RISI Pulp and PaperUS Containerboard Outlook
Ken WaghorneVP, Global Packaging
International Containerboard Conference – November 2016
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• One of the original Resource Information Systems, Inc. economists
• With RISI since 1983• Developed RISI packaging models• Works with more than 200 packaging paper clients worldwide
• Assisted by five economists in RISI regional offices
• Directs numerous single‐ and multi‐client studies on paper packaging materials
VP Global PackagingKen Waghorne
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This Morning’s Agenda
• A slightly deeper dive into the economy
• The US corrugated box market Start with box growth projections
Work through the data to get to containerboard demand
• Finally, end with our containerboard market balance projections
Not All Manufacturing Is Created Equally
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95100105110115120125130135140
2012
‐01
2012
‐04
2012
‐07
2012
‐10
2013
‐01
2013
‐04
2013
‐07
2013
‐10
2014
‐01
2014
‐04
2014
‐07
2014
‐10
2015
‐01
2015
‐04
2015
‐07
2015
‐10
2016
‐01
2016
‐04
2016
‐07
Industrial Production Index, 2012=100
Mining UtilitiesDurable NondurableFood Automotive
Key Box Markets Are Processed Foods and Other Nondurable Goods
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979899100101102103104105106107
2012
‐01
2012
‐04
2012
‐07
2012
‐10
2013
‐01
2013
‐04
2013
‐07
2013
‐10
2014
‐01
2014
‐04
2014
‐07
2014
‐10
2015
‐01
2015
‐04
2015
‐07
2015
‐10
2016
‐01
2016
‐04
2016
‐07
Industrial Production Index, 2012=100
Nondurable Food
Shift in Consumer Spending Created a Difficult Environment for Grocers
‐8
‐6
‐4
‐2
0
2
4
6
8
10
09 10 11 12 13 14 15 16
Annualized Percentage Change
At Home
Away from Home
Total
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The US Corrugated Box Market Is Now in Its Third Year of Modest Growth
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2011 2012 2013 2014 2015 2016 2017 2018
Percen
tage Cha
nge
Box Shipments
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But headwinds remain in place for 2017
Box Shipments Have Outgained Nondurable Goods Production Since 2007
28.0
28.5
29.0
29.5
30.0
30.5
31.0
31.5
32.0
J 05 J 06 J 07 J 08 J 09 J 10 J 11 J 12 J 13 J 14 J 15 J 16
Billion
Squ
are Feet/Ind
ex Unit
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Corrugated Construction Has Not Shifted Significantly in 25 Years
75%
80%
85%
90%
95%
100%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Single Wall Double Wall Triple Wall Single Face
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Single wall continues to dominate
Corrugator Production Has Grown Well in Excess of Box Shipments
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0
100
200
300
400
500
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Billion
Squ
are Feet
Other Uses of Corrugated Sheet and WasteBox ShipmentsOther Share of Total Corrugator Production
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Non‐box uses of sheets is growing rapidly
Sheet Production and Containerboard Cutup Track Very Closely
2324252627282930313233
320335350365380395410425440455470485
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Million Tons
Billion
Squ
are Feet
Corrugator Production
Containerboard Consumed (R)
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FBA box basis weights represent the difference
FBA Box Basis Weights Have Decreased 7% Since the Early 1990s
126
128
130
132
134
136
138
140
142
144
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Poun
ds per Tho
usan
d Squa
re Feet
Raw Basis Weight
Adjusted
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Data revisions yield murky 2003‐2008 picture
Containerboard Basis Weights Are Trending Downward
27.027.227.427.627.828.028.228.428.628.829.029.229.4
42.042.543.043.544.044.545.045.546.046.547.047.548.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Poun
ds per Tho
usan
d Squa
re Feet
Liner
Medium (R)
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Weighted average of AF&PA ranges
The Trends for the FBA and AF&PA Basis Weights Are Fairly Close
122124126128130132134136138140142144
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Poun
ds per Tho
usan
d Squa
re Feet
Raw Basis Weight
Adjusted
Calculated
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Calculated at 2 MSF liner & 1.6 MSF medium
What We Know About Basis Weights
• Average basis weights have been falling Almost 11% for linerboard since 1991 About 3% for medium And 7% for corrugated sheets
• Trend is consistent for virgin and recycled substrates
• Flute selection or end‐use mix can shift weights in individual years But the overall trend remains downward
Cutup Reflects True Containerboard Demand Better Than Box Shipments
