fastmarkets risi global paper packaging outlook...• compared to average of 4.0% per year in...

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Fastmarkets RISI Global Containerboard & Boxboard Outlook

2019 | Fastmarkets | Global Containerboard and Boxboard Outlook

Beth Lis

VP, Asian Paper & Packaging

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Agenda


• Global overview

• Containerboard: Regional demand

and supply outlook

• Boxboard: Asian demand and

supply projections

• Risks

2

Key factors driving global

developments

Changing RCP policies

China’s changing RCP policies are having a dramatic effect on the

global packaging markets, especially on trade flows and

investment decisions.

E-commerce

E-commerce has been an important factor propelling demand in

recent years, but its influence may be moderating, especially in

larger markets.

Environmental concerns: Paper vs. plastics

We are starting to see an endorsement in some regions for a

reduction in overpackaging and some push away from plastics

because of their longevity and impact on the environment

2019 | Fastmarkets | Global Containerboard and Boxboard Outlook 3

Economic headwinds and rising uncertainty

Global economies entered 2019 in a less optimistic position. Trade

war escalating?

Global economy growing unevenly, risks heightened

2016 2017 2018 2019 2020 2021

USA

2016 2017 2018 2019 2020 2021

Europe

2016 2017 2018 2019 2020 2021

China

2016 2017 2018 2019 2020 2021

Latin America

Annual real GDP growth

42019 | Fastmarkets | Global Containerboard and Boxboard Outlook2019 | Fastmarkets | Global Containerboard and Boxboard Outlook

2016 2017 2018 2019 2020 2021

Non-China Asia

3

Just how large is the boost from e-commerce?


US BOX SHIPMENTS WOULD HAVE

BEEN UP 4.5% FROM THE 2014 LOW

JUST FROM GROWTH IN NONDURABLES

• E-commerce had added an estimated

3.2% or 23 billion square feet to US

demand by 2017

• But the boost from e-commerce was not

discernable in 2018

E-COMMERCE CONTINUES TO RISE

RAPIDLY IN CHINA

• Key contributor to growth in recent years

• Likely moderated in 2018 due to pressure

to reduce footprint and higher prices

330

340

350

360

370

380

390

400

10 11 12 13 14 15 16 17 18

US box shipments, billion square meters

Baseline E-commerce

0%

10%

20%

30%

40%

50%

60%

0

2

4

6

8

10

2013 2014 2015 2016 2017 2018

China retail e-commerce sales

Billion yuan % change

Global containerboard demand growth saw dramatic drop in 2018


DRIVEN BY ASIA AND

ESPECIALLY CHINA

• Chinese demand fell 3%

• Asian demand was flat in

2018

GROWTH IN MOST

OTHER REGIONS ALSO

DECELERATED

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

0

20

40

60

80

100

120

140

160

180

200

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Virgin Containerboard Recycled Containerboard Demand Growth, %

Average 2011-

2016 2.9%

4

Global containerboard demand dominated by Asia

Asia48%

North America18%

Western Europe14%

Latin America8%

Emerging Europe7%

All Other5%


GLOBAL DEMAND REACHED

173 MILLION TONNES IN 2018

WITH ASIA ACCOUNTING FOR

83 MILLION TONNES

Asian containerboard outlook


5

Snapshot of 2018 Asian containerboard demand and supply

Chinese demand fell an estimated 3% in 2018• Deceleration in economic growth

• Some substitution from paper to plastics

• E-commerce working to reduce its packaging footprint

• Significant uncertainty in the level of decline

Rest of Asia saw fairly steady growth at 3.8% in 2018• Compared to average of 4.0% per year in 2016-2017

Chinese output tumbled while net imports soared• Chinese production fell an estimated 5% or 2.5 million tonnes

• Net imports jumped almost 1.1 million tonnes

• Rest of Asia supplied much of this with net imports climbing 800,000 tonnes

Entering 2019, demand conditions have been sluggish• Economic weakness and effects of lingering US-China trade war


China’s economy decelerated in 2018, 2019 should see gradual improvement

ECONOMIC GROWTH SLOWED

OVER COURSE OF 2018

• Government actions to address high

debt levels

• Trade war with USA

• Reduced consumer confidence

GOVERNMENT TAKING ACTION

TO BOLSTER GROWTH IN 2019

• Policies to encourage lending

• Infrastructure investment

• VAT and other tax reductions

• Trade war resolution?

48.5

49.0

49.5

50.0

50.5

51.0

51.5

52.0

0%

2%

4%

6%

8%

10%

12%

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Retail sales (YoY) Industrial production (YoY)

Fixed asset investment (YTD) Average NBS & Caixin PMI


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Containerboard prices in East China lost momentum in 2018

2018 HELD BACK BY

• Weaker demand

• Better import planning

MARGINS DETERIORATED

BY YEAR END

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Kraft top price Domestic OCC US OCC CM price


Chinese linerboard imports jumped in 2018


0

20

40

60

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100

120

140

160

180

200

Asia North America Western Europe Oceania Other

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Chinese corrugating medium imports also rose in 2018


0

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80

100

120

140

160

180

Asia North America Western Europe Other

Chinese RCP policies are changing the way companies are operating

Constrained fiber supplies driving up imports and reducing production• RCP imports fell from 25.7 million tonnes in 2017 to 17.0 million tonnes in 2018.

• Expected to fall to 10-12 million tonnes in 2019 and then 5-6 million tonnes in 2020

before total ban goes into effect in 2021.

