Transcript PRESENTATION MASTER SLIDE
North American Containerboard Outlook Ken Waghorne Vice President, Paper Packaging August 2013
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Today’s Agenda
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Economic Overview North American Domestic Demand Global Trade Issues
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Asia Europe Latin America Rest of World Other Factors Affecting Prices RISI’s North American Price Projections
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Global Economy Improving Moderately Annual Real GDP Growth
Source: IMF, RISI
Emerging Economies Continue to Support Global Growth Global Real GDP* Growth
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*Measured at purchasing power parity exchange rates Source: IMF, RISI
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US Household Net Worth Almost Back to Pre-Recession Level Index, Starting Quarter = 100
Source: Federal Reserve
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Housing Momentum Building Existing Home Sales and Housing Starts, Thousands of Units
Source: NAR, BEA
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Consumption Growth Accelerating Real Consumption Expenditure, Annualized Percentage Change; Unemployment Rate
Source: BLS, RISI
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Consumer Spending on Food and Beverages (Billion 2005 Dollars) Was Weak in 2011-2012
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Manufacturing Growth Supporting Economy Index of Industrial Production, Jan 2000 = 1.00; PMI
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Durable Goods Drives Manufacturing Index of Industrial Production – Durable, Non-Durable Goods, Jan 2000 = 100
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Low Natural Gas Prices Helping US Manufacturers Henry Hub Natural Gas, West Texas Intermediate Crude Oil, $/MMBtu
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The Declining Merchandise Trade Deficit Should Allow Manufacturing to Grow Faster Than Consumer Spending 900 800 700 600 500 400 300 200 100 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
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Growth in Industrial Production (Percent) Is Expected to Exceed GDP Growth from 2013 to 2015
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Today’s Agenda
• • • • •
Economic Overview North American Domestic Demand Global Trade Issues
– – – –
Asia Europe Latin America Rest of World Other Factors Affecting Prices RISI’s North American Price Projections
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US Box Market Should Be Poised to Rally
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Shipments Fell 13% Between 2007 and 2009
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Steepest Decline for the Market Since the 1970s Shipments in 2012 were just 4% higher than in 2009
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Far more subdued than the overall growth in manufacturing But fairly well in line with the performance of nondurable goods Uneven US economy held shipments flat in the first half of 2013
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But market should accelerate by second half of the year Shipments should increase 1.6% in 2013 and 3.7% in 2014 Long-term growth in box shipments will average 1.8%
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Containerboard demand should grow at a more moderate 1.2% pace
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Shift to lightweight liner will take hold in North America
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Corrugated Box Shipments Have Been Volatile Since Mid-2012, But the Trend is Relatively Flat Billion Square Feet Thousand Short Tons
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Containerboard Cutup Has Exceeded Box Shipments in 2005, Implying Strong Growth in Non-Box Uses of Corrugated Sheets
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US Box Shipments Tracked Closely with Nondurable Goods Production for Most of 2011-2012 -- Decline in Early 2013 Indicates an Inventory Drawdown BSF per Index Unit
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RISI’s Forecast: Box Shipments Should Recover Strongly Following Soft Patch of Early 2013 Annualized Growth Rate (%)
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Growth in US Containerboard Apparent Consumption Is Expected to Remain Quite Slow Growth, Million Tons
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Today’s Agenda
• • • • •
Economic Overview North American Domestic Demand Global Trade Issues
– – – –
Asia Europe Latin America Rest of World Other Factors Affecting Prices RISI’s North American Price Projections
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Asian Demand for Containerboard Far Surpasses Other Regions (2012)
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Asian Demand Growth Should Bottom Out in 2012, But the 2013-2014 Recovery Will Be Modest Relative to Trend of the Last 10 Years Annual Change in Million Tonnes
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Chinese Demand Growth Is Expected to Average 2.1 Million Tonnes per Year in 2013 2014
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Asian Containerboard Market Remains Oversupplied in 2013, But the Situation Might Start to Improve in 2014 Growth, Million Tonnes
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Asia Is Expected to Be a Small Net Exporter of Recycled from 2013 Onward Million Tonnes
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The Western European Containerboard Market Has Suffered from Economic Distress since 2008 with Recycled Share Increasing Further
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Euro Area Production Trending Lower Industrial Production Indices, 2010=1
Source: Eurostat
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Growth in Western European Containerboard Demand Is Not Expected to Resume Until 2014 Once Industrial Production Begins to Drive Box Demand Annual Change in Million Tonnes
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Eastern European Containerboard Market: Much Smaller than the Western European Market (9.1 Million Tonnes in 2012) But Growing Rapidly
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Eastern European Demand Will Grow Almost 750,000 Tonnes in 2013-2014 Annual Change in Million Tonnes
