fastmarkets risi global boxboard outlook · • sappi conversion at somerset mill any grade...

Fastmarkets RISI Global Boxboard Outlook

2019 | Fastmarkets | Global Boxboard Outlook

Forces shaping the boxboard industry

1

Alejandro Mata

Director, European Packaging and Graphic Paper

Riding the down cycle


• Deceleration in the global economy

• Boxboard demand slowing

• Markets growing oversupplied

2017 was a strong year, 2018 not so much and 2019 even worse


The evolution of consumers and their shopping experience

Covering our needs

• Population growth

• Urbanization

Convenience

• Discount retailers

Consumer wellbeing

Hyper-convenience

• E-commerce

Blue planet effect

• Move away from plastics

• Loop

3


• Economy to affect growth in

the short term

• Population and urbanization

will increase per capita

consumption, especially in

emerging economies

• Consumers are expected to

remain loyal to boxboard

• E-commerce effect still

relatively small

• What if fiber-based packaging

solutions are not enough?

— Blue planet effect

• Plastic substitution from a

legislative point of view

E-commerce effect still relatively small

62

63

64

65

66

67

682

01

9

Econom

y

Po

pula

tio

n/U

rb

an

ization

Co

nsu

mer

pre

fere

nce

s

e-C

om

me

rce

Blu

e p

lan

ne

te

ffe

ct

Pla

stic

su

bstitu

tion

202

1

Mill

ion

to

nn

es

Global boxboard demand

4

Let’s state some facts


6.5 Mill

ion t

onnes

Lost opportunities

between 2018 and 2021

4.1 Mill

ion t

onnes

Closures or delayed/

cancelled new starts

Weaker balances,

pressure on prices

84%

5


-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ion

to

nn

es

Current Previous

Global boxboard demand is weaker

Mill

ion t

onnes

Change in demand, global boxboard

Lost opportunities


6

21%

22%

51%

9%North America

Europe

Asia

Rest of World


Economic growth matters

• US economy doing better than other global regions

• China continues with its transformation; recent growth

affected by trade war with US

• Europe slowed since the second half of 2018 (trade

wars, Brexit)

What is driving the demand losses in China?

▪ Ongoing economic slowdown

▪ Imported fiber restrictions

▪ Higher paper prices

-1.0 0.0 1.0 2.0 3.0 4.0 5.0

No

rth

Am

erica

Eu

rop

eA

sia

Re

st

of

wo

rld

Million tonnesPrevious Current

Most of the losses are in Asia

- 376,000 tonnes

- 4.8 million tonnes

- 1.1 million tonnes

- 209,000 tonnes

Glo

bal

bo

xbo

ard

dem

and

7

A respite from overinvesting in capacity?

Operating rates back below

84% due to stronger demand

reductions in 2019


79.0%

80.0%

81.0%

82.0%

83.0%

84.0%

85.0%

86.0%

87.0%

88.0%

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.02

00

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

Mill

ion

to

nn

es

Capacity Demand OR

Global market balances

Global boxboard demand and capacity changes

-2.0 -1.0 0.0 1.0 2.0

Nort

hA

merica

Euro

pe

Asia

Rest of

worl

d

Million tonnes

Capacity changes, 2018-2021

8


• Disruption of global supply chains

• Consumption lower than expected

• Fragile economies at risk of recession

• Rise in e-commerce shopping (incl. groceries)

• Potential production disruption at pulp and

paper assets (no stops confirmed so far)

