the united states of corrugators (and canada, too): a

Sheila Rezak

Product Manager, Mill Intelligence

Ryan Burgess

Product Manager, Mill Intelligence

Fastmarkets RISI North American Conference 2019

The United States of Corrugators (and Canada, too): A regional comparison of the corrugated supply chain

• Background

• Corrugating basics

• Regional coverage and characteristics

• Focus on the US Midwest

• Comparing North America and Europe

• Narrow-web single-face laminators

• Ongoing project: A quick look at Mexico

• Global containerboard cost competitiveness

2019 | Fastmarkets | North American Conference 2

Agenda

Background

• In the United States and Canada, corrugated packaging

demand has been rising in recent years. Research of

cost efficiency throughout the corrugated supply chain

often focuses on containerboard costs, but several other

factors can affect corrugating plant competitiveness. Our

recent study, North American Corrugators: A

Comprehensive View focuses on these factors by

evaluating asset characteristics.

• This study is an extension of our previous study, European

Corrugators: A Comprehensive View, published

September 2018.


• Analysis of 575 corrugators in the US and Canada

across 41 states and eight provinces allocated to six

different regions (US Midwest, US Northeast, US South,

US Southwest, US West and Canada).

• The benchmarked product is 123 lbs per thousand sq ft

(600 gsm) C-flute single-wall corrugated board sheet.

• Asset characteristics

Number of corrugators, capacity, technical age, width, regional

market shares, distance, integration and cost estimation.


Corrugating basics

• Corrugated boxes are widely used for heavier products or products that require a

stronger box for shipping and product protection, such as food. In the US, more

than 95% of all products are shipped in corrugated boxes.¹ Corrugated

paperboard accounts for more than half of all the paper recycled in the US.

• The primary component in corrugated board is containerboard paper, specifically

medium and linerboard.

• Linerboard has two main groups

Virgin linerboard, which can have a slight content of recycled fibers

Recycled linerboard, which is generally made from 100% recovered paper, e.g., DLK, OCC or other mixed papers

• Medium has two main groups

Semichemical medium, which is made mostly from hardwood semichemical pulp

Recycled medium, which is generally made from 100% recovered paper

2019 | Fastmarkets | North American Conference

1. Miji, Kuboc. "Corrugated Boxes Design". www.theprintingdaddy.com.

5

Corrugated board construction and common types

• Corrugated board is made by bonding

one or more sheets of fluted

containerboard (medium) to one or

more sheets of flat containerboard

(linerboard).

• Common types of corrugated board:

single-face, single-wall, double-wall,

triple-wall.

• There are two flute profile types:

standard & non-standard. Generally, the

larger flute profiles give more strength

and cushioning while the smaller flutes

help to improve graphic/printing

capability and foldability.

2019 | Fastmarkets | North American Conference6

Corrugating machine

• A corrugating machine has several main parts: single facer, double backer, heating/drying, rotary/slitting

and cross cutter.


Asset type

Corrugated sheets and boxes are produced

at converting plants, such as corrugator

plants, sheet feeders or sheet plants.

• Corrugator plant – has a corrugator and

converting equipment and runs both

sheets and boxes

• Sheet feeder – a plant that operates a

corrugator to run sheets exclusively for

box plants to convert into boxes

• Sheet plant – purchase sheets from

corrugator plants or sheet feeders; does

not have a corrugator but does have

converting equipment


Regional coverage

US Northeast: Connecticut, Maine, Massachusetts, New Jersey, New York, Pennsylvania

and Rhode Island

US Midwest: Colorado, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota,

Missouri, Nebraska, Ohio and Wisconsin

US South: Alabama, Florida, Georgia, Maryland, Mississippi, North Carolina, South

Carolina, Tennessee and Virginia

US Southwest: Arkansas, Louisiana, Oklahoma and Texas

US West: Arizona, California, Idaho, Montana, Nevada, New Mexico, North Dakota,

Oregon, South Dakota, Utah, Washington and Hawaii

Canada: British Columbia, Alberta, Manitoba, Saskatchewan, Ontario, Quebec, New Brunswick and Nova Scotia


Regional characteristics


Number of corrugators Corrugator capacity

• The US Midwest has the largest number of

corrugators, with a market share of 32% of the total

North American region.

• Canada has the lowest number of corrugators with a

market share of 7%.

• Total North American corrugated capacity in Q4 2018

was an estimated of 439.7 billion sq ft per year.

• The US Midwest has the highest corrugated capacity

at 146 billion sq ft per year and a market share of

33.2%, followed by the US South with a 20.1%

market share.

10


Technical age

• Technical age estimation: Modern (less

than 10 years old), average (between 10-

20 years old), and old (more than 20 years

old).

