risi north american outlook · additional assumed capacity: 240,000 tons 2018‐2020, 1.5 million...

© Copyright 2018 RISI, Inc. | Proprietary Information

RISI North American OutlookNorth American Corrugated Box and Containerboard

Ken WaghorneVice President, Global Packaging

November 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 What’s happening in other parts of the world?

• When will capacity expansion surpass 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

‐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


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 Squa

re Feet

Baseline Actual

Non‐box Uses of Sheets Is Growing Rapidly

0%

5%

10%

15%

20%

25%

0

100

200

300

400

500

600

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion

Squ

are Feet

Box Shipments Other Uses of Corrugated Sheet Other Share of Total Corrugator Production


Corrugator production has grown well in excess of box shipments

The Growth in E‐commerce Is Changing Seasonal Patterns for Box Shipments

‐4‐3‐2‐10123456

Q1 Q2 Q3 Q4

Quarter to Quarter Growth, Billion Square Feet,

Raw Data

2010 2011 2012 2013 2014 2015 2016 2017 2018


‐4‐3‐2‐10123456

Q1 Q2 Q3 Q4

Quarter to Quarter Growth, Billion Square FeetSeasonally Adjusted

2010 2011 2012 2013 2014 2015 2016 2017 2018

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

9

From the Amazon Frustration‐Free Packaging webpage:


What Does This Mean for Domestic Demand?


‐5.0

‐4.0

‐3.0

‐2.0

‐1.0

0.0

1.0

2.0

3.0

4.0

5.0

11 12 13 14 15 16 17 18 19 20

Containerboard Market Growth, Percent

Ind. Prod. Nondurable GoodsCorrugatedContainerboard

• Continued growth in shipments as long as the economy is hot

• Cutup and corrugated sheet production should continue to outpace box shipments


International Trade Issues

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

0.5% Standard

Mixed Paper Ban

Domestic Collections

Finished P&B

Virgin Pulp

11,600

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

RCP Loss Fiber Needed Solution

RCP Fiber Loss

Other RCP

Other RCP

Mixed

0

5,000

10,000

15,000

20,000

25,000

30,000

2017 2018

China RCP Imports

The Impact of China’s RCP Import Policy ChangesRCP Imports, Thousand Tonnes

Regulatory Loss

© Copyright 2018 RISI, Inc. | Proprietary Information 12

Pulping Loss

Chinese Firms Are Investing in North American Assets as a Hedge Against a Potential 2020/2021 Zero RCP Import Policy


Company Mill Grade Type Announced

Nine Dragons Rumford, ME Graphic paper Pulp/Conversion? May 2018

Nine Dragons Biron, WI Graphic paper Conversion/Pulp May 2018

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

Nine Dragons Old Town, ME Kraft pulp restart Unbleached pulp October 2018

Global Win Wickliffe, KY Graphic paper restart Conversion August 2018

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

More to come? Recycled pulp or conversion?

Assumed new capacity: 1.5 million tons

China’s Trade Position Is Shifting Dramatically

‐0.5

0.0

0.5

1.0

1.5

2.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Boxboard Net Exports, Million Tonnes

Boxboard 2017 forecast

• Exports peaked at 1.5 million tonnes in 2016

• Before dropping 134,000 tonnes in 2017

• Larger declines likely for 2018‐2020

14

Boxboard was the first to be affected


China’s Trade Position Is Shifting Dramatically

‐2.0

‐1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Chinese Net Imports, Million Tonnes

Boxboard

Containerboard

15

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 Regions Will Supply the Shift in Chinese Imports?

‐ 2 4 6 8

10 12 14 16

2012 2013 2014 2015 2016 2017 2018 2019 2020

Net Exports, Traditional ExportersMillion Tonnes

North America Western Europe Russia & CIS Japan

South Korea Taiwan Thailand Brazil

South Africa Oceania

16

Every one will be needed


‐ 1 2 3 4 5 6 7 8 9

2012 2013 2014 2015 2016 2017 2018 2019 2020

Challenge: Very limited slack (capacity less production) in any exporting region

North America Western Europe Russia & CIS Japan

South Korea Taiwan Thailand Brazil

South Africa Oceania

‐

2

4

6

8

10

2012 2013 2014 2015 2016 2017 2018 2019 2020

Regional Net Imports, Million Tonnes

Other Latin America Other Africa Middle East Other Emerging Europe Other Far East

What’s Happening in Other Parts of the World?

17

Imports continue to supply substantial portion of demand growth


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 ExportsMillion Tons

KraftlinerRecycled LinerVirgin MediumRecycled Medium

18

Strong increase in US containerboard exports


050

100150200250300350400450500

2016 2017 2018

Thou

sand

Tonn

es

US Kraftliner Exports by Destination,YTD through July 2018

Mexico China Italy Canada Guatemala


Capacity Expansions

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

Announced new capacity: 2.1 million tonsUnlisted incremental projects 2017‐2018: 856,000 tons

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


Company Mill Grade Change (000 Tons) Year

Announced Mills 1.14 million

Cascades Ashland, VA Recycled conversion 400 2021

McKinley/Bio‐Pappel Port Angeles, WA Recycled conversion 250 Sept. 2019

New Indy Catawba, SC Kraft/recycled conversion 400 2020?

Norpac Longview, WA Recycled conversion 90 2018

Traditional Creep Assumed All 450 Annual

Under study:

Domtar Will they or won’t they? ??? 2021 or beyond?

Other conversions ???

Additional assumed capacity: 240,000 tons 2018‐2020, 1.5 million tons 2021‐2023

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

Domestic Demand

DemandCapacityOperating Rate (R)

22

Surge in exports to China offsets weakness in domestic demand


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

Production

ProductionCapacityOperating Rate (R)

North American Containerboard Summary

• Domestic demand will continue to grow strongly through 2020 Barring an earlier‐than‐expected economic slowdown

• Trade shifts should boost production through 2020 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 on line


risi north american outlook · additional assumed capacity: 240,000 tons 2018‐2020, 1.5 million...

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