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The Western European Recycled Containerboard Industry Is Still Relying on Exports to Maintain Market Balance Western European Net Exports, Thousand Tonnes
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Poor Profit Margins (Prices/Variable Costs in Euros per Tonne) Should Lead to Permanent Closures in the European Recycled Containerboard Market
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Assumed Capacity Closures in the Western European Recycled Containerboard Market Will Help Lift Operating Rates by 2%
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Latin American Containerboard Demand Should Expand Faster Than Supply in 2014, Leading to Increased Regional Net Imports Growth, Thousand Tonnes
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Brazil Is the Only Net Exporter in Latin America and Sells Throughout the World Kraftliner Exports, Thousand Tonnes
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African Containerboard Demand Will Continue to Outpace Supply, Allowing Some Further Increase in Imports Growth, Thousand Tonnes
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Capacity Expansion Will Exceed Demand Growth in the Middle East Through 2014, Leading to Declining Net Imports Growth, Thousand Tonnes
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Capacity Removals in Oceania in 2012 Helped Tighten the Market, But Another Expansion Round is Possible in 2017-2018 Growth, Thousand Tonnes
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Net Imports into Latin America and Africa Will Grow in 2013-2014, But Conditions Remain Challenging in the Middle East Million Tonnes
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Latin America and Canada Are the Dominant Destinations for US Kraftliner Exports Million Tonnes, Annual Rates
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Although Challenges Will Remain Through 2013, US Producers Are Well Positioned to Meet Future Growth in Global Kraftliner Demand Million Tons Share of Production
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Today’s Agenda
• • • • •
Economic Overview North American Domestic Demand Global Trade Issues
– – – –
Asia Europe Latin America Rest of World Other Factors Affecting Prices RISI’s North American Price Projections
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North American Brown Linerboard Mills Have Some of the Lowest Costs in the World Cash Costs, First Quarter of 2013
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Several Recycled Mills Were Quite Competitive with Kraftliner in Early 2013 Cash Costs, First Quarter of 2013
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Old Corrugated Container (OCC) Costs Should Trend Upward Again Once Global Containerboard Demand Accelerated Dollars per Short Ton
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Driving Factor Behind OCC Price Increases: The Developing Markets Will Continue to Provide All Growth in Global Containerboard Demand Through 2014
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Recycled Production Costs Are Expected to Rise Faster that Kraftliner Costs Through 2014 Average Total Cost, US Dollars per Short Ton
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N. American Industry Has Learned to Remove Capacity as Demand Falters, But Conversions from Graphic Paper Provide a New Dynamic Thousand Short Tons
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Capacity from New Entrants Will Eventually Drive Containerboard Operating Rates Down
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The North American Containerboard Industry Is Very Highly Concentrated
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The Herfindahl-Hirschman Index (HHI) Tracks Industry Concentration Levels and Indicates Competitive Behavior
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The North American Containerboard Industry No Longer Owns Much Timberland Net Timberland Transactions, Thousand Acres
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Today’s Agenda
• • • • •
Economic Overview North American Domestic Demand Global Trade Issues
– – – –
Asia Europe Latin America Rest of World Other Factors Affecting Prices RISI’s North American Price Projections
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Containerboard Pushed Through a $50/ton Price Increase in Late 2012
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And followed this with another $50/ton increase in April 2013 Market-related downtime trumped several negative factors
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Relatively weak domestic demand Steady decline in old corrugated container costs Enduring oversupply in corrugated box market Prices are expected to remain flat for the remainder of 2013
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As new capacity enters the market Before accelerating in 2014-2015
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Containerboard Inventories Were Below the Balanced Level in Late 2012 and Early 2013
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Containerboard Prices Are Expected to Remain Flat for the Remainder of 2013 Before Rising in 2014 US Dollars per Short Ton
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High Industry Profitability Is Expected to Attract New Tonnage to the Market Price/Total Cost
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North American Containerboard Summary Market has been moving sideways since 2010
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Lackluster domestic demand Export demand quite positive Capacity creeping upward Inventories remain well under control The downside risks to the market are substantial
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Will the manufacturing renaissance play out?
Has Europe stabilized?
How much new capacity will enter the market?
The upside risks are harder to envision
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Given that our base forecast includes a US manufacturing revival How many increases will the industry attempt in 2014?
How high do prices need to go to force some market changes?
Thank-you for your attention!
For more information: Latin American Pulp & Paper 5-year Forecast www.risi.com/forecasts Paper Packaging Monitor www.risi.com/ppm World Recovered Paper Monitor www.risi.com/wrpm