fastmarkets risi global boxboard outlook · 2019-03-09 · 2019 | fastmarkets | global graphic...
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Fastmarkets RISI Global Boxboard Outlook
2019 | Fastmarkets | Global Graphic Outlook March 2019
Forces shaping the boxboard industry
11
At the top of the business cycle?
2019 | Fastmarkets | Global Graphic Outlook March 2019
• Deceleration in the global economy• Boxboard demand slowing • Markets growing oversupplied
2017 was a strong year, 2018 not so much
2
Consumer board
2019 | Fastmarkets | Global Graphic Outlook March 2019
What can I do to support the environment?
Plastic or paper?
Are these products good enough for my
family?Do I really need it?How can I
save more on groceries?
Did I liked this product last
time?
Price
Known brands are predictable
3
Voice of the customer is getting louder
2019 | Fastmarkets | Global Graphic Outlook March 2019 4
Social media: The great influencer
2019 | Fastmarkets | Global Graphic Outlook March 2019 5
E-commerce is changing the way products are packed
2019 | Fastmarkets | Global Graphic Outlook March 2019
The rise of the discount retailer
010203040506070
Milli
on S
QM
2018
2023
Sales area of EU grocery channels
Discounters▪ In Europe, discounters generate 22% of all FMCG sales
▪ Private labels becoming the “smart” choice
▪ Discounters are good at satisfying basic needs
▪ They have a higher proportion of processed foodthan hypermarkets and supermarkets
Mill
ion
squa
re m
eter
s
1,250 football fields
2019 | Fastmarkets | Global Graphic Outlook March 2019 7
2019 | Fastmarkets | Global Graphic Outlook March 2019
• Perception of private labels is not the same as 10 years ago (generic)
• After trying them, consumers often keep buying private labels, even when income increases
• Most consumers believe private labels offer excellent value for money
• Rise of private labels will cause more expenditure on branding
• Could increase use of packaging (plastic??)
The rise of the private label
0%5%
10%15%20%25%30%35%
Global EU NA LATAM APAC
2015
2016
Value share growth
Source: Nielsen
8
2019 | Fastmarkets | Global Graphic Outlook March 2019
However, this might go against the current movement away from single-use plastics
9
2019 | Fastmarkets | Global Graphic Outlook March 2019
Consumer board manufacturers already offer solutions, although plastics
(mostly PE) are still used for barrier properties
Elopak launches Pure-Pak® cartons made with Natura
Life™ by Stora Enso
100% recyclable and can be recycled through existing
channels
An opportunity for fiber-based packaging?
10
2019 | Fastmarkets | Global Graphic Outlook March 2019
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Thou
sand
tonn
es
Current Previous
The bottom line is… growth is weaker
Milli
on to
nnes
Change in demand, global boxboard
No, 2018 is not a mistakeDemand growth was basically zero
Lost opportunities between 2018 and 2020
11
2019 | Fastmarkets | Global Graphic Outlook March 2019
China in particular
10.0
11.0
12.0
13.0
14.0
15.0
16.0
17.0
18.0
19.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020M
illion
tonn
es
Current Before
Demand declined 6% in 2018▪ No growth is expected for 2019▪ Growth only resuming in 2020 (+2.7%)
What is driving the demand losses in China?▪ Ongoing economic slowdown▪ Imported fiber restrictions▪ Higher prices
0.0 0.5 1.0 1.5 2.0 2.5
Nor
th A
mer
ica
Euro
peAs
iaR
est o
f wor
ld
Million tonnesPrevious Current
Most of the losses are in Asia
- 240,000 tonnes
- 1.7 million tonnes
- 355,000 tonnes
- 210,000 tonnes
China boxboard demand
12
Despite weak demand in 2018…
Despite weak demand, operating rates increased to 86% in 2018 thanks to the removal of capacity
132019 | Fastmarkets | Global Graphic Outlook March 2019
79.0%
80.0%
81.0%
82.0%
83.0%
84.0%
85.0%
86.0%
87.0%
88.0%
89.0%
90.0%
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
Thou
sand
tonn
es
Capacity Demand OR
Global market balancesGlobal boxboard demand and capacity changes
-2.0 -1.0 0.0 1.0
Nor
thAm
eric
aEu
rope
Asia
Res
t of
wor
ld
Million tonnes
Capacity changes in 2018
13
Asia is by far the largest region in the world
2019 | Fastmarkets | Global Graphic Outlook March 2019
70%
75%
80%
85%
90%
95%
100%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
