200

300

400

500

2016 2017 2018

Thou

sand

Ton

nes

US Kraftliner Exports by DestinationYTD through July 2018

Mexico China Italy Canada Guatemala


Capacity Expansions

Chinese Firms Are Investing in North American Assets as a Hedge Against Potential Zero RCP Import Policy


Company Mill Grade Type Announced

Nine Dragons Rumford, ME Graphic paper Conversion? May 2018

Nine Dragons Biron, WI Graphic paper Conversion? May 2018

Nine Dragons Fairmont, WV Deinked pulp OCC/mixed pulp? September 2018

Global Win Wickliffe, KY Graphic paper restart Conversion August 2018

Sun Paper Arkadelphia, AR Kraftliner Greenfield April 2016 / January 2018

More to come? Three are rumored to be in the works

Recycled pulp or conversion?

Seven Large Containerboard Expansions Were Listed in the May 2018 AF&PA Capacity Report


Company Mill Grade Change (000 Tons) Year

PCA Wallula, WA Kraftliner conversion 400 2018

Verso Jay, ME Kraftliner conversion 200 2018

IP Selma, AL Kraftliner conversion 450 2019

WestRock Florence, AL Replacement kraftliner machine 27 net 2020

Midwest Paper Combined Locks, WI Recycled conversion 220 est. 2018

Pratt Wapakoneta, OH New recycled mill 400 2019

Green Bay Green Bay, WI Replacement recycled mill 445 net 2020

The List of Planned Containerboard Expansions Extends Beyond the AF&PA List



Announced Mills

Cascades Ashland, VA Recycled conversion 400 2021

McKinley/Bio‐Pappel Port Angeles, WA Recycled conversion 160 On prolonged hold

Announced Incremental

270 2018

Traditional Creep Assumed All 450 Annual

Under study:

Domtar Will they or won’t they? ??? 2020 or beyond?

Other conversions If Chinese buying doesn’t ramp up?

???

Major Capacity Changes in the Boxboard Market Are Much More Limited Than Containerboard



Paperworks Philadelphia, PA Coated Recycled ‐150 2017

WestRock Santa Clara, CA Coated Recycled ‐138 2017

Sappi Skowhegan, ME SBS 376 2018‐2020

Bottom Line: The Demand/Supply Balance Is Not Expected to Loosen Before 2020

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Million Tons

Containerboard

ProductionCapacityOperating Rate (R)

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Production growth vs capacity growth and operating rates


80%82%84%86%88%90%92%94%96%98%100%

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Boxboard

ProductionCapacityOperating Rate (R)

North American Containerboard and Boxboard Summary• Domestic demand will continue to grow strongly through 2020 Barring an earlier‐than‐expected economic slowdown

• Trade shifts should boost production for both segments Policy shifts in China leading to major changes

• Operating rates should remain well above historical norm Even with the large amount of planned containerboard capacity that is scheduled to come online


RISI North American Outlook · WestRock Florence, AL Replacement kraftliner machine 27 net 2020...

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