Outlook for Global Recovered Paper (RCP) Markets
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Kurt SchaeferVP, Fiber
Hannah ZhaoSenior Economist, Recovered Paper
Asian Conference
May 2017
PMIs Booming Globally US, China and Global PMIs
44
46
48
50
52
54
56
58
60
2012 2013 2014 2015 2016 2017
China (Caixin) USA (ISM®) Global 50
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US PMI Source: ISM®; China Caixin PMI: small and medium-sized enterprises, Global PMI Source: World Bank Global Economic Monitor
OCC Price Roller CoasterOCC Import/Export Prices
0
50
100
150
200
250
300
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
US
Do
llars
per
To
nn
e
OCC US West Exports (FAS)
OCC N. German Exports (FAS)
OCC China Imports (CIF)
OCC N. German Exports (Euros)
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• Sharp OCC price change on a worldwide basis
• China’s impact on global markets
OCC Price Roller Coaster (Cont.)Domestic OCC Prices
0
400
800
1,200
1,600
2,000
2,400
0
40
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120
160
200
240
08 09 10 11 12 13 14 15 16 17
USA - $/Tonne (L) German - €/Tonne (L)
German - $/Tonne (L) Chinese - RMB/Tonne (R)
• Sharp change in recycled containerboard prices in China
• Lower-than-expected US supply during the winter holiday season because of the “Amazon effect”
• Low OCC inventory in US paper mills in late 2016 and early 2017
• Speculation on both the demand and supply sides
• Regulation? China’s National Sword program and anticipated change in Chinese RCP import policy?
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The “Amazon Effect” on Corrugated Demand and OCC Supply Is Growing
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Multiple boxes, domestic collection stream
Chinese Containerboard and OCC Prices
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
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nm
inb
i pe
r To
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Testliner Price in East China
Chinese Domestic OCC Price
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• Positive feedback loop: higher testliner prices and higher OCC prices have been supporting each other on their way up in late 2016 and early 2017. How about the way down?
Global ONP and Mixed Paper MarketsONP or Mixed Paper?
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350
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
US
Do
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pe
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US ONP#8
US Mix #2
China ONP IM (CIF)
China Mix IM (CIF)
72
87.5
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• Price differential between US ONP and mixed paper dropped sharply in the past few years, together with changes in composition and quality
• The anticipated change in mixed paper import policy will impact the specifications and quality of ONP, mixed again.
US Newsprint Consumption and ONP CollectionReal Old Newspaper Content?
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0
2
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8
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12
2000 2002 2004 2006 2008 2010 2012 2014 2016
Mill
ion
To
nn
es
Newsprint Consumption
ONP Collection
Source: AF&PA, RISI
Western European Newsprint Consumption and ONP Collection
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0
2
4
6
8
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12
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2000 2002 2004 2006 2008 2010 2012 2014 2016
Mill
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Newsprint Consumption
ONP Collection
Source: CEPI, RISI
Japanese Newsprint Consumption and ONP Collection
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0
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2000 2002 2004 2006 2008 2010 2012 2014 2016
Mill
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Newsprint Consumption
ONP Collection
Source: Japanese Paper Promotion Center, RISI
Anticipated Change in Chinese RCP Import Policy • Background
▪ China General Administration of Customs announced the National Sword 2017 program early this year
▪ The program of "Prohibition on Import of (selected) Solid Waste in Promotion of Reform on Solid Waste Imports Management" was reviewed and approved on April 18
• China will reduce solid waste imports by volume and
category
• No detail on how and when yet
• Mixed paper could be one of the targets
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Chinese RCP ImportsIncreasing OCC and mixed paper share
18%
20%
3%
59%
2016
23%
17%
3%
57%
2012
ONP MIX
HGR OCC
2012: 30.1 Million Tonnes 2016: 28.5 Million Tonnes
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Where Does China Import Mixed Paper From?
35%
32%
22%
4%7%
2016
USA
W.Europe
Japan
Oceania
Other
2016: 5.7 Million Tonnes
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• China is the largest buyer of mixed paper for each of the major exporting regions
• Which exporting region will be the most impacted by new Chinese regulations?
• Will China only ban mixed paper from certain regions?
• No details yet
Anticipated Mixed Paper Ban
• Where will the mixed paper rejected by China go?
▪ Stay in the exporting regions: domestic mills; higher grades through more sorting and processing (increased cost); landfill and burning for energy (fiber loss during the process)?
▪ Can Other Asia take more mixed paper?
• About 7 million tonnes of RCP net imports in 2016,
and about 40% of that was mixed paper
• Could import more to feed its growing demand, but
can its increase match China’s rejection? Will they
become as “picky” as China in the future?
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“Other Asia” RCP Demand RisingDomestic Collection vs. Imports
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30%
35%
40%
45%
50%
55%
60%
65%
70%
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50
00 02 04 06 08 10 12 14 16
Mill
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Domestic Recovery
Net Imports
Recovery Rate
• Net imports rose together with growing demand from India, Vietnam, Thailand and other developing countries in this region in 2016
• The less efficient recycling systems in these countries means that they will import more RCP in the future
Net Import Share
2000: 29%
2010: 18%
2015: 18%
2016: 19%
Anticipated Mixed Paper Ban
• How will China fill the huge fiber gap?
