sailing in a world of volatility and uncertainty · global boxboard market review ... • worked in...

© Copyright 2018 RISI, Inc. | Proprietary Information

Global Boxboard Market ReviewSailing In A World Of Volatility And Uncertainty

Alejandro MataSenior Economist, European Forest Products

European ConferenceMarch 2018

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 Packaging Paper 5‐Year and 15‐Year Forecasts

Senior Economist, European Forest ProductsAlejandro Mata

[email protected]


3© Copyright 2018 RISI, Inc. | Proprietary Information

Economic Tailwind Boosting Demand

4

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

Boxboa

rd Dem

and in Key Regions


27.8

12.2

9.5

4.5

3.0

1.3 1.20.3

‐

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

Boxboa

rd Dem

and 20

17(M

illion Tonn

es)

Large markets, fast growing

Large, mature markets

Lower consumption levels, high growth


‐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 GrowthMillion Tonnes

Demand Change % Change

Synchronized global growth

Still below pre‐crisis despite synchronized global economic growth

Other packaging material substitutes

Change in consumption patterns


7.4% 8.7% 10.0%11.5%

13.0%14.6%

25.5%23.7% 22.8% 21.6%

19.5% 18.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

5

10

15

20

25

30

2015 2016 2017 2018 2019 2020

Trillion USD

Traditional E‐commerce % of Total Growth

Speed of growth slowing down as e‐commerce slowly becomes mainstream

Asia‐Pacific will remain the world’s largest retail e‐commerce market

Growth fueled by:• Expanding middle class

• Greater mobile and internet penetration

• Growing competition

• Improving logistics and infrastructure


Plastics SubstitutionPlastics

Substitution


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

0

50

100

150

200

250

300

2000 2002 2004 2006 2008 2010 2012 2014 2016

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

According to Pouch Manufacturers


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

expensive than recycling

Low Oil Price Is Reducing Recycling Rate Of PlasticsPlastics Recycling Rate VS Oil Prices


Map of countries banning plastics

Plastic Bag Ban Map

BannedUsage FeeBan Failed


78%

80%

82%

84%

86%

88%

90%

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Ope

ratin

g R

ate

Gro

wth

in M

illio

n To

nnes

Demand Capacity Operating Rate Overinvestment dominated the industry between 2005 and 2014

Investment has cooled down since 2014

Operating rates on the rise. However still below 90%

70%

75%

80%

85%

90%

95%

100%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

North America Western Europe Asia

Asia still the region with the lowest operating rates


0.0

0.1

0.2

0.3

0.4

0.5

0.6

CHAN

GE (M

ILLION TONNES)

‐0.3

‐0.2

‐0.1

0.0

0.1

0.2

0.3

0.4

CHAN

GE (M

ILLION TONNES)

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 been a key to allow for higher investment in the region


68.0%

70.0%

72.0%

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

86.0%

88.0%

‐1,000

‐500

0

500

1,000

1,500

2,000

2,500

3,000

2012 2013 2014 2015 2016 2017 2018 2019 2020

Chinnese Supply & Demand Growth

Demand Capacity OR

Economic transformation continues

Consumption of Paper and Board still constrained

Investment has decelerated

Ongoing environmental issues sparkling fiber crisis

ASI

A


Remember This?

USA+19

China

-28.5 WE+3

UK+5

EE+1

Japan+4

Oceania+2

Middle East+1

Other Asia-7

China is the largest buyer of PfR in the World


China Banning Imports of Mixed Papers

ONP, 5.2

MIX, 5.7

HGR, 0.9

OCC, 16.7

2016: 28.5 Million Tonnes

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


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) ?


A year ago, expectations were that Chinese net exports would average over 1.7 million

tonnes per year in 2018‐2019.

Our new forecast shows net exports of just 1.1 million tonnes during the same

period, even though global demand is coming

stronger than before.