Large companies are making investments in light of the new policies• Numerous projects in the works in Vietnam, Malaysia, Laos and India

Previously planned projects apparently being delayed• Due to economic weakness and effects of lingering US-China trade war


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China’s containerboard market adjusting to new RCP policiesYear-to-year change


65%

70%

75%

80%

85%

90%

95%

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

2012 2013 2014 2015 2016 2017 2018 2019 2020

Mill

ion

to

nn

es

Production Net imports Demand Operating rate

DEMAND WILL DROP AGAIN IN 2019

AND THEN MOVE UP IN 2020

• Weak economy

• Dictated by fiber balance

PRODUCTION WILL FALL AND NET

IMPORTS WILL CLIMB

• Output constrained by fiber

• Market attractive to other Asian suppliers

• But can imports continue to climb that much?

OPERATING RATES ARE TUMBLING

• Level dependent on capacity assumptions

Demand growth in rest of Asia will weaken in 2019 and rebound in 2020


0%

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25

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Japan South Korea, Taiwan and Hong Kong

Southeast Asia India

Other Total percentage change

2019 GROWTH AFFECTED BY

• Weaker regional economies

• Export-oriented economies affected by

slower global performance

INDIA AND PARTS OF SOUTHEAST

ASIA EXPECTED TO REMAIN

RELATIVELY HEALTHY

• Supported by rising incomes and growth in

FMCG

TOTAL GAIN, 2019-2020

• 2.1 million tonnes

RISKS

• Slower regional/global economic growth

• Trade wars

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North American containerboard outlook


US manufacturing confidence took a hitin late 2018…

ISM® PMI® CONTINUES TO

INDICATE GROWTH IN

MANUFACTURING


30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

09 10 11 12 13 14 15 16 17 18 19

10

This led to a brief contraction in industrial production in the key packaging end-use markets


0.90

0.95

1.00

1.05

1.10

1.15

1.20

09 10 11 12 13 14 15 16 17 18 19 20 21

Nondurable goods Processed foods

North American containerboard producers are taking economic downtime to address slower demand growth


-2%

-1%

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1%

2%

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7%

0

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mill

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Demand Demand % change Corrugated boxes % change

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Operating rates to rebound strongly once downtime ends


90%

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-1,000

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mill

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Change in demand Change in capacity Change in true demand Operating rates

North American net exports also not supportive of operating rates this year


-400

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2014 2015 2016 2017 2018 2019 2020

Th

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Change in net exports

Virgin grades Recycled grades

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Western European containerboard outlook


Supply is outpacing demand in Western Europe


3.9%

1.7%1.5%

1.2%

0

200

400

600

800

1,000

1,200

2015 2016 2017 2018 2019 2020

Demand Capacity

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Kraftliner demand will slowly grow due to imports, capacity will stay fairly stable until late 2020

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2015 2016 2017 2018 2019 2020

Demand Capacity


Recycled containerboard is expecting a lot of capacity, but will projects actually happen?

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2015 2016 2017 2018 2019 2020

Demand Capacity


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Asian boxboard outlook


Snapshot of 2018 Asian boxboard demand and supply

Chinese demand fell an estimated 6% in 2018• Similar factors as containerboard, including decelerating economic growth and substitution

• Shift in low-wage manufacturing to other locations

• We believe demand for all subgrades fell, with coated duplex significantly worse than ivoryboard

• Many important end-use markets apparently weak

• Significant uncertainty in the level of decline

Rest of Asia saw fairly steady growth at 3.7% in 2018• Led by India and much of Southeast Asia

Chinese output and net exports both declined• Chinese production fell an estimated 7% or 1.6 million tonnes

• Net exports decreased 270,000 tonnes

• Rest of Asia saw stable net imports as growth in exports kept pace with imports


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Coated duplex prices in East China have been drifting lower since mid-2018

2018 AFFECTED BY

• Weaker demand

• But supply reductions muted the

slide

IVORYBOARD PRICES HURT

BY OVERSUPPLY

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Duplex commodity Ivoryboard commodity Mixed paper domestic


Asian boxboard demand will be hurt by ongoing weakness in China


-8%

-6%

-4%

-2%

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

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China Rest of Asia % change China % change Rest of Asia

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Chinese boxboard net exports dipped slightly in 2018


0

500

1,000

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2,500

3,000

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Mill

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Clay coated multi-ply board Clay coated solid board

Poly coated board Uncoated recycled board & other

Imports Exports

Chinese boxboard production remains weak in 2019-2020


72%

74%

76%

78%

80%

82%

84%

86%

-2.0

-1.5

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2012 2013 2014 2015 2016 2017 2018 2019 2020

Mill

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Year-to-year change

Production Net imports Demand Operating rate

DEMAND WILL DROP AGAIN IN

2019 AND THEN MOVE UP IN 2020

• Weak economy

PRODUCTION AND NET

EXPORTS WILL FALL

• Output constrained by fiber

• Coated duplex capacity closing

• Ivoryboard capacity rising in already

oversupplied market

OPERATING RATES WILL DIP

THEN REBOUND

• Assumes some shifts between

subgrades

17

Boxboard capacity expansion starts to outpace demand growth


75%

76%

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80%

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mill

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Change in demand Change in capacity Change in net imports Operating rates

Conclusions and what to watch

• GLOBAL PACKAGING DEMAND GROWTH WILL REMAIN SUBDUED IN 2019

BEFORE ACCELERATING IN 2020

• Inventory shifts a factor as well as assumed rebound in economic growth in some parts of the world

• ONGOING CHANGES TO RCP POLICIES

• Will other Asian countries also implement stricter import policies?

• Will more severe fiber shortages surface in China in the second half of this year?

• GLOBAL ECONOMIC PERFORMANCE

• Will the Chinese government successfully right the ship?

• US-China trade war resolution?

• TIMING/CHANGES TO ANNOUNCED CAPACITY INVESTMENTS


fastmarkets risi global paper packaging outlook...• compared to average of 4.0% per year in...

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