North America Asia Europe
Global boxboard operating rates
North America leading the way thanks to the removal of capacity
Europe tightening, although still below the USA
Overcapacity keeping operating rates low in Asia
21%
24%45%
10%
NORTH AMERICA
EUROPE
ASIA
REST OF WORLD
14
2019 | Fastmarkets | Global Graphic Outlook March 2019 15
Two large net exporting regions:
• Asia has grown less reliant on imports to satisfy domestic demand. However, things are changing
• The reduction in North American net exports could also mean an increase in imports
• Europe is slowly becoming a larger player in overseas markets
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Asia North America Europe
Net trade as proportion of productionChina is changing global trade patterns once again (fiber import ban since 2017)
15
CUK prices above SBS for the first time in history
2019 | Fastmarkets | Global Graphic Outlook March 2019 16
Demand growth returning to historical average
2019 | Fastmarkets | Global Graphic Outlook March 2019
91.5%
92.0%
92.5%
93.0%
93.5%
94.0%
94.5%
95.0%
95.5%
96.0%
96.5%
-200
-150
-100
-50
0
50
100
150
200
250
300
2012 2013 2014 2015 2016 2017 2018 2019 2020
Thou
sand
tonn
es
Demand Capacity OR
Boxboard North America
Clear tightening of the market since 2017
Capacity reductions playing an important role
Conversion works at Sappi reversing the trend
Demand slowing during the second half of the year
Demand for liquid packaging and food service grades growing less than 1% in 2019 and 2020
17
Tightening driven by demand
2019 | Fastmarkets | Global Graphic Outlook March 2019
92%
93%
93%
94%
94%
95%
95%
96%
96%
97%
97%
-300
-200
-100
0
100
200
300
2012 2013 2014 2015 2016 2017 2018 2019 2020
Thou
sand
tonn
es
Demand Capacity OR
Virgin boxboard
Strong demand for CUK, aided by closure at GPI Santa Clara mill (formerly CBR)
CUK influenced by beverage carriers and food service board
Demand growth slowing during second half of 2018, affecting overall growth in 2019 as well
Sappi conversion eroding operating rates
18
2019 | Fastmarkets | Global Graphic Outlook March 2019
900
950
1,000
1,050
1,100
1,150
1,200
1,250
1,300
Jan2013
Jul2013
Jan2014
Jul2014
Jan2015
Jul2015
Jan2016
Jul2016
Jan2017
Jul2017
Jan2018
Jul2018
Jan2019
USD
per
tonn
e
CUK SBS
CUK prices above SBS in the USA• Historical premium for SBS close to US$60/tonne
• Currently, CUK prices almost US$90/tonne above SBS Factors behind higher CUK pricesFar more concentrated supply for CUK (2 vs 8)
Perception that brown products are more environmental friendly
CUK increasing popularity within food service board
Factors holding SBS prices downImports of multi-ply from Europe and Asia affecting domestic SBS markets
Sappi conversion at Somerset mill
Producers implemented another $50/tonne increase in February
SBS prices dropped $20/tonne in February
19
Tightening driven by capacity
2019 | Fastmarkets | Global Graphic Outlook March 2019
90%
90%
91%
91%
92%
92%
93%
93%
94%
-150
-100
-50
0
50
100
2012 2013 2014 2015 2016 2017 2018 2019 2020
Thou
sand
tonn
es
Demand Capacity OR
Recycled Boxboard
Capacity closures leading the tightening of the market
Demand expected to decline 6.3% this year, partly due to conversions
Weak domestic demand and higher imports causing capacity to drop 11% between 2017 and 2018
20
China fiber import bans changing industry landscape
2019 | Fastmarkets | Global Graphic Outlook March 2019 21
Demand growth returning to historical average
2019 | Fastmarkets | Global Graphic Outlook March 2019
Boxboard Asia
Consumption of paper and board still constrained
High paper prices contributing to the accelerated decline in 2018
Investment has decelerated
Removal of more than 1.6 million tonnes in 2018 driving operating rates above 80%
China fiber import ban changing the landscape
75%
76%
77%
78%
79%
80%
81%
82%
-2,000
-1,000
0
1,000
2,000
3,000
4,000
2012 2013 2014 2015 2016 2017 2018 2019 2020
Thou
sand
tonn
es
Demand Capacity OR
22
2019 | Fastmarkets | Global Graphic Outlook March 2019
Production affected due to lack of fiber
Production costs to increase, leading to higher paper prices
Exports will decline as Chinese competitiveness dwindles
Demand to be affected by higher prices
Global markets will remain tighter than they have beenOh Sheet!