9

China and Europe more at risk


0

20

40

60

80

100

120

NorthAmerica

Europe China Other Asia LatinAmerica

RoW

Mill

ion

to

nn

es Paper and board

Pulp & PfR

10

Imports taking most of the demand

growth in folding cartons

2019 | Fastmarkets | Global Boxboard Outlook 11

Demand growing moderately


0.96

0.97

0.98

0.99

1.00

1.01

1.02

1.03

1.04

1.05

1.06

1.07

11.4

11.6

11.8

12.0

12.2

12.4

12.6

12.8

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

No

nd

ura

ble

go

od

s in

de

x

Mill

ion

to

nn

es

Demand growth, 2018-2021

Nondurables set the tone for

demand

Good performance on food

service board

Weak performance in dry foods,

soap & detergent

Downward pressure on exports

due to expected strengthening

of the US dollar

220,000Thousand tonnes

12


Demand growth, 2018-2021North American boxboard grades

0.0 2.0 4.0 6.0 8.0

Fold

ing

cart

on

sLiq

uid

pa

ckagin

g /

cup &

pla

te s

tock

Oth

er

Million tonnes

27%

18%

55%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ion to

nn

es

Folding carton Liquid packaging, cup & plate stock Other

Of the 220,000 tonnes of demand growth

• Folding carton -34,000

• Liquid packaging* +179,000

• Other +75,000

* Includes food service board (cup & plate stock).

Demand down 1.9% in 2019

13


North American folding cartons

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

2012 2014 2016 2018 2020

Mill

ion tonnes

Bleached Recycled Unbleached

Un

ble

ach

ed

Re

cycle

dB

lea

ch

ed

Slowing food production is a limiting factor

Heavy competition with FBB and ivoryboard

War on plastic to have small impact on

folding cartons (food service board)

Changing consumer

preferences affecting

coated recycled board

Lower beverage production

and SBS substitution

Upside risk: green image

+2.4%

+1.8%

-8.4%

CAGR

19-21

14


CUK prices above SBS in the USA• Historical premium for SBS close to US$80/ton

• Currently, CUK prices US$80/ton above SBSFactors behind higher CUK prices

• Far more concentrated supply

• Perception that brown products are more

environmental friendly

• CUK increasing popularity within food service board

Factors holding SBS prices down

• Imports of multi-ply from Europe and Asia affecting

domestic SBS markets

• Sappi conversion at Somerset mill

Any grade shifting out of CUK will impact CRB

more than SBS

Pricing gap between folding cartons and food

service board continues

600

700

800

900

1,000

1,100

1,200

US

dolla

rs p

er

ton

CUK SBS CRB

15

Cupstock markets tighter than folding cartons


0

50

100

150

200

250

300

350

600

700

800

900

1,000

1,100

1,200

1,300

1,400

Q12013

Q12014

Q12015

Q12016

Q12017

Q12018

Q12019

Q12020

US

do

llars

pe

r to

n

US

do

llars

pe

r to

n

Gap Folding cartons Cupstock

Better demand trends for

cupstock, as it has better

exposure to processed food

packaging and plastic

substitution

Cupstock

Most intense competition

from imports and new

entrants like Sappi

Closure of Georgia-Pacific

Crossett mill in October

influenced by this

Folding cartons

16


US boxboard trade

Exports

• The shift of Chinese boxboard producers to virgin

grades and overcapacity in Europe will keep US

boxboard exports constrained

• Strengthening US dollar not helping

Imports

• Most of the growth in folding carton demand will

likely be met by increased imports produced

overseas

• Flat prices in the US is pushing consumers to look

for alternatives elsewhere (imports)

• Imports to increase 4.1%, while domestic

production will increase only 0.8%, annually,

during the next five years

5.3

5.4

5.5

5.6

5.7

5.8

5.9

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

Mill

ion tons

Mill

ion tons

Exports Imports Production

17

Virgin boxboard markets weakens amid

soft demand and more capacity starts


Demand still lagging behind historical average


Asian boxboard

• Investment decelerated

since 2014

• Slowing in Chinese

economy and fiber import

restrictions changing the

landscape

• Consumption still

constrained

• High paper prices

contributed to the

accelerated demand

decline in 2018

75%

76%

77%

78%

79%

80%

81%

82%

83%

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ion

to

nn

es

Demand Capacity OR

19


Asian boxboard grades

0.0 5.0 10.0 15.0

Virgin

Re

cycle

dU

nco

ate

d

Million tonnes

23%

41%

36%

0

2

4

6

8

10

12

14

16

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ion tonnes

Virgin Recycled Uncoated

Virgin boxboard demand will perform better

• Urbanization and increasing health awareness

driving demand for packaged food for

convenience and food safety

• Shift to higher quality for brand image purposes

• Recovered paper policies (import restrictions)

stimulating grade shifts from CRB to ivoryboard

20


China & Hong Kong SARMain Asian markets

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

0

5

10

15

20

25

30

35

40

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ion tonnes

China/Hong Kong SAR Southeast AsiaIndia JapanSouth Korea & Taiwan Rest of Asia¹

60% of Asian boxboard demand, 31% of global boxboard

demand and 75% of regional volume growth (2004-2017)