North America The recovery in the US Economy driving higher demand for boxboard

Imports supplying most of the demand growth

Imports affecting production

0

200

400

600

800

1000

1200

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

US Boxboard Imports (thousand tonnes)

Folding Carton Total


300

400

500

600

700

800

900

2013 2014 2015 2016 2017

Global Recycled Cartonboard Prices(Euros per Tonne)

Europe USA China

In the USA:

Strengthening of the USD since 2014

The US has become an interesting destination for exporters

In Europe:

Prices steady for most of the period

Lack of improvement in market balances

In Asia:

Also changing due exchange rates in 2015, latest increases due to PfRprice volatility


Virgin M

arkets Doing

Better

Challenging Co

ndition

s On Th

e CR

B Market Demand not strong enough due to:

Changing in people’s buying behaviour (less processed food buying)

Fiercer threat from plastics

Imports rising rapidly: Most of the imports from Europe and Asia

fall within recycled cartonboard in the USA

Capacity fell nearly 11% in 2017

Demand doing better. Growth in liquid packaging board, cupstock)

Producers benefiting from food service market (cups, takeout containers)

Imports not impacting virgin boxboard markets much

Capacity rising slowly


86.0%

87.0%

88.0%

89.0%

90.0%

91.0%

92.0%

93.0%

94.0%

‐300

‐200

‐100

0

100

200

300

400

500

600

2012 2013 2014 2015 2016 2017 2018 2019 2020

Supply & Demand Growth

Demand Capacity OR

Economic recovery underway, but uncertainties persist

Virgin grades account for roughly 60% of the market

Biggest challenge Europe is facing is uncertainty

Exports expected to increase

EUR

OPE


• More dining out

Europeans Consuming More

• At home…

‐6.0%

‐5.0%

‐4.0%

‐3.0%

‐2.0%

‐1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

YEAR

LY PER

CENTAGE CH

ANGE

Total Food Restaurants

Household Consumption


‐50

‐40

‐30

‐20

‐10

0

10

20

30

40

50

Mar‐08

Aug‐08

Jan‐09

Jun‐09

Nov

‐09

Apr‐10

Sep‐10

Feb‐11

Jul‐1

1De

c‐11

May‐12

Oct‐12

Mar‐13

Aug‐13

Jan‐14

Jun‐14

Nov

‐14

Apr‐15

Sep‐15

Feb‐16

Jul‐1

6De

c‐16

May‐17

Production in the EU Manufacturing Industry

• Still, pharma is leading the recovery

• Pharma did not even declined after the Great Recession

• Pharma is more associated with virgin boxboard grades

Pharma

Automotive

Food & Drinks

Manufacturing

Machinery & Equipment

Percentage change relative to the first quarter of 2008Source: Eurostat


20162017

20182019

KotkamillsFolding Boxboard

400,000 (FI)

HusumFolding Boxboard

400,000 (SE)

DobrushVirgin Cartonboard

200,000 (BLR)

KamaFolding Boxboard

220,000 (RU)Gruvön

Virgin Cartonboard550,000 (SE)

86%

87%

88%

89%

90%

91%

92%

93%

94%

2012 2013 2014 2015 2016 2017 2018 2019 2020

European Cartonboard Operating Rates

After Before

1. Delays and cancellation in upcoming capacity increases

2. Europe exporting more than before (China effect)


China Fiber Ban Pushing Exports

‐2

‐1

0

1

2

3

4

5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

NET

EXP

ORT

S, M

ILLION TONNES

W. Europe E. Europe

Asian Prices Rising The Most in 2017


600

650

700

750

800

850

900

950

1000

1050

1100

2013 2014 2015 2016 2017

Virgin Cartonboard(Euros per Tonne)

Europe USA China

Strengthening of the USD

Higher market pulp prices

350370390410430450470490510530550

‐

2

4

6

8

10

12

14

16

Latin America North America Europe Asia

Million Tonn

es

Europe exporting more to the United States

Exporting to Asia has become more interesting than before due to rising Asian prices in 2017

Europe remains one of the lowest cost regions to produce virgin boxboard


Questions?

32

Asian Graphic Paper 5‐Year Forecastwww.risi.com/forecasts

Asian Pulp and Paper Monitorwww.risi.com/appm

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