outlook for boxboard...global virgin cartonboard cash cost comparison global cost curve is flatter...

Outlook for Global Boxboard

RISI European ConferenceAmsterdam – March 2017

How is the market coping with new capacity and evolving trade flows?

Alejandro MataSenior Economist, European Forest Products

© Copyright 2017 RISI, Inc. | Proprietary Information

Alejandro Mata

• 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

• Have been analyzing and forecasting the industry since 2009

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

Economist, European Forest Products

[email protected]

© Copyright 2017 RISI, Inc. | Proprietary Information 2

3© Copyright 2017 RISI, Inc. | Proprietary Information

What’s on the Agenda for Today….

Who might be impacted?

What are the possible scenarios and…

What if the USA raises more trade barriers?

Global and regional developments

How disruptivewill China continue to be?

4

Many Uncertainties Prevail…

Hard

Soft

• The UK refusing to compromise on the free movement of people

• Leaving the EU single market• Trading with the EU as if it were any other country outside

Europe, based on World Trade Organization

Rise of Trade Tariffs

Single Market?

Tariffs? Movementof People?

Customs Union

EU Budget

Full

Full

Partial

NoWTO


Boxboard


All paperboard except containerboard

Western Europe – based on how it is constructed

United States – based on converted products

Asia – A mix (grey areas artboard, coated white top)

RISI’s solution: An entirely new classification system based on available trade data

3 3

11

6

4

17

1

12

SOLID BLEACHED

SOLID UNBLEACHED

MULTI‐PLY VIRGIN

POLY COATED SOLID RECYCLED

MULTI‐PLY RECYCLED

SOLID VIRGIN RECYCLED

Boxboa

rd Dem

and

(Million Tonn

es)

Coated Virgin:23 Million Tonnes

Coated Recycled:21 Million Tonnes

Uncoated:13 Million Tonnes

World Boxboard Demand in 2015


57.6 Million Tonnes

Boxboard Demand in Key Regions, 2015Nearly a majority of world demand comes from Asia


26.7

11.8

9.2

4.13.0

1.2 1.10.4

‐

5.0

10.0

15.0

20.0

25.0

30.0

Asia NorthAmerica

WesternEurope

EasternEurope

Latin America Middle East Africa Oceania

Boxboa

rd Dem

and

(Million Tonn

es)

Large markets, fast growthLarge markets, fast growth

Large, mature marketsLarge, mature markets

Lower consumption levels, high growth

Lower consumption levels, high growth

Boxboard Demand Growth Restrained

8

China Slowdown

Recession in Brazil

Consumer spending down

Influence of e‐commerce

‐4.0%

‐2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

‐2.0

‐1.0

0.0

1.0

2.0

3.0

4.0

5.0

BOXB

OAR

D DEM

AND GRO

WTH

(M

ILLION TONNES)

Demand Change % Change



Amazon Frustration‐Free Packaging

10

Boxboard Demand per Main Category

0

2

4

6

8

10

12

14

16

2010 2011 2012 2013 2014 2015 2016 2017* 2018*

Coated Recycled Board Demand (Million Tonnes)North America Europe Asia Latin America RoW

+3.4%**+2.8%***

+1.4%** +1.4%***

-0.1%** +0.4%***

* Forecast ** CAGR 10-16 *** CAGR 16-18


+ 1.6%*

* CAGR 2016 - 2018

+ 2.3%*

+ 3.4%*

0.00 10.00 20.00 30.00

Ctd. Virgin

Ctd. Recycled

Uncoated

Boxboard Demand (Million Tonnes)

2018 2017 2016

11

Boxboard Demand per Main Category

0

2

4

6

8

10

12

2010 2011 2012 2013 2014 2015 2016 2017* 2018*

Coated Virgin Board Demand (Million Tonnes)North America Europe Asia Latin America RoW

+6.8%**

+4.7%***

+2.8%**+2.7%***

0.7%**+1.5%***

* Forecast ** CAGR 10-16 *** CAGR 16-18


+ 1.6%*

* CAGR 2016 - 2018

+ 2.3%*

+ 3.4%*

0.00 10.00 20.00 30.00

Ctd. Virgin

Ctd. Recycled

Uncoated

Boxboard Demand (Million Tonnes)

2018 2017 2016

Capacity Growing More Than Demand


0.78

0.8

0.82

0.84

0.86

0.88

0.9

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Ope

ratin

g R

ate

Gro

wth

in M

illio

n T

onne

s

Demand

Capacity

Operating Rate


USA & CANADA

Uncoated31%

Coated Recycled

18%

Coated Virgin51%

Analysis excludes uncoated (all regions)

US economy is improving‐ Good consumption and employment‐ Industrial production still weak

Virgin grades dominate the market

Food service sector contributing most of the growth

USA becoming more attractive for exporters (virgin & recycled)


Why Are Imports Rising?