23
Demand growth returning to historic average
2019 | Fastmarkets | Global Graphic Outlook March 2019
Boxboard China
Demand declining almost 1 million tonnes in 2018
Production dropping more than 1.2 million tonnes due to weak demand, capacity closures and downtime (lack of fiber)
China’s exports retreating (lack of competitiveness in global markets)
Capacity dropping 9% due to bankruptcies and forced closures (mostly duplex)
75%
76%
77%
78%
79%
80%
81%
82%
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
2012 2013 2014 2015 2016 2017 2018 2019 2020
Thou
sand
tonn
es
Demand Capacity OR
24
2019 | Fastmarkets | Global Graphic Outlook March 2019
0
100
200
300
400
500
600
0
2
4
6
8
10
12
14
16
18
North America Europe Asia China
Cas
h co
sts,
EU
R/F
MT
Milli
on to
nnes
Global cash cost comparison 2017 vs 2018
Capacity 2018 2017
17%
Chinese producers are less competitive in global markets
China went from being one of the lowest to the highest cost producer in the world
• North America, on the other hand, reduced its average cash costs significantly
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Thou
sand
tonn
es
Chinese boxboard net imports
25
2017 was a strong year; demand has since weakened
2019 | Fastmarkets | Global Graphic Outlook March 2019 26
2019 | Fastmarkets | Global Graphic Outlook March 2019
80.0%
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
100.0%
10 11 12 13 14 15 16 17 18 19 20
Operating rates
Now Before
European demand growth slowing downAfter a strong first half of the year, demand clearly slowed down during the second half
0.0
0.1
0.2
0.3
0.4
0.5
0.6
2015 2016 2017 2018 2019 2020
Milli
on to
nnes
Demand Capacity
• Demand growth affected by weakness in economic growth
• Additional factors such as Brexit and trade disputes not helping
• Capacity still growing more than demand
• Exports taking some of the added capacity
27
Demand growth returning to historical average
1.5-2%
2019 | Fastmarkets | Global Graphic Outlook March 2019
84%
85%
86%
87%
88%
89%
90%
91%
92%
93%
-300
-200
-100
0
100
200
300
400
500
2012 2013 2014 2015 2016 2017 2018 2019 2020
Thou
sand
tonn
es
Demand Capacity OR
Virgin boxboard
Good performance on food service board
Capacity is set to increase
Strong growth on exports to keep operating rates rising, although slower than before
28
Recycled board growing at slower pace
1-1.5%
2019 | Fastmarkets | Global Graphic Outlook March 2019
89%
90%
90%
91%
91%
92%
92%
93%
93%
-150
-100
-50
0
50
100
150
200
2012 2013 2014 2015 2016 2017 2018 2019 2020
Thou
sand
tonn
es
Demand Capacity OR
Recycled boxboard
No major changes in capacity foreseen
Exports rising slightly, but most increases will not be seen here
Producer’s margins improving
29
2019 | Fastmarkets | Global Graphic Outlook March 2019
20162018
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)
20192020
COMPANY MILL COUNTRY CAPACITY DATE
Sappi Maastricht Netherlands 150,000 2018-2021
BillerudKorsnӓs Gruvӧn Sweden 550,000 2019
Bellesbumprom Dobrush Belarus 200,000 2019??
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 postponing 100,000 capacity increase in Sweden (SBS)• Stora Enso pending decision regarding Oulu conversion (450,000 tonne CUK and
400,000 tonne kraftliner)
30
2019 | Fastmarkets | Global Graphic Outlook March 2019
600
700
800
900
1000
1100
1200
1300
2013 2014 2015 2016 2017 2018 2019
Euro
s pe
r ton
ne
Asia Germany US
Global virgin boxboard prices
Strengthening of the USD
Higher market pulp prices
AsiaPrices coming down due to demand weakness (higher paper prices?)
Weaker exports not helping either
More capacity under way will keep downward pressure on prices
EuropePrices went up by €30-35/tonne in January and February
Increase announced by producers was for up to €85/tonne
North AmericaCUK prices rising by an additional $50/ton while SBS dropping $20/ton
31
2019 | Fastmarkets | Global Graphic Outlook March 2019
200
300
400
500
600
700
800
900
2013 2014 2015 2016 2017 2018 2019
Euro
s pe
r ton
ne
Germany US Asia
Global recycled boxboard prices
Strengthening of the USD
Chinese fiber restrictions
AsiaLatest increases due to PfR price volatility
Prices rising as consumption returns after buyers delayed purchases before the holidays to make sure prices indeed hit bottom (declining still in Q4 2018)
EuropePrices will remain flat due to demand weakness
PfR prices are expected to remain under downward pressure due to China’s imported fiber ban
North America• Higher operating rates have allowed prices to
move up by $150/ton in 2018
• Tight market conditions are the driving force behind the increases
32
Take home points
Boxboard demand growth is slowing downWe estimate 2.5 million tonnes of lost opportunities by 2020
01
2019 | Fastmarkets | Global Graphic Outlook March 2019
02
03
04
33
Asia clearly underperforming the rest of the worldChinese demand declining by almost 1.0 million tonne in 2018Fiber import ban affecting competitiveness of Chinese producersChinese exports trending down, also because of weak global demand
CUK prices in North America above SBSThis will drive demand back to SBS in the coming monthsVirgin boxboard market balances affected by conversions of capacity
European demand returning to its average growth of 1.5-2% per yearNew capacity entering the market will keep operating rates flat to down
33
Thank you
PAPER PACKAGING MONITOR EUROPEwww.risi.com/ppme
2019 | Fastmarkets | Global Graphic Outlook March 2019 34