Chinese demand down 6% (-1.3 million tonnes) in 2018

• Slower economic growth

• Plastic substitution in light of steep rise in prices in 2017

Outside China & Hong Kong SAR, demand growing 3.8%

China/Hong Kong SAR

60%

Southeast Asia13%

India10%

Japan8%

South Korea4%

Other Asia5%

21

Imbalance between duplex and ivoryboard


Changes 19 – 21: China

-3.0 -2.0 -1.0 0.0 1.0 2.0

Ivory

boa

rdC

oa

ted

du

ple

x

Million tonnes

Capacity

Demand

65%

70%

75%

80%

85%

90%

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Ivoryboard Coated duplex

• Ivoryboard weakening due to

capacity outgrowing demand

• Duplex market might tighten

due to upcoming capacity

reductions

22


-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2012

2013

2014

20

15

2016

2017

2018

2019

2020

2021

Mill

ion

to

nn

es

China net imports Rest of Asia net imports

Asian boxboard net imports• Asia is a net importer of boxboard.

Balance has changed little over the

past ten years

• Oversupply led China to become a

major net exporter, mostly to other

Asian markets

• Chinese exports (ivoryboard) will

increase due to capacity additions

outpacing demand growth

• Investment by Chinese companies

in Other Asia (coated duplex) to

increase Chinese imports

23

Higher imports of coated duplex


• CBO imports will rise

from 6% of the total to

more than 40% in the

coming years

• Closures (environmental

reasons) and fiber

restrictions causing lower

production of coated

duplex board

• Imports of all other

boxboard grades to

remain relatively flat to

slightly down

0

1

2

3

4

5

6

7

8

9

10

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ion

to

nn

es

Mill

ion

to

nn

es

Chinese coated duplex board imports and production

Other CBO CBO production

24

Chinese exports linked to capacity and pulp prices


• Exports also have an

inverse relationship with

pulp prices

• Lower market pulp

prices usually boost

Chinese exports

• With pulp prices trending

down, we can expect

China to export more

• Pulp prices as an

indicator of Chinese cost

competitiveness

2017 was a strong year; demand has

since weakened


Market conditions are changing rapidly


Coated boxboard Europe

Strong exports helping to

tighten the market since

2016

Industry reached its peak in

late 2017/early 2018

Since then, demand has

weakened considerably

Capacity additions have

contributed to the collapse

in operating rates since

201886%

87%

88%

89%

90%

91%

92%

-400

-300

-200

-100

0

100

200

300

400

500

600

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Th

ou

sa

nd

to

nn

es

Demand Capacity OR

27


2016

2018

KotkamillsFolding boxboard

400,000 (FI)

HusumFolding boxboard

400,000 (SE)

DobrushVirgin cartonboard

200,000 (BLR)

KamaFolding boxboard

220,000 (RU)

GruvönVirgin cartonboard

550,000 (SE)

2019

2020

COMPANY MILL COUNTRY CAPACITY DATE

Sappi Maastricht Netherlands 150,000 2018-2021

BillerudKorsnӓs Gruvӧn Sweden 550,000 2019

Bellesbumprom Dobrush Belarus 200,000 2020??

Kipas Sӧke Turkey 720,000 Q2 2019

Kama Krasnokamsk Russia 220,000 2020

European capacity starts, 2018-2020

KipasVirgin and recycled

cartonboard/ linerboard

720,000 (TK)

A few additional noteworthy changes

• Iggesund cancelling 100,000 tonne capacity increase in Sweden (SBS)

• Stora Enso not going forward with Oulu conversion to CUK (450,000

tonnes)

