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.
2019 | Fastmarkets | North American Containerboard Outlook
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
2019 | Fastmarkets | North American Containerboard Outlook 4
Global containerboard demand dominated by Asia
North America18%
Latin America8%
Europe21%China
29%
Other Asia19%
All other5%
2019 | Fastmarkets | North American Containerboard Outlook
GLOBAL DEMAND REACHED 173 MILLION TONNES IN 2018 WITH ASIA ACCOUNTING FOR 83 MILLION TONNES
5
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
72019 | Fastmarkets | North American Containerboard Outlook
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
2019 | Fastmarkets | North American Containerboard Outlook
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
2019 | Fastmarkets | North American Containerboard Outlook
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% ???
2019 | Fastmarkets | North American Containerboard Outlook 10
NOT NECESSARILY
Growth rate
2019 -0.1%
2020 0.5%
2021 0.9%
US industrial production is expected to track sideways through 2020
2019 | Fastmarkets | North American Containerboard Outlook
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
2019 | Fastmarkets | North American Containerboard Outlook 12
-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
2019 | Fastmarkets | North American Containerboard Outlook
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%
2019 | Fastmarkets | North American Containerboard Outlook
-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
2019 | Fastmarkets | North American Containerboard Outlook 15
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
2019 | Fastmarkets | North American Containerboard Outlook 16
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
2019 | Fastmarkets | North American Containerboard Outlook
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
Trade relative to domestic demand
Import share Export share
2019 | Fastmarkets | North American Containerboard Outlook
-100
0
100
200
300
400
500
600
2015 2016 2017 2018 2019 2020 2021
Growth, thousand tonnes
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
Trade relative to domestic demand
Import share Export share
2019 | Fastmarkets | North American Containerboard Outlook
-300
-200
-100
0
100
200
300
400
2015 2016 2017 2018 2019 2020 2021
Growth, thousand tonnes
Demand Capacity
EXPORTS WILL REMAIN RECYCLED FOCUSED UNTIL ARGENTINE KRAFTLINER CAPACITY HITS
19
European demand growth is slowing, and oversupply is developing in the region
2019 | Fastmarkets | North American Containerboard Outlook 21
-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
2019 | Fastmarkets | North American Containerboard Outlook 22
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
China’s containerboard market adjusting to new RCP policiesYear-to-year change
2019 | Fastmarkets | North American Containerboard Outlook 24
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
2019 | Fastmarkets | North American Containerboard Outlook 25
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
2019 | Fastmarkets | North American Containerboard Outlook 2626
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
2019 | Fastmarkets | North American Containerboard Outlook 27