Outlook for Global Boxboard How is the market coping with new capacity and evolving trade flows?

Transcription

1 Outlook for Global Boxboard How is the market coping with new capacity and evolving trade flows? RISI European Conference Amsterdam March 2017 Alejandro Mata Senior Economist, European Forest Products

2 Alejandro Mata Economist, European Forest Products 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 2

3 What s on the Agenda for Today. What are the possible scenarios and Who might be impacted? Global and regional developments What if the USA raises more trade barriers? How disruptive will China continue to be? 3

4 Many Uncertainties Prevail Soft Single Market? Tariffs? Movement of People? Customs Union EU Budget Full Full Partial WTO No 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 Hard Rise of Trade Tariffs 4

5 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 5

6 World Boxboard Demand in 2015 Coated Virgin: 23 Million Tonnes Coated Recycled: 21 Million Tonnes Uncoated: 13 Million Tonnes Boxboard Demand (Million Tonnes) 57.6 Million Tonnes SOLID BLEACHED SOLID UNBLEACHED MULTI PLY VIRGIN POLY COATED SOLID RECYCLED MULTI PLY RECYCLED SOLID VIRGIN RECYCLED 6

7 Boxboard Demand in Key Regions, 2015 Nearly a majority of world demand comes from Asia Large markets, fast growth Boxboard Demand (Million Tonnes) Large, mature markets Lower consumption levels, high growth Asia North America Western Europe Eastern Europe Latin America Middle East Africa Oceania 7

8 Boxboard Demand Growth Restrained China Slowdown % 8.0% Recession in Brazil Consumer spending down BOXBOARD DEMAND GROWTH (MILLION TONNES) % 4.0% 2.0% 0.0% % Influence of e commerce % Demand Change % Change 8

9 Amazon Frustration Free Packaging 9

10 Boxboard Demand per Main Category Boxboard Demand (Million Tonnes) Coated Recycled Board Demand (Million Tonnes) North America Europe Asia Latin America RoW * Forecast ** CAGR *** CAGR Uncoated + 1.6%* %** +2.8%*** 10 Ctd. Recycled %* 6 Ctd. Virgin + 3.4%* %** +1.4%*** -0.1%** +0.4%*** * CAGR * 2018* 10

11 Boxboard Demand per Main Category Boxboard Demand (Million Tonnes) Coated Virgin Board Demand (Million Tonnes) North America Europe Asia Latin America RoW * Forecast ** CAGR *** CAGR Uncoated + 1.6%* %*** Ctd. Recycled + 2.3%* %** +2.8%** 0.7%** +1.5%*** +2.7%*** Ctd. Virgin + 3.4%* * CAGR * 2018* 11

12 Capacity Growing More Than Demand 5.0 Demand 0.9 Growth in Million Tonnes Capacity Operating Rate Operating Rate

13 USA & CANADA Coated Virgin 51% Uncoated 31% Coated Recycled 18% 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) 13

14 Why Are Imports Rising? 9,000 8,000 7,000 6,000 5,000 Capacity Production Demand Better demand due to strong upturn in consumer spending (including food consumed at home) High prices stimulating searches for alternatives (containerboard) 4, Traditionally a tough market to enter Percentage of folding carton market integrated with boxboard supply E commerce to have a negative effect less shelf ready packaging needed Capacity closures in North America Riegelwood ( 180,000 tonnes) Production flat while demand rising = local producers losing market share to overseas suppliers 14

15 Capacity Changing Trade Flows US Imports Clay Coated Multi Ply RoW Sweden Finland China Canada Increasing Finland Sweden China THOUSAND TONNES Imports rising due to: Capacity expansions in Asia and Europe Demand slowdown in China Strong US dollar boosting prices in the United States 20 0 Decreasing Imports rising more than 10% each year (two year forecast) 15

16 Exporters Under Pressure North American Exports Lower exports due to: MILLION TONNES Capacity closures in North America Increased pressure on SBS following capacity increases in Asia and Europe Strong dollar affecting cost competitiveness SBS producers competing with FBB and Ivoryboard RoW 32% Asia 36% US SBS US CUK All Other NA Exports L.Am. 14% Canada 18% 16

17 US Producers Not Longer Low Cost Global cost curve is flatter than before 14,000 12,000 10,000 8,000 North America cost to produce impacted by strong US dollar 6,000 4,000 2,000 After Before Global Virgin Cartonboard Cash Cost Comparison Latin America North America Europe Asia North America has lost its cost competitiveness and is now more exposed to capacity increases in Europe and Asia USD/EUR

18 Asia (China) 3,500 3,000 2,500 2,000 1,500 1, Supply and Demand Growth in 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 Demand Supply 18

19 Asia Still Growing, But More Slowly % Boxboard Demand Growth (Million Tonnes) % 12.0% 8.0% 4.0% 0.0% China Rest of Asia Percent (R) 19

20 Chinese Capacity Growth Increasingly Concentrated in Ivoryboard Growth in excess of global demand growth! 5,000 4,000 Capacity expansions slowing down Virgin boxboard expansion persisted through 2015, causing operating rates for ivoryboard to decline Capacity Growth, Thousand Tonnes 3,000 2,000 1, ,000 2,000 Virgin Recycled Global Demand Growth 20

21 Rest of Asia Also Getting Saturated 2.0 Asia to become a net exporter as of this year Asian Net Exports NET EXPORTS (MILLION TONNES) ,000 2, ,000 4,000 China Rest of Asia Net Exports Exports Imports 21

22 Europe Economic recovery under way. Although uncertainties persist Supply & Demand Growth 92% 91% Virgin grades account for roughly 60% of the market Biggest challenge Europe is facing is overcapacity % 89% Operating rates will come down, although to remain above 90% % 87% Who will be impacted? Demand Supply OR 22

23 UK Imports Most of Its Requirements UK Demand per Grade, 2016 Poly Coated UK relies on imports to satisfy most of its demand requirements It imports more than 80% of its consumption needs Coated Solid Board Suppliers to the UK affected by weak pound Coated Multi-Ply Strong pound and post Brexit tariffs might push production costs for end users up, changing demand trends for the UK Production Net Imports Possible further substitution 23

24 European Exports On The Rise? 12,000 11,000 Capacity Production Demand Improved economy and higher consumption lifting demand 10,000 9,000 8,000 7,000 6, Demand growth concentrated food and beverage industries Start ups at Husum and Kotkamills increasing the need to export more 14, ,000 10,000 8,000 6,000 4,000 2,000 Latin America North America Europe Asia Operating rates will come down below 90% for virgin grades Will Europe succeed in raising exports? 24

25 Europe s Boxboard Trade Surplus Net Exports, Million Tonnes 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 25

26 Western European Exports At Risk Emerging Europe (47%) Americas (15%) Asia (20%) Ivoryboard taking share in highgrowth markets Africa & Middle East (16%) 26

27 Take Home Points on the Outlook for Global Boxboard Headwinds will keep global boxboard demand growth restrained in 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 27

28 Questions? 28 28

29 European Board Very Competitive Given Recent US Dollar Moves Strong US dollar granting currencyrelated 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 NET NET USD PRICE PER TONNE 1,800 1,600 1,400 1,200 1, Coated Ivoryboard (Premium) Brazilian Duplex, Virgin Based