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North American Containerboard Outlook
Ken Waghorne
Vice President, Paper Packaging
August 2013
Today’s Agenda
• Economic Overview
• North American Domestic Demand
• Global Trade Issues
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Asia
Europe
Latin America
Rest of World
• Other Factors Affecting Prices
• RISI’s North American Price Projections
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Global Economy Improving Moderately
Annual Real GDP Growth
Source: IMF, RISI
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Emerging Economies Continue to Support
Global Growth
Global Real GDP* Growth
*Measured at purchasing power parity exchange rates
Source: IMF, RISI
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US Household Net Worth Almost Back to
Pre-Recession Level
Index, Starting Quarter = 100
Source: Federal Reserve
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Housing Momentum Building
Existing Home Sales and Housing Starts, Thousands of Units
Source: NAR, BEA
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Consumption Growth Accelerating
Real Consumption Expenditure, Annualized Percentage Change;
Unemployment Rate
Source: BLS, RISI
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Consumer Spending on Food and Beverages
(Billion 2005 Dollars) Was Weak in 2011-2012
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Manufacturing Growth Supporting Economy
Index of Industrial Production, Jan 2000 = 1.00; PMI
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Durable Goods Drives Manufacturing
Index of Industrial Production – Durable, Non-Durable Goods,
Jan 2000 = 100
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Low Natural Gas Prices Helping US
Manufacturers
Henry Hub Natural Gas, West Texas Intermediate Crude Oil, $/MMBtu
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The Declining Merchandise Trade Deficit
Should Allow Manufacturing to Grow Faster
Than Consumer Spending
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Growth in Industrial Production (Percent) Is
Expected to Exceed GDP Growth from 2013
to 2015
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Today’s Agenda
• Economic Overview
• North American Domestic Demand
• Global Trade Issues
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–
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–
Asia
Europe
Latin America
Rest of World
• Other Factors Affecting Prices
• RISI’s North American Price Projections
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US Box Market Should Be Poised to Rally
• Shipments Fell 13% Between 2007 and 2009
– Steepest Decline for the Market Since the 1970s
• Shipments in 2012 were just 4% higher than in 2009
– Far more subdued than the overall growth in manufacturing
– But fairly well in line with the performance of nondurable goods
• Uneven US economy held shipments flat in the first half of
2013
– But market should accelerate by second half of the year
– Shipments should increase 1.6% in 2013 and 3.7% in 2014
• Long-term growth in box shipments will average 1.8%
– Containerboard demand should grow at a more moderate 1.2%
pace
– Shift to lightweight liner will take hold in North America
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Corrugated Box Shipments Have Been
Volatile Since Mid-2012, But the Trend is
Relatively Flat
Billion Square Feet
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Thousand Short Tons
Containerboard Cutup Has Exceeded Box
Shipments in 2005, Implying Strong Growth
in Non-Box Uses of Corrugated Sheets
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US Box Shipments Tracked Closely with
Nondurable Goods Production for Most of
2011-2012 -- Decline in Early 2013 Indicates an
Inventory Drawdown
BSF per Index Unit
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RISI’s Forecast: Box Shipments Should
Recover Strongly Following Soft Patch of
Early 2013
Annualized Growth Rate (%)
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Growth in US Containerboard Apparent
Consumption Is Expected to Remain Quite
Slow
Growth, Million Tons
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Today’s Agenda
• Economic Overview
• North American Domestic Demand
• Global Trade Issues
–
–
–
–
Asia
Europe
Latin America
Rest of World
• Other Factors Affecting Prices
• RISI’s North American Price Projections
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Asian Demand for Containerboard Far
Surpasses Other Regions (2012)
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Asian Demand Growth Should Bottom Out in
2012, But the 2013-2014 Recovery Will Be
Modest Relative to Trend of the Last 10 Years
Annual Change in Million Tonnes
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Chinese Demand Growth Is Expected to
Average 2.1 Million Tonnes per Year in 20132014
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Asian Containerboard Market Remains
Oversupplied in 2013, But the Situation Might
Start to Improve in 2014
Growth, Million Tonnes
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Asia Is Expected to Be a Small Net Exporter of
Recycled from 2013 Onward
Million Tonnes
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The Western European Containerboard Market
Has Suffered from Economic Distress since
2008 with Recycled Share Increasing Further
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Euro Area Production Trending Lower
Industrial Production Indices, 2010=1
Source: Eurostat
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Growth in Western European Containerboard
Demand Is Not Expected to Resume Until 2014
Once Industrial Production Begins to Drive
Box Demand
Annual Change in Million Tonnes
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Eastern European Containerboard Market: Much
Smaller than the Western European Market (9.1
Million Tonnes in 2012) But Growing Rapidly
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Eastern European Demand Will Grow Almost
750,000 Tonnes in 2013-2014
Annual Change in Million Tonnes
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The Western European Recycled
Containerboard Industry Is Still Relying on