• More than three-fifths of North American

corrugator machines are considered old,

while one-fifth are average and the rest

are considered modern.

• This is not surprising given the long history

of the corrugated industry in North

America, with many plants still running

their original machines.

• Technical age is gradually shifting from

having mostly old machines to greater

percentages of average and modern

machines.


11


Corrugator width

• The majority of corrugator machines in

the US and Canada are 98-inch

machines, which compromise 32% of all

corrugator machines.

• Modern corrugators, such as those in

the 110-inch category, are becoming

more popular due to high machine

efficiency. This corrugator type accounts

for about 11% of North American

machines.

• The 132-inch corrugator machines are

still uncommon: Alliance Sheets (Bristol

Plant, IN – 2014), Encorr Sheets

(Ontario Plant, CA - 2017), and

WestRock (Tupello, MS – announced in

2018).


12

North American corrugator plants map



• Distance to regional containerboard assets: Delivery is one of the key factors in the

corrugated industry. Proximity to customers is far more important for a corrugator plant than for

a containerboard mill.

o The US Northeast has the shortest average distance from containerboard mill to corrugated

plant, followed by the US South.

o The most highly concentrated corrugated plants are in the US Midwest.

o Canada has the longest average distance to any containerboard mill because of its large

area and low population.


14


• Integrated assets commonly have more benefits over non-integrated assets. Corrugator plants

and sheet feeders in North America are typically integrated into the same company or group. The

average level of integration in North America is about 82% of plants and 84% of capacity.

• Currently, the highest level of integration in North America is in the US South and the lowest is in

Canada.

Integrated vs non-integrated

Advantage Disadvantage

Better delivery control between containerboard

mills and corrugated/converting plants

Need to invest large amounts of capital, including buying

new facilities, having a large number of employees and

more resources invested in controlling the facilities

Flexibility with supply, demand and logistics Less streamlined focus because of the combination of two

different process areas

Lower material and operational costs More complex management level

More sustainable operational system


15

US Midwest region


• The 98-inch and 78-inch corrugator machine distributions are around 30%, while the other

categories each represent 15% or less.

• The US Midwest region is known as

“America’s heartland” because of its

primary role in the nation’s manufacturing

and farming sectors.

• The corrugated board and packaging

industry is large in this region, accounting

for around 33% of corrugated sheet

capacity in North America.

• More than two-thirds of US Midwest

corrugator machines fall into the old

category of technical age; the rest are

either average or modern.

16

US Midwest region


• The average distance from a corrugator plant to the nearest containerboard mill is

approximately 80 miles.

• Top integrated companies in this region include: IP, WestRock, PCA, Pratt, G-P, The

Schwarz Group, GBP, Greif and CSC.

• Midwest expansion 2019–2022:

o A 110-inch corrugator machine is scheduled to be installed in Indiana at the DS Smith

Lebanon plant.

o LDI will install a new 98-inch Fosber machine at its subsidiary plant in Omaha, Nebraska.

o Pratt plans to install a new modern corrugator machine in Wapakoneta, Ohio, on the same

site as its new 400,000 ton per year containerboard mill.

o Bio-Pappel/US Corrugated plans to open a new plant in Lebanon, IN.

17

US Midwest region


Containerboard

• Containerboard mills in the US Midwest region have an estimated total capacity of about 4.77

million tons per year, mostly focused on recycled containerboard products with the exception of

some virgin medium made by PCA.

• This region has the highest corrugating capacity; however, the containerboard supply in this

region is short by almost 4.6 million tons per year. Therefore, corrugator plants need to import

raw materials from other regions.

• The top containerboard producers, which are primarily integrated companies, include IP,

PCA, Pratt, GBP, Greif, CSC, WestRock and New-Indy Containerboard, with Midwest Paper

and Liberty Paper being the non-integrated exceptions.

• Announced expansion in the US Midwest in 2019–2021 will add more than 1 million tons of

containerboard per year

o Including ND Paper, Green Bay Packaging, Phoenix Paper and Pratt.

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US Midwest region


• The US Midwest has the third-

highest estimated cash costs in

recycled- and virgin-fiber-based

corrugated board production.

• Note that this region has a deficit of

containerboard supply; therefore,

both recycled and virgin grades

need to be imported from other

regions.

• In comparison to other regions, the

US Midwest has higher electricity

and natural gas prices and lower

labor and chemical costs.

