FastmarketsRISI North American Containerboard Outlook · The global downturn in manufacturing is...

Fastmarkets RISI North American Containerboard Outlook

Ken WaghorneVP, Global packaging

2

Agenda

2019 | Fastmarkets | North American Containerboard Outlook

• Global overview

• North America: Uncertainty reigns supreme

• International trade issues

• Conclusions

22019 | Fastmarkets | North American Containerboard Outlook 2

Key factors driving global developments

Changing RCP policiesChina’s changing RCP policies are having a dramatic effect on the global packaging markets, especially on trade flows and investment decisions.

E-commerceE-commerce has been an important factor propelling demand in recent years, but its influence may be moderating, especially in the larger markets.

Environmental concerns: Paper vs. plasticsWe 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.


Economic headwinds and rising uncertaintyGlobal economies entered 2019 in a less optimistic position. Trade war escalating?

3

The global downturn in manufacturing is undermining containerboard demand around the world

2016 2017 2018 2019 2020 2021

North America

2016 2017 2018 2019 2020 2021

Europe

2016 2017 2018 2019 2020 2021

China

2016 2017 2018 2019 2020 2021

Latin America

Annual apparent consumption growth

2016 2017 2018 2019 2020 2021

Non-China Asia

2016 2017 2018 2019 2020 2021

Rest of World


Global containerboard demand dominated by Asia

North America18%

Latin America8%

Europe21%China

29%

Other Asia19%

All other5%


GLOBAL DEMAND REACHED 173 MILLION TONNES IN 2018 WITH ASIA ACCOUNTING FOR 83 MILLION TONNES

5

North American markets: A deeper dive


Why does Fastmarket RISI’s analysis focus so heavily on the US market?

29.8

1.6

North American demand, 2018Million tonnes

United States

Canada


SHIFTS IN THE CANADIAN MARKET GET DROWNED OUT BY THE SHEER SIZE OF THE US MARKET

• The AF&PA publishes high-frequency and quite detailed data for the US market

• Significant amount of trade flows between the two countries

7

The US manufacturing sector is on shaky footing


THE PMI® HAS FALLEN TO ITS LOWEST LEVEL SINCE 2009

• A reading below 50 indicates that manufacturing is contracting

8

The US manufacturing sector is on shaky footing


NONDURABLE GOODS PRODUCTION PEAKED IN JULY 2018

• Down 1.6% as of August 2019

• Food production off a more modest 1.5%

• Folding carton end-use markets were off 3.9%

0.90

0.95

1.00

1.05

1.10

1.15

1.20

15 M M J S N 16 M M J S N 17 M M J S N 18 M M J S N 19 M M J

Industrial production index, 2012=1.00

Nondurable goods Processed foods

9

Does the drop in the PMI® spell doom for the box market?

FEB 2002 APR 2003 DEC 2008 NOV 2012 DEC 2015 SEP 2019

PMI® low 41.1 46.1 33.1 48.8 48.0 47.8

Decline from peak -17.0 -9.7 -29.5 -10.6 -10.1 -13.5

Number of months 15 10 55 19 16 13

Nondurable goods change

During decline -2.4% -0.7% -9.4% -0.2% +0.5% -1.4%

Next 12 months -1.1% 0.4% 0.3% -0.7% +1.0% ???

Box shipment change

During decline -6.5% -5.3% -12.6% +1.7% +2.2% -1.2%

Next 12 months -1.1% 6.1% +0.9% -0.4% +3.1% ???


NOT NECESSARILY

Growth rate

2019 -0.1%

2020 0.5%

2021 0.9%

US industrial production is expected to track sideways through 2020


BEFORE ACCELERATING IN 2021

0.90

0.95

1.00

1.05

1.10

1.15

1.20

15 16 17 18 19 20 21

Nondurable goods

Processed foods

11

US containerboard demand falters in 2019


-800

-600

-400

-200

0

200

400

600

800

1,000

2015 2016 2017 2018 2019 2020 2021

Thou

sand

tonn

es

Cutup at domestic box plants Export shipments

RECOVERY IN 2020-2021 SHOULD BE MUCH MORE MODEST THAN IN 2015-2018

?