Exports to Maintain Market Balance
Western European Net Exports, Thousand Tonnes
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Poor Profit Margins (Prices/Variable Costs in
Euros per Tonne) Should Lead to Permanent
Closures in the European Recycled
Containerboard Market
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Assumed Capacity Closures in the Western
European Recycled Containerboard Market
Will Help Lift Operating Rates by 2%
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Latin American Containerboard Demand
Should Expand Faster Than Supply in 2014,
Leading to Increased Regional Net Imports
Growth, Thousand Tonnes
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Brazil Is the Only Net Exporter in Latin
America and Sells Throughout the World
Kraftliner Exports, Thousand Tonnes
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African Containerboard Demand Will Continue
to Outpace Supply, Allowing Some Further
Increase in Imports
Growth, Thousand Tonnes
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Capacity Expansion Will Exceed Demand
Growth in the Middle East Through 2014,
Leading to Declining Net Imports
Growth, Thousand Tonnes
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Capacity Removals in Oceania in 2012 Helped
Tighten the Market, But Another Expansion
Round is Possible in 2017-2018
Growth, Thousand Tonnes
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Net Imports into Latin America and Africa Will
Grow in 2013-2014, But Conditions Remain
Challenging in the Middle East
Million Tonnes
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Latin America and Canada Are the Dominant
Destinations for US Kraftliner Exports
Million Tonnes, Annual Rates
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Although Challenges Will Remain Through
2013, US Producers Are Well Positioned to
Meet Future Growth in Global Kraftliner
Demand
Million Tons
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Share of Production
Today’s Agenda
• Economic Overview
• North American Domestic Demand
• Global Trade Issues
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Asia
Europe
Latin America
Rest of World
• Other Factors Affecting Prices
• RISI’s North American Price Projections
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North American Brown Linerboard Mills
Have Some of the Lowest Costs in the World
Cash Costs, First Quarter of 2013
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Several Recycled Mills Were Quite
Competitive with Kraftliner in Early 2013
Cash Costs, First Quarter of 2013
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Old Corrugated Container (OCC) Costs
Should Trend Upward Again Once Global
Containerboard Demand Accelerated
Dollars per Short Ton
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Driving Factor Behind OCC Price Increases:
The Developing Markets Will Continue to
Provide All Growth in Global Containerboard
Demand Through 2014
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Recycled Production Costs Are Expected to
Rise Faster that Kraftliner Costs Through 2014
Average Total Cost, US Dollars per Short Ton
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N. American Industry Has Learned to Remove
Capacity as Demand Falters, But Conversions
from Graphic Paper Provide a New Dynamic
Thousand Short Tons
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Capacity from New Entrants Will Eventually
Drive Containerboard Operating Rates Down
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The North American Containerboard Industry
Is Very Highly Concentrated
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The Herfindahl-Hirschman Index (HHI) Tracks
Industry Concentration Levels and Indicates
Competitive Behavior
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The North American Containerboard Industry
No Longer Owns Much Timberland
Net Timberland Transactions, Thousand Acres
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Today’s Agenda
• Economic Overview
• North American Domestic Demand
• Global Trade Issues
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–
–
–
Asia
Europe
Latin America
Rest of World
• Other Factors Affecting Prices
• RISI’s North American Price Projections
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Containerboard Pushed Through a $50/ton
Price Increase in Late 2012
• And followed this with another $50/ton increase in April
2013
• Market-related downtime trumped several negative
factors
– Relatively weak domestic demand
– Steady decline in old corrugated container costs
– Enduring oversupply in corrugated box market
• Prices are expected to remain flat for the remainder of
2013
– As new capacity enters the market
– Before accelerating in 2014-2015
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Containerboard Inventories Were Below the
Balanced Level in Late 2012 and Early 2013
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Containerboard Prices Are Expected to
Remain Flat for the Remainder of 2013 Before
Rising in 2014
US Dollars per Short Ton
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High Industry Profitability Is Expected to
Attract New Tonnage to the Market
Price/Total Cost
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North American Containerboard Summary
• Market has been moving sideways since 2010
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Lackluster domestic demand
Export demand quite positive
Capacity creeping upward
Inventories remain well under control
• The downside risks to the market are substantial
– Will the manufacturing renaissance play out?
– Has Europe stabilized?
– How much new capacity will enter the market?
• The upside risks are harder to envision
– Given that our base forecast includes a US manufacturing revival
– How many increases will the industry attempt in 2014?
– How high do prices need to go to force some market changes?
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Thank-you for your attention!
For more information:
Latin American Pulp & Paper 5-year
Forecast
www.risi.com/forecasts
Paper Packaging Monitor
www.risi.com/ppm
World Recovered Paper Monitor
www.risi.com/wrpm