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  • Global Boxboard Market Review Sailing in a World of Volatility and Uncertainty

    Alejandro Mata Senior Economist, European Forest Products

    RISI Asian Conference

    May 2018

    © Copyright 2018 RISI, Inc. | Proprietary Information

  • 2

    • Bachelor’s degree in Engineering, MBA degree earned in 2007

    • Worked in business and market intelligence functions for one of Europe’s leading paper producers

    • Has been analyzing and forecasting the industry since 2009

    • Author of the Paper Trader Europe, Paper Packaging Monitor Europe, the European Graphic 5-Year and 15-Year Forecasts and the European Paper Packaging 5-Year and 15-Year Forecasts

    Senior Economist, European Forest Products

    Alejandro Mata

    [email protected]

    © Copyright 2018 RISI, Inc. | Proprietary Information

  • 3© Copyright 2018 RISI, Inc. | Proprietary Information

    Economic Tailwind Boosting Demand

  • 4

    …But What If the Wind Changes? © Copyright 2018 RISI, Inc. | Proprietary Information

  • 27.8

    12.2

    9.5

    4.5

    3.0

    1.3 1.2 0.3

    -

    5.0

    10.0

    15.0

    20.0

    25.0

    30.0

    Asia North America

    Western Europe

    Eastern Europe

    Latin America Middle East Africa Oceania

    B o

    xb o

    ar d

    D e

    m an

    d 2

    0 1

    7 (M

    ill io

    n T

    o n

    n e

    s) Large markets, fast growing

    Large, mature markets

    Lower consumption levels, high growth

    B o

    xb o

    ar d

    D e

    m an

    d in

    K ey

    R e

    gi o

    n s

    5© Copyright 2018 RISI, Inc. | Proprietary Information

  • 6© Copyright 2018 RISI, Inc. | Proprietary Information

    -4%

    -2%

    0%

    2%

    4%

    6%

    8%

    10%

    -2.0

    -1.0

    0.0

    1.0

    2.0

    3.0

    4.0

    5.0

    Global Boxboard Demand Growth Million Tonnes

    Demand Change % Change

    Synchronized global growth

     Still below pre-crisis despite synchronized global economic growth

     Other packaging material substitutes

     Changing consumption patterns

  • 7© Copyright 2018 RISI, Inc. | Proprietary Information

  • 8© Copyright 2018 RISI, Inc. | Proprietary Information

  • 9© Copyright 2018 RISI, Inc. | Proprietary Information

    Plastics Substitution

  • 10© Copyright 2018 RISI, Inc. | Proprietary Information

     Offers better visual properties and personalization??

     Are cheaper to produce and buy??

     More environmental friendly than boxes??

    They will stay for a few more years, perhaps a

    couple of decades, before pouch bags

    replace them as the sole medium to package

    cereals

    According to Pouch Manufacturers

    0

    50

    100

    150

    200

    250

    300

    2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

    European IPEX Brent Spot (FOB), USD/Barrel GC2 GD2

  • 11© Copyright 2018 RISI, Inc. | Proprietary Information

    Oil prices are keeping plastic prices low More competitive vs fiber packaging Making new plastic has become less

    expensive than recycling

    Oil Prices Affecting Recycling of Plastics

    Plastics Recycling Rate VS Oil Prices

  • 12© Copyright 2018 RISI, Inc. | Proprietary Information

    Map of countries banning plastics

    Plastic Bag Ban

    Banned Usage Fee Ban Failed

  • 13© Copyright 2018 RISI, Inc. | Proprietary Information

  • 14© Copyright 2018 RISI, Inc. | Proprietary Information

    78%

    80%

    82%

    84%

    86%

    88%

    90%

    -2.0

    -1.0

    0.0

    1.0

    2.0

    3.0

    4.0

    5.0

    O p

    e ra

    ti n

    g R

    a te

    G ro

    w th

    i n

    M il

    li o

    n T

    o n

    n e

    s

    Demand Capacity Operating Rate  Over-investment dominated

    the industry between 2005 and 2014

     Investment has cooled down since 2014

     Operating rates on the rise, but still below 90%

    70%

    75%

    80%

    85%

    90%

    95%

    100%

    2 0

    0 0

    2 0

    0 2

    2 0

    0 4

    2 0

    0 6

    2 0

    0 8

    2 0

    1 0

    2 0

    1 2

    2 0

    1 4

    2 0

    1 6

    2 0

    1 8

    North America Western Europe Asia

     Asia still has the lowest operating rates

    Global Supply and Demand Changes

  • 15© Copyright 2018 RISI, Inc. | Proprietary Information

    0.0

    0.1

    0.2

    0.3

    0.4

    0.5

    0.6 C

    H A

    N G

    E (M

    IL LI

    O N

    T O

    N N

    ES )