19

20

19

e

Special topics


Comparison of North American and European corrugator characteristics


• Europe

o 882 corrugators in 38 countries

o 12 regions

• North America

o 575 corrugators in 2 countries, 41 states and 8 provinces

o 6 regions

• Results

o Total North American corrugating capacity was an estimated 439.7 BSF versus 786 BSF in Europe.

o Europe has more average and modern machines than North America, where more than 60% of the machines

are considered old.

o However, the level of integration in North America is much higher than in Europe due to recent mergers and

acquisitions in North America.

o Other detail results are explained in the study.

21

Narrow-web single-face laminator


• Litho-laminated products are value-added products in the packaging industry. They have been

among the fastest growing corrugated segments for more than ten years. The laminated products

combine high-quality, litho-printed surfaces with the structural strength of corrugated boards using

litho-laminating machines.

• In general, we categorize two types of litho-laminating machines: standard litho-laminators and

single-face laminators. Single-face laminators operate both a corrugating unit and a laminating unit in

one operation. These

are commonly known

as narrow-web single-

face laminators because

of their narrow machine

width, which normally

ranges from 21-65 inches.

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Narrow-web single-face laminator


• Some advantages of single-face laminators over standard litho-laminator machines include

1. Lower manufacturing costs due to the corrugating and laminating units being combined in a single

production line

2. Lower containerboard consumption (medium and bottom liner) of about 20-30% per square foot,2

which reduces the total weight of boards used

3. Higher laminating performance and quality due to the process being streamlined and improved by

avoiding the need for a second top sheet.

2. Norton, The Future of North America Containerboard: A Strategic View, Vol II, p. 33.

• A single-face laminator machine has

three main parts: wet end, laminating

section, and conditioning and stacking

section.

• Detailed equipment and locations are

available in the study.

23

Mexican corrugator plants map (an ongoing project)


Statistics

• 30 containerboard mills, 1 future mill,

3 rebuild projects

• 161 corrugator plants/Sheet Feeders

with 180 corrugating machines

• 181 sheet plants

24

Mexican corrugator plants (ongoing project)


• Top corrugated producers: Bio Pappel, Grupo Gondi/WestRock, Smurfit Kappa, PCM,

International Paper, CECSO, CEMSA, Grupo Unipak, Copamex

• Integration level for corrugator plants: 60% independent and 40% integrated

• Containerboard mills capacity = 3 millions tons per year, approximately 96% are recycled grades

• Top containerboard mills: Bio-Pappel, Grupo Gondi, Smurfit Kappa, Grupak, PCM, Copamex

• Containerboard expansion projects in 2019–2020

o Copamex – Anahuac Mill

o Grupak Comercial – Hidalgo

o Grupo Gondi – Nuevo Leon

o Empaques Nova – Uman Mill

25

Cost Competitiveness


Global containerboard cost competitiveness


• Methodology overview

• Information based on manufacturing cash cost analysis

• Overview of cash cost structure for global kraft and recycled linerboard,

semichemical and recycled medium

• Cost competitiveness of mills in Latin America, Europe, Asia, Africa, Oceania and

North America

- Natural expense categories

• Historical cost drivers

- Changes due to fluctuating recovered paper prices

27

Cost estimation methodology


Mass and

energy balance

Cost

calculations

• Governmental reports

• Wage & benefits data

• Suppliers

• Consultants

• Periodicals

• News releases

• Magazine articles

• Capacity data

• Directories

• Trip reports

• Outside consultants

• Internal data

• Personal

• Knowledge

• Internet

• Suppliers

• Studies

• Experience

• Mill and machine level cash manufacturing costs estimated for non-converted, ready-to-deliver rolls at mill gate

- No indirect costs (capital costs, depreciation, corporate overhead, etc.)

• A mass and energy balance is calculated for existing mills to determine consumption for each mill process

• Consumptions are multiplied by regional average market prices

Cost = (Consumption) X (Price)

• Data gathered from a variety of available sources, including:

• Company reports and websites

• Pulp and paper directories

• Magazine articles

• Technical literature

28

• Consultants

• Mill visits

• Surveys and interviews

• Equipment suppliers

Global containerboard mill map


Most recycled containerboard is produced in densely populated areas, where recovered paper is locally

available or imported, whereas virgin-fiber-based mills tend to have more remote locations, close to their

fiber supply.

Source: Fastmarkets, Google Maps.

29


China accounted for

only 4% of global

capacity in 1990, but

will approach 28% in

2020.

Global containerboard capacity, 1990-2020

0

20,000

40,000

60,000

80,000

100,000

120,000

1990 1995 2000 2005 2010 2015 2020

Thousa

nd t

onnes

Asia/Oceania EMEA North America Latin America

China will remain the top producing country for the foreseeable future.

