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RISI Pulp and PaperUS Containerboard Outlook

Ken WaghorneVP, Global Packaging

International Containerboard Conference – November 2016

2© Copyright 2016 RISI, Inc. | Proprietary Information

• 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

[email protected]


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


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


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


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


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


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


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


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)


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


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)


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


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


Inventories alter apparent consumption trends


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)


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



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


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


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


‐1,000

‐500

0

500

1,000

1,500

2,000

2,500

9091929394959697989900010203040506070809101112131415161718

Thou

sand

Ton

s


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


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


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.


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


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


© Copyright 2016 RISI, Inc. | Proprietary Information 30

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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