    -0.3

    -0.2

    -0.1

    0.0

    0.1

    0.2

    0.3

    0.4

    C H

    A N

    G E

    (M IL

    LI O

    N T

    O N

    N ES

    )

     Economic growth engine changing to consumption

     Restrictions on fiber side will also slowdown investment

     European industry, on the other hand, is investing more than before

     Higher exports have allowed for higher investment in the region

  • 16© Copyright 2018 RISI, Inc. | Proprietary Information

    74%

    76%

    78%

    80%

    82%

    84%

    86%

    -1.0

    -0.5

    0.0

    0.5

    1.0

    1.5

    2.0

    2.5

    3.0

    3.5

    2012 2013 2014 2015 2016 2017 2018 2019

    M IL

    LI O

    N T

    O N

    N ES

    Asian Supply and Demand Growth

    Demand Capacity OR

    Economic transformation continues

    Consumption of paper and board still constrained

    Investment has decelerated

    Ongoing environmental issues sparking fiber crisis

    A SI

    A

  • 17© Copyright 2018 RISI, Inc. | Proprietary Information

    0.0%

    4.0%

    8.0%

    12.0%

    16.0%

    20.0%

    0.0

    0.5

    1.0

    1.5

    2.0

    2.5

    00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

    B O

    X B

    O A

    R D

    D EM

    A N

    D G

    R O

    W TH

    ( M

    IL LI

    O N

    T O

    N N

    ES )

    China Rest of Asia Percent (R)

     Demand growth still slowing

     Slowdown mostly due to China; rest of Asia growing at stable pace

     China historically accounted for more than 70% of Asian demand growth

     It will only account for about 55% of demand growth going forward

    2016 2017 2018

    Asia 3.5% 3.0% 2.3%

    China 2.9% 3.7% 2.4%

    China Accounts for Most of the Growth

  • 18© Copyright 2018 RISI, Inc. | Proprietary Information

    Remember This?

    China is the largest buyer of PfR in the World

  • 19© Copyright 2018 RISI, Inc. | Proprietary Information

    China Banning Imports of Mixed Papers 2

    0 1

    6 : 2

    8 .5

    M ill

    io n

    T o

    n n

    e s

    MIX, 5.7

    ONP, 5.2

    OCC, 16.7

    Increase volatility in PfR prices, therefore costs most likely to remain high

    Consequences

    Production to suffer due to lack of fibers and high costs – lower margins for producers

    China will import more finished paper products to compensate

  • 20© Copyright 2018 RISI, Inc. | Proprietary Information

    China Banning Imports of Mixed Papers

    How to compensate for the missing fiber?

    Increase domestic collection?

    More market pulp?

    Imports of finished paper products?

    Diverting fiber away from low margin paper & board grades (graphics) ?

  • 21© Copyright 2018 RISI, Inc. | Proprietary Information

    Consequences?

    65%

    70%

    75%

    80%

    85%

    90%

    12.0

    14.0

    16.0

    18.0

    20.0

    22.0

    2012 2013 2014 2015 2016 2017 2018 2019

    M IL

    LI O

    N T

    O N

    N ES

    China Before

    Capacity Production Demand OR

    70%

    72%

    74%

    76%

    78%

    80%

    82%

    84%

    86%

    12.0

    14.0

    16.0

    18.0

    20.0

    22.0

    2012 2013 2014 2015 2016 2017 2018 2019

    M IL

    LI O

    N T

    O N

    N ES

    China After

    Capacity Production Demand OR

    Production growing at half the speed

    China will export less

    Capacity closures will continue

    Small machines at higher risk of closure

    Operating rates will be lower than before, as production losses overtake changes in capacity

  • 22© Copyright 2018 RISI, Inc. | Proprietary Information

    0

    200

    400

    600

    800

    1,000

    1,200

    1,400