▪ Not low real recovery rate means limited room for domestic collection increase in the near term
▪ About 35% of Chinese RCP demand was fulfilled by imports
• 20% of Chinese imports was mixed paper
• Import more higher grades of RCP, such as OCC and
ONP? Tighten global OCC and ONP demand/supply
balance further? Increasing fiber cost for mills relying
on imported mixed paper?
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Chinese RCP: Rising Domestic SupplyDomestic Collection vs. Imports
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95 97 99 01 03 05 07 09 11 13 15
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Net Imports
Domestic Collection
Apparent Recovery Rate (R)
Import Share (R)
Import Share
1995: 10%
2000: 20%
2005: 49%
2009: 44%
2013: 39%
2015: 38%
2016: 36%
• China has been trying hard to improve its domestic collection, but is still far from being self-efficient in terms of RCP, and Chinese imports still play a critical role in the Chinese pulp & paper and global RCP markets
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Other
Asia
Western Europe
North America
Falling Newsprint ConsumptionCan global ONP supply meet the demand from paper and board industry and other sectors?
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• Will the anticipated change in mixed paper import policy cause revision of ONP specifications in different regions?
• Likely change in the fiber furnish in certain Chinese mills, such as boxboard mills: switch from mixed paper to ONP? Or switch from recycled to virgin fiber?
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Other Other AsiaChina JapanWestern Europe North AmericaCH%
Growing Containerboard Output• Faster growth pace and more recycled capacity • Tighter OCC demand/supply balance?
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North American Containerboard Capacity Changes, 2016-2018
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Company LocationCapacity
(Thousand Tons)Year Grade
WestRock Uncasville Mill, USA -165 2016 Recycled Medium
Kruger Trois Rivières Mill, Canada
397 2017 Recycled Linerboard
Assumed USA and Canada 170 2017 Recycled Grades
Assumed USA and Canada 230 2017 Virgin Grades
Assumed USA and Canada 830 2018 Recycled Grades
Assumed USA and Canada 310 2018 Virgin Grades
European Containerboard Capacity Changes, 2016-2019
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RegionCapacity(ThousandTonnes)
Year Grade Note
W. Europe 780 2016 Recycled Grades Announced
E. Europe 325 2016 Recycled Grades Announced
W. Europe 2,500 2017-2018
Recycled Grades Announced, mostlyfor 2017
E. Europe 170 2017-2018
Kraftliner Announced
E. Europe 150 2018 Recycled Grades Announced
E. Europe 550-600 2019 Recycled Grades Announced
Asian Containerboard Capacity Changes, 2016-2019
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CountryCapacity
(Thousand Tonnes)Year Grade
China 2,370 2016 Recycled Grades
China 2,700 2017 Recycled Grades
China 2,350 2018 Recycled Grades
China 650 2019 Recycled Grades
Indonesia 350 2017 Recycled Grades
India -125 2016 Recycled Grades
India 90 2018 Recycled Grades
Thailand 180 2016 Recycled Grades
Thailand 270 2017 Recycled Grades
Vietnam 1,178 2017 Recycled Grades
Vietnam 260 2018 Recycled Grades
Taiwan 50 2017 Recycled Grades
Global “High Grades” Market Seeing More Mixed Development
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06 07 08 09 10 11 12 13 14 15 16 17
China IM SOP - $/tonne
German 310 - $/tonne
US SOP - $/tonne
German 310 - €/tonne
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• Sorted Office Paper (SOP) prices also rebounded in China and USA in late 2016 and early 2017, due mostly to the limited supply
• Chinese imports of US high grades increased significantly by nearly 20%
• European markets were fairly stable
World Tissue Output Trending Opposite of P&W Paper Consumption
• Falling P&W paper consumption means shrinking supply of recycled high grades
• Growing tissue production
▪ Healthy demand for high grades, despite the slight drop in recycled fiber furnish share in the world tissue sector
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P&W Consumption (L) Tissue Production (R)
World RCP Markets in 2017-2018
• Asian demand
▪ China
• Higher environmental standards → more capacity closures and consolidation in paper and board industry → growing RCP usage
• Continued expansion in recycled containerboard capacity
• Improving domestic paper recycling system
• Regulation
– Further control on RCP imports, on both quality and quantity: better and cleaner paper
– Anticipated mixed paper ban and its near-term impact
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World RCP Markets in 2017-2018
• Asian demand
▪ Other Asia
• Faster PAB output and RCP demand growth than China, especially in the emerging economies
• Paper packaging sector will post major RCP consumption gain
• About 2 million tonnes of new recycled containerboard capacity to be added in 2017-2018, mostly in Vietnam, Indonesia, Thailand and India
• Will they take more mixed paper?
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OCC/UKP Market Analysis and Outlookwww.risiinfo.com/occ-ukp
Outlook for Global Recovered Paper Marketswww.risi.com/recoveredpaper
The China Recovered Paper Market: A Comprehensive Analysis and Outlook www.risi.com/chinarcp
World Pulp and Recovered Paper 5-Year & 15-Year Forecastswww.risi.com/WPRP5www.risi.com/WPRP15
World Recovered Paper Monitorwww.risi.com/wrpm
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