4,000

5,000

6,000

7,000

8,000

9,000

2011 2012 2013 2014 2015 2016 2017 2018

Capacity Production Demand • Better demand due to strong upturn in consumer spending (including food consumed at home)

• High prices stimulating searches for alternatives (containerboard)

• E‐commerce to have a negative effect—less shelf‐ready packaging needed

• Capacity closures in North America

• Production flat while demand rising = local producers losing market share to overseas suppliers

Traditionally a tough market to enter

Percentage of folding carton market integrated with boxboard supply

Riegelwood (‐180,000 tonnes)


0

20

40

60

80

100

120

140

160

2012 2013 2014 2015 2016

THOUSA

ND TONNES

US Imports Clay Coated Multi‐Ply

RoW Sweden Finland China Canada

Capacity Changing Trade FlowsIncreasing

Finland Sweden China

Imports rising due to:

Capacity expansions in Asia and Europe

Demand slowdown in China

Strong US dollar boosting prices in the United States

DecreasingImports rising more than

10% each year(two‐year forecast)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

MILLION TONNES

North American Exports

US SBS US CUK All Other NA Exports

Exporters Under Pressure

© Copyright 2017 RISI, Inc. | Proprietary Information16

SBS producers competing with FBB and Ivoryboard

Lower exports due to:

Capacity closures in North America

Increased pressure on SBS following capacity increases in Asia and Europe

Strong dollar affecting cost competitiveness

Asia36%

Canada18%

L.Am.14%

RoW32%

US Producers Not Longer Low Cost


350

400

450

500

550

600

‐ 2,000 4,000 6,000 8,000

10,000 12,000 14,000

Latin America North America Europe Asia

Global Virgin Cartonboard Cash Cost Comparison

Global cost curve is flatter than before

North America cost to produce impacted by strong US dollar

North America has lost its cost competitiveness and is now more exposed to capacity increases in Europe and Asia

0.8

1

1.2

1.4

1.6

95 97 99 01 03 05 07 09 11 13 15 17

USD/EUR

BeforeAfter


Asia (China) China is the largest market in Asia,

accounting for 60% of overall demand and most of the growth year on year

Growth in capacity has slowed down to a fraction of what it was a few years ago

Demand is also growing more slowly, leading to very low operating rates

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012 2013 2014 2015 2016 2017 2018

Supply and Demand Growth in China

Demand Supply

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 18Boxboa

rd Dem

and Growth (M

illion Tonn

es)

China Rest of Asia Percent (R)

Asia Still Growing, But More Slowly


‐2,000

‐1,000

0

1,000

2,000

3,000

4,000

5,000

Capa

city Growth, Tho

usan

d Tonn

es

Virgin Recycled Global Demand Growth

Chinese Capacity Growth Increasingly Concentrated in Ivoryboard


Growth in excess of global demand growth!

Capacity expansions slowing down

Virgin boxboard expansion persisted through 2015, causing operating rates for ivoryboard to decline

‐2.5

‐2.0

‐1.5

‐1.0

‐0.5

0.0

0.5

1.0

1.5

2.0

NET

EXP

ORT

S (M

ILLION TONNES)

China Rest of Asia

Rest of Asia Also Getting Saturated


‐4,000 ‐2,000 0 2,000 4,000

20022003200420052006200720082009201020112012201320142015201620172018

Asian Net Exports

Net Exports Exports Imports

Asia to become a net exporter as of this year


Europe

Economic recovery under way. Although uncertainties persist

Virgin grades account for roughly 60% of the market

Biggest challenge Europe is facing is overcapacity

Operating rates will come down, although to remain above 90%

87%

88%

89%

90%

91%

92%

‐400

‐300

‐200

‐100

0

100

200

300

400

500

2012 2013 2014 2015 2016 2017 2018

Supply & Demand Growth

Demand Supply OR

Who will be impacted?


0 100 200 300 400 500 600 700

Coated Multi-Ply

Coated Solid Board

Poly Coated

UK Demand per Grade, 2016

Production Net Imports

UK relies on imports to satisfy most of its demand requirements

It imports more than 80% of its consumption needs

Suppliers to the UK affected by weak pound

Strong pound and post‐Brexit tariffs might push production costs for end‐users up, changing demand trends for the UK

Possible further substitution

UK Imports Most of Its Requirements


European Exports On The Rise?

6,000

7,000

8,000

9,000

10,000

11,000

12,000

2011 2012 2013 2014 2015 2016 2017 2018

Capacity Production Demand • Improved economy and higher consumption lifting demand

• Demand growth concentrated food and beverage industries

• Start‐ups at Husum and Kotkamills increasing the need to export more

• Operating rates will come down below 90% for virgin grades

Will Europe succeed in raising exports?

400

420

440

460

480

500

520

‐ 2,000 4,000 6,000 8,000

10,000 12,000 14,000

LatinAmerica

NorthAmerica

Europe Asia

Europe’s Boxboard Trade Surplus


‐2

‐1

0

1

2

3

420

06

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Net Exports, M

illion Tonn

es

W. Europe E. Europe Total Europe

Net exports will manage to increase, although gains will not avoid a reduction in operating rates

Europeans have limited possibilities in North America (mature) and Latin America (small but growing markets)

Further capacity additions will increase pressure on exports

26

Western European Exports At Risk

Americas (15%)

Africa & Middle East (16%)

Asia (20%)

Emerging Europe (47%)


Ivoryboard taking share in high‐growth markets

Take Home Points on the Outlook for Global Boxboard

• Headwinds will keep global boxboard demand growth restrained in 2016‐2017

• Slowing China, low commodity prices, soft consumer spending data

• The capacity overbuild in China and now Europe will continue to impact global trade

• Especially for virgin boxboard (SBS and FBB)• Chinese ivoryboard is competing in neighboring markets, particularly with commodity grades

• US producers insulated, but pressure is building• Export markets clearly challenged• Import situation continues to develop


European Board Very Competitive Given Recent US Dollar Moves


800

1,000

1,200

1,400

1,600

1,800

2012 2013 2014 2015 2016

NET

‐NET

USD

PRICE

PER

TONNE

Coated Ivoryboard(Premium)Brazilian Duplex, VirginBased

Strong US dollar granting “currency‐related” gains to Europe and Asia

Appreciation of the Brazilian Real causing intense cost inflation, forcing prices up

Low operating rates and import trends are keeping US prices steady

outlook for boxboard...global virgin cartonboard cash cost comparison global cost curve is flatter...

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