‐2.0‐1.5‐1.0‐0.50.00.51.01.52.02.53.0
2011 2012 2013 2014 2015 2016 2017 2018
Percen
tage Cha
nge
Box ShipmentsCutupCnt Apparent Consumption
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Inventories alter apparent consumption trends
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Apparent Consumption Equals Production Plus Imports Less Exports• There are a number of uses for containerboard other than corrugated Hexacomb, cores, wraps, floor coverings, slip sheets, folding cartons
• RISI also excludes reported inventory shifts from unidentified tonnage
• A lot of data noise shows up in “unidentified uses” for the two grades Multiple sources = multiple issues
US Containerboard Inventories Fell Sharply During Mid‐2016
3.23.43.63.84.04.24.44.64.85.05.25.45.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Weeks of S
upply
Million Tons
Inventories
Weeks of Supply (R)
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In both absolute tons and relative to cutup
US Kraftliner Exports Were More Resilient Than Expected in 2014‐2015
‐
1,000
2,000
3,000
4,000
5,000
6,000
2010 2011 2012 2013 2014 2015
Thou
sand
Ton
nes
Heavyweight Board Lightweight BoardWhite Kraftliner Unbleached Kraftliner
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The Export Markets Will Remain Challenging for Producers
• The strong US dollar has raised costs for kraftliner mills in the US South relative to the rest of the world Producers in Russia, Latin America and Oceania are enjoying a decidedly competitive cost advantage
• Most overseas markets are oversupplied Leading to intensifying competition from recycled
0
100
200
300
400
500
600
0.00 6.88 13.75 20.63 27.50
Cas
h C
ost,
US
Dol
lars
per
Ton
neD
eliv
ered
to M
ilan,
2Q
2016
Cumulative Capacity (Million Tonnes per Year)
August price: $487/tonne
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Costs Have Become an Issue for US Kraftliner Exporters
Africa Asia
Oceania Europe
North America Latin America
80%
82%
84%
86%
88%
90%
92%
94%
96%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Western Europe Eastern Europe Asia Latin America
Containerboard Operating Rates Are Depressed in Most World Regions
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And the oversupply is expected to worsen
NA Containerboard Exports Should Accelerate from 2018 Onward
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
10 11 12 13 14 15 16 17 18
Net Exports, M
illion Tonn
es
Kraftliner Virgin Medium Recycled Liner Recycled Medium
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‐1,000
‐500
0
500
1,000
1,500
2,000
2,500
9091929394959697989900010203040506070809101112131415161718
Thou
sand
Ton
s
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Unidentified Uses Are Forecast to Remain Stable Through 2018
Production Expected to Grow Slower Than Demand Through 2018
‐2.0‐1.5‐1.0‐0.50.00.51.01.52.02.53.0
2011 2012 2013 2014 2015 2016 2017 2018
Percen
tage Cha
nge
Box ShipmentsCutupCnt Apparent ConsumptionCnt Production
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Challenges on the trade front
Capacity Expansion Slowed from Its 2015 Pace in 2016
• Identified projects 638,000 tonnes in 2015 ‐165,000 tonnes in 2016
• Identified creep (included in AF&PA survey) 460,000 tonnes in 2015 316,000 tonnes in 2016
• Assumed creep (459,000 tonne average from 1998‐2015) 168,000 tonnes in 2016 388,000 tonnes in 2017 480,000 tonnes in 2018
• Assumed projects: 800,000 tonnes in 2017‐2018
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But expected to accelerate again in 2017‐2018
Capacity Is Expected to Continue to Grow Faster Than Production
‐2.0‐1.5‐1.0‐0.50.00.51.01.52.02.53.0
2011 2012 2013 2014 2015 2016 2017 2018
Percen
tage Cha
nge
Box Shipments Cutup Cnt Apparent Consumption Cnt Prod. Cnt Cap.
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Leading to reduced operating rates
80%
85%
90%
95%
100%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Western Europe Eastern Europe Asia Latin America North America
NA Operating Rates Should Trend Down Through 2018
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But remain well above those in the rest of the world
• Slow growth in domestic market continues through 2017• The export front is likely to remain challenging• Capacity expansion continues to exceed demand• Making it difficult for the market to tighten substantially
NA Corrugated Box and Containerboard
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North American Paper Packaging 5‐Year Forecastwww.risi.com/NAPP5
Special Study: The Future for Containerboard North America‐‐A Strategic Viewwww.risi.com/PPM
The information in this presentation comes from these sources unless otherwise cited
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