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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?
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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
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Consumer Spending on Foods
US Corrugated Box Shipments and Containerboard Cutup Has Outpaced Manufacturing Since 2014
‐1.0
‐0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
11 12 13 14 15 16 17 18
Annual Growth, Percent
Industrial ProductionCorrugatedContainerboard
• E‐commerce is boosting the impact of the rally in manufacturing
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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
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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
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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:
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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
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In the Last Four Years, Numerous Plastic Products Have Started to Be Replaced with Paperboard• Mandates in place: • Could these be next?
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What Does This Mean for Domestic Demand? Continued Growth as Long as the Economy Is Hot
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‐5.0
‐4.0
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Containerboard Market Growth, Percent
Ind. Prod. Nondurable GoodsCorrugatedContainerboard
‐5.0
‐4.0
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‐2.0
‐1.0
0.0
1.0
2.0
3.0
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11 12 13 14 15 16 17 18 19 20
Boxboard Market Growth, Percent
Ind. Prod. Processed FoodsFoldingOther Boxboard
International Trade Issues
• China’s policy shifts regarding recovered paper imports are having global implications
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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?
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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
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China’s Trade Position Is Shifting Dramatically
‐2.0
‐1.0
0.0
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2010
2011
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2013
2014
2015
2016
2017
2018
2019
2020
Chinese Net Imports, Million Tonnes
Boxboard
Containerboard
14
Changes in the containerboard market will dwarf the shift for boxboard
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• 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?
0
200
400
600
800
1,000
1,200
1,400
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
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What Does This Mean for the North American Packaging Markets?
0
1
2
3
4
5
6
7
8
9
2013 2014 2015 2016 2017 2018 2019 2020
US Containerboard Exports, Million Tons
KraftlinerRecycled LinerVirgin MediumRecycled Medium
16
Strong increase in US containerboard exports
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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
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Capacity Expansions
Chinese Firms Are Investing in North American Assets as a Hedge Against Potential Zero RCP Import Policy
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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
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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
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Company Mill Grade Change (000 Tons) Year
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
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Company Mill Grade Change (000 Tons) Year
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
80%
85%
90%
95%
100%
0.0
0.5
1.0
1.5
2.0
2.5
2013 2014 2015 2016 2017 2018 2019 2020
Million Tons
Containerboard
ProductionCapacityOperating Rate (R)
22
Production growth vs capacity growth and operating rates
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80%82%84%86%88%90%92%94%96%98%100%
‐200
‐100
0
100
200
300
400
2013 2014 2015 2016 2017 2018 2019 2020
Thou
sand
Ton
s
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
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For more information on RISI’s global paper packaging and containerboard coverage, visit www.risi.com.
Thank you!Questions?
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