28

Non-durable goods driving coated boxboard


60

65

70

75

80

85

90

95

100

105

110

Nondurables industrial production Coated boxboard demand

Demand growth, 2018-2021

Strong correlation between

production of nondurable

goods and coated

boxboard demand

Production of durable

goods (consumer

electronics, toys, jewellery)

are also packed in coated

boxboard

Index, 2015=100

29


Virgin boxboard doing betterEuropean boxboard grades

0.0 1.0 2.0 3.0 4.0 5.0 6.0

Virgin

Re

cycle

dU

nco

ate

d

Million tonnes

35%

27%

39%

0

1

2

3

4

5

6

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ion tonnes

Virgin Recycled Uncoated

• Demand for virgin boxboard (CBB, CBU, CBV, CBP) has

grown 1.5% per year since 2005, more than twice as fast

as coated recycled board

• Coated recycled board exposure to underperforming

industry segments (dry foods, household chemicals)

resulting in slower demand growth

• The recovery in the European economy and the

reactivation in construction since 2015 lifted uncoated

boxboard demand

30


Industrial production

0

20

40

60

80

100

120

140

160

180

200

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

2016

201

7

201

8

Manufacturing Tobacco products

Prepared meals Pharmaceuticals

• Manufacturing of tobacco products in

clear decline, affecting demand for

folding boxboard and solid bleached

board

• Pharmaceuticals and manufacturing of

prepared meals doing better than

overall manufacturing

• FBB is the most common substrate for

pharmaceutical packaging; WLC can

also be used, although less

• Prepared meals can use a wide array

of coated and uncoated grades

Index, 2015=100

31

Capacity clearly outgrowing demand growth


85%

86%

87%

88%

89%

90%

91%

92%

93%

94%

95%

96%

-100

-50

0

50

100

150

200

250

300

350

400

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Th

ou

sa

nd

to

nn

es

Demand Capacity OR

Folding boxboard

Capacity increasing faster

than demand through

most of the forecast

Exports not increasing

sufficiently to offset

upcoming capacity

increases

Operating rates to trend

down in 2020

32

Recycled board growing at slower pace


86%

87%

88%

89%

90%

91%

92%

93%

-150

-100

-50

0

50

100

150

200

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Th

ou

sa

nd

to

nn

es

Demand Capacity OR

Recycled boxboard

No major changes in

capacity foreseen

Exports trended down in

2019 despite Chinese

import fiber restrictions

Demand to recover from

2021 onward

Weak demand and lack

of capacity curtailments

will bring operating rates

down

33


Coated virgin boxboard prices United States

Imports of multi-ply from Europe and Asia affecting

domestic SBS markets

Sappi conversion at Somerset mill

Europe

Prices rose by €30-35/tonne in January and February

2019

Prices under pressure due to weaker demand, rising

capacity and lower market pulp and wood prices

500

600

700

800

900

1,000

1,100

1,200

2013:1 2014:3 2016:1 2017:3 2019:1

Eu

ros p

er

ton

ne

USA Germany China

Asia

Oversupply (weak demand in 2018) drove prices back

down

Downtime and increased market concentration

supporting higher paper prices

34

Strengthening

of the USD


Coated recycled boxboard prices United States

Strengthening of the USD lifting prices (in euro terns)


Removal of capacity in 2017 and 2018 (PaperWorks

& Graphic Packaging International) tighten the market

Europe

Prices under pressure due to demand weakness and

low PfR prices

300

400

500

600

700

800

900

2013:1 2014:3 2016:1 2017:3 2019:1

Eu

ros p

er

ton

ne

USA Germany China

Asia

Chinese fiber restrictions behind price increases


Prices moved down from June 2018 onwards due to

demand weakness and ample supply

Announced capacity closures kept prices from

declining more

35

Strengthening

of the USD

Chinese fiber

restrictions

Take home points Boxboard demand growth is slowing down

We estimate 6.5 million tonnes of lost opportunities by 202101


02

03

04

Asia demand decelerating

However, big imbalances between markets. Ivoryboard

weakening due to capacity overshooting demand

Coated duplex tightening due to capacity curtailments (PfR

import ban)

North America becoming an attractive market for

exporters

Domestic producers under pressure, especially in SBS

Cupstock markets tighter than bleached folding cartons

Europe becoming more oversupplied

New capacity entering the market amid weak domestic

consumption will drag operating rates down

36

Thank you

PAPER PACKAGING MONITOR

EUROPE

www.risi.com/ppme


http://www.risi.com/ppme

fastmarkets risi global boxboard outlook · • sappi conversion at somerset mill any grade...

Documents