30


Averages

Africa: $260/MT

Europe: $292/MT

North America: $306/MT

Oceania: $312/MT

Latin America: $331/MT

Asia: $383/MT

Second quarter 2019 global containerboard cash costs

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Containerboard furnish distribution

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Historical OCC prices, US dollars per tonneUS South, China and Europe

0.00

50.00

100.00

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350.00199

5 Q

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US

do

llars

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US OCC China OCC Germany OCC

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Capacity: Unbleached linerboard by world regionSecond quarter 2019

Global unbleached linerboard capacity is estimated to be 103.5 million tonnes

51.37

1.59

18.78

25.20

4.95 1.64

Asia

Africa

Europe

North America

Latin America

Oceania

67% recycled

24% recycled

72% recycled

75% recycled

29% recycled

95% recycled

34


Second quarter 2019 global unbleached linerboard cash costs

35

Global Average: $333/MT


Second quarter 2019 global unbleached linerboard cash costsSorted by cash cost with configuration ID

BRL – 3.9240/USD

EUR – 0.8900/USD

RUB – 64.578/USD

RMB – 6.8236/USD

AUD – 1.4287/USD

36


100

150

200

250

300

350

400

450

Integrated Non-integrated Semi-integrated Recycled

323

342

421

335

152

180

282

205

US

dolla

rs p

er

tonne

Fiber Cost

Second quarter 2019 global unbleached linerboard cash costs by configuration

37

0

50

100

150

200

250

300

350

400

Africa Asia Europe Latin America North America Oceania Global average

US

dolla

rs p

er

tonne

Fiber Chemicals Energy Labor Materials, etc.


Second quarter 2019 global unbleached linerboard average cash costs by world region and expense category

45% 69% 45% 47% 42% 48% 58%

$257

$369

$278

$319$308

$317$333

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Capacity: Corrugating medium by world regionSecond quarter 2019

Global medium capacity is estimated to be 76.6 million tonnes

39

45.08 M

1.19 M

14.82 M

10.77 M

4.06 M 0.68 M

Asia

Africa

Europe

North America

Latin America

Oceania

47% recycled

93% recycled 96% recycled

99% recycled

79% recycled

88% recycled

0

50

100

150

200

250

300

350

400

Africa Asia Europe Latin America North America Oceania Global average

US

dolla

rs p

er

tonne

Fiber Chemicals Energy Labor Materials, etc.


Second quarter 2019 global corrugating medium average cash costs by world region and expense category

$252

41%

$397

68%

$260

40%

$332

48%

$277

32%

$282

44%

$347

59%

40

Global containerboard cost competitiveness shows significant regional

advantages based on recovered paper prices and exchange rates

▪ Asia is still the high cost containerboard producing region, mainly due to ongoing

restrictions on recovered paper imports

▪ Africa and Europe are the low cost producing regions, aided by a high concentration of

recycled mills along with relatively low recycled fiber prices

▪ Average cash cost for integrated mills is marginally lower than that of recycled mills

Key take-aways Corrugated board efficiency depends on various factors▪ Key components (raw material costs) depend heavily on country or world economic

business cycles

▪ Additional components (productivity, asset quality, supply chain relationships, distance

between corrugators and containerboard mills)

North America has a long history in the corrugated industry▪ Majority of corrugator machines are considered old

▪ Recently, the technical age distribution is gradually shifting to modern machines

Consolidation reforming the US/Canada corrugated packaging industry▪ Key mergers and acquisitions over the past five years

▪ Ownership structure (integrated/independent) has a direct impact throughout the corrugated

supply chain


Study subjectsKey metrics for comparing corrugators

An analysis of North American corrugators: To provide general information, identify

and compare regional characteristics and cost benchmarking

01

Regional comparative analysis and four-year projected cash

cost estimation

Regional comparison covers number of corrugators, capacity, technical age, width,

regional market share, distance to the regional containerboard assets, integration and

cash cost estimation

02

Special topic: A comparison of North American and European

corrugator characteristics

A higher level comparison of North American and European corrugator characteristics

03

Special topic: Narrow-web single-face laminators

Information about these laminators, their technological advantages and their

applications in North America

04


Thank you for your attention


Analytical Cornerstone Cost Benchmarking Tool

https://www.risiinfo.com/product/analytical-cornerstone-4-0-cost-benchmarking-

tool/

North American Corrugators: A Comprehensive View

https://www.risiinfo.com/product/north-american-corrugators-study/

Asset Database

https://www.risiinfo.com/service/mill-data-costs/asset-database/

43

Sheila Rezak, Product Manager, Mill Intelligence: [email protected]

Ryan Burgess, Product Manager, Mill Intelligence: [email protected]

the united states of corrugators (and canada, too): a

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