12

North American supply will grow substantially for the next five years

CONFIRMED PROJECTS WILL ADD 2.0 MILLION TONNES OF CAPACITY FROM

2019-2023


PROPOSALS ARE OUT FOR ANOTHER 5.0 MILLION TONNES OF NEW CAPACITY

13

North American capacity growth suggests capacity shortages are unlikely for some time

Growth rate

2019 1.6%

2020 3.4%

2021 2.1%


-500

0

500

1,000

1,500

2,000

2015 2016 2017 2018 2019 2020 2021 2022 2023

Thou

sand

tonn

es

Confirmed incremental Assumed incremental Confirmed major additionsAssumed new Closure

14

US containerboard demand/supply summary


87.0

88.0

89.0

90.0

91.0

92.0

93.0

94.0

95.0

96.0

97.0

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2015 2016 2017 2018 2019 2020 2021

Ope

ratin

g ra

te, p

erce

nt

Gro

wth

, tho

usan

d to

nnes

Demand Capacity Operating rate

15

International trade issues: Latin America


Growth prospects in Mexico reflect shifts in trade with the USA

WILL ONSHORING FROM CHINA BOOST MANUFACTURING?

0%

5%

10%

15%

20%

25%

30%

35%

2015 2016 2017 2018 2019 2020 2021

Trade relative to domestic demand

Import share Export share


0

50

100

150

200

250

300

350

400

450

500

2015 2016 2017 2018 2019 2020 2021

Growth, thousand tonnes

Demand Capacity

NEW CAPACITY WILL DISPLACE SOME TONNAGE IMPORTED FROM THE USA

17

Brazilian demand remains choppy

UNEVEN ECONOMIC GROWTH

0%

2%

4%

6%

8%

10%

12%

2015 2016 2017 2018 2019 2020 2021




-100

0

100

200

300

400

500

600

2015 2016 2017 2018 2019 2020 2021


Demand Capacity

EXPORTS WILL BECOME MORE IMPORTANT AS CAPACITY EXPANDS

18

The rest of Latin America is import reliant

DEMAND GROWTH SHOULD BE SOLID ABSENT ANY REGIONAL ECONOMIC CRISIS

0%

10%

20%

30%

40%

50%

60%

2015 2016 2017 2018 2019 2020 2021




-300

-200

-100

0

100

200

300

400

2015 2016 2017 2018 2019 2020 2021


Demand Capacity

EXPORTS WILL REMAIN RECYCLED FOCUSED UNTIL ARGENTINE KRAFTLINER CAPACITY HITS

19

International trade issues: Europe


European demand growth is slowing, and oversupply is developing in the region


-500

0

500

1,000

1,500

2,000

2015 2016 2017 2018 2019 2020 2021Demand Capacity

CONTAINERBOARD GROWTH, THOUSAND TONNES

21

Capacity expansion in Emerging Europe will push more Western European exports outside the region


0%

10%

20%

30%

40%

50%

60%

2015 2016 2017 2018 2019 2020 2021

EMERGING EUROPEAN NET IMPORTS RELATIVE TO WESTERN EUROPEAN NET EXPORTS

22

International trade issues: Asia


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

2015 2016 2017 2018 2019 2020 2021

Milli

on to

nnes

Production Net imports Demand Operating rate

DEMAND WILL DROP AGAIN IN 2019 AND 2020, THEN MOVE UP IN 2021• 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

24

Demand growth in rest of Asia is weakening in 2019 but will start to rebound in 2020


0%

1%

2%

3%

4%

5%

6%

7%

8%

0

5

10

15

20

25

30

35

40

2015 2016 2017 2018 2019 2020 2021

Japan South Korea, Taiwan and Hong KongSoutheast Asia & Other IndiaTotal 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, 2019-2021• 1.9 million tonnes

RISKS• Slower regional/global economic growth

• Trade wars

25

The smaller exporters to the world reaped most of the benefits from the shift in Chinese policy

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

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

Milli

on to

nnes

Nontraditional containerboard exporters

Japan South Korea Taiwan IndonesiaThailand India Other Asia

0

1

2

3

4

5

6

7

8

9

10

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

Milli

on to

nnes

Traditional containerboard exporters

North America Western Europe Brazil


Net exports to world

What to watch in the global containerboard markets

ECONOMIC UNCERTAINTY REMAINS THE BIGGEST THREAT• Will the trade wars push the global economy into a deeper downturn?

• When will the various economies bottom out and start to recover?

ONGOING CHANGES TO CHINESE RCP POLICIES• Will other Asian countries also implement stricter import policies?

• Where will China find the brown fiber to replace OCC?

• Will China decide that double sorted OCC is clean enough?

CHANGES IN THE CONSUMER PRODUCT SECTOR• Is the e-commerce sector beginning to mature?

• How much will sustainability issues boost global paper packaging demand?

TIMING/CHANGES TO ANNOUNCED CAPACITY INVESTMENTS


FastmarketsRISI North American Containerboard Outlook · The global downturn in manufacturing is...

Documents

Transcript of FastmarketsRISI North American Containerboard Outlook · The global downturn in manufacturing is...