Global Containerboard Dynamics Trends and Issues ACCCSA July 9, 2019 BETTER INTELLIGENCE. BETTER DECISIONS. Fisher International Fisher International is an information services and management consulting firm offering pulp and paper BETTER INTELLIGENCE. BETTER DECISIONS. businesses better performance through the strategic use of business intelligence. What We Believe Every Company Should Have the Best Possible Business Intelligence. Our Vision To enable pulp and paper businesses worldwide to make informed decisions precisely, fast, broadly, and efficiently. © 2019 Fisher International, Inc. All rights reserved. © 2019 Fisher International, Inc. We Help Clients Make Significant and Enduring Improvements to Their Performance THE industry leader in Integrated solutions that Industry creator strategic data-informed increase our customers’ of high-quality data decision making decision making Deep domain knowledge Best-in-class digital Expert consulting, coaching promoted via Thought product development and and training from industry Leadership product innovation leaders © 2019 Fisher International, Inc. 3 What We’ll Talk About Today • Why are global containerboard issues important to ACCCSA corrugators? • Some facts about the global containerboard market • Some facts about the Latin American containerboard market • Big issues over the next several years that will impact the containerboard markets: – China’s banning of recycled fiber – E-commerce – New capacity expansions (even as demand is now slowing) – Anti-plastic © 2019 Fisher International, Inc. 4 But first, why should ACCSA members care about global containerboard markets? © 2019 Fisher International, Inc. First, the Obvious: Paper Costs Are 70%+ of the Costs of a Corrugated Sheet U.S. Corrugated Sheet Costs by Cost Type, 2019 Paper Cost Chemicals & Supplies Energy Labor Materials Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 6 …but what might not be so obvious… © 2019 Fisher International, Inc. $100 $200 $300 $400 $500 $600 $700 $800 Global Containerboard Markets? About American Corrugators CareWhy Should Latin $- ene-07 may-07 sep-07 ene-08 may-08 sep-08 ene-09 may-09 Region by to2018 Kraftliner Prices2007 sep-09 ene-10 may-10 Source: Source: Fisher sep-10 ene-11 may-11 © 2019 Fisher © 2019 International, Fisher Inc. Solve Solve sep-11 Next ene-12 Latin America Latin ™ may-12 © 2019 Fisher 2019 © International, Fisher Inc. sep-12 ene-13 may-13 sep-13 ene-14 may-14 sep-14 ene-15 may-15 sep-15 ene-16 may-16 sep-16 ene-17 may-17 sep-17 ene-18 may-18 8 sep-18 $100 $200 $300 $400 $500 $600 $700 $800 $900 Global Containerboard Markets? About American Corrugators Care Why Should Latin $- ene-07 may-07 sep-07 ene-08 may-08 sep-08 ene-09 may-09 Region by to2018 Kraftliner Prices2007 sep-09 ene-10 may-10 Source: Source: Fisher sep-10 Latin America Latin ene-11 may-11 © 2019 Fisher © 2019 International, Fisher Inc. Solve Solve sep-11 Next ene-12 ™ may-12 © 2019 Fisher 2019 © International, Fisher Inc. sep-12 ene-13 North North America may-13 sep-13 ene-14 may-14 sep-14 ene-15 may-15 sep-15 ene-16 may-16 sep-16 ene-17 may-17 R = 0.88 sep-17 ene-18 may-18 9 sep-18 $100 $200 $300 $400 $500 $600 $700 $800 $- Global Containerboard Markets? About American Corrugators Care Why Should Latin ene-07 may-07 sep-07 ene-08 may-08 sep-08 Region Global KraftlinerPrices2007to2018by ene-09 may-09 sep-09 ene-10 may-10 Source: Source: Fisher sep-10 ene-11 Europe may-11 © 2019 Fisher © 2019 International, Fisher Inc. Solve Solve sep-11 Next ene-12 ™ may-12 © 2019 Fisher 2019 © International, Fisher Inc. sep-12 Latin America Latin ene-13 may-13 sep-13 ene-14 may-14 sep-14 ene-15 may-15 sep-15 ene-16 may-16 sep-16 ene-17 may-17 R = 0.57 sep-17 ene-18 may-18 10 sep-18 $100 $200 $300 $400 $500 $600 $700 $800 Global Containerboard Markets? About American Corrugators Care Why Should Latin $- ene-07 may-07 sep-07 ene-08 may-08 sep-08 Region Global KraftlinerPrices2007to2018by ene-09 may-09 sep-09 ene-10 may-10 Source: Source: Fisher sep-10 ene-11 Asia PacificAsia may-11 © 2019 Fisher © 2019 International, Fisher Inc. Solve Solve sep-11 Next ene-12 ™ may-12 © 2019 Fisher 2019 © International, Fisher Inc. sep-12 ene-13 Latin Latin America may-13 sep-13 ene-14 may-14 sep-14 ene-15 may-15 sep-15 ene-16 may-16 sep-16 ene-17 may-17 R = 0.92 sep-17 ene-18 may-18 11 sep-18 $600 $700 $800 $900 $100 $200 $300 $400 $500 Connected Are Well Linerboard MarketDynamics Globally, $- ene-07 may-07 Worldwide events impact the business of ACCCSA members ACCCSA events impact the businessWorldwide of sep-07 ene-08 may-08 Global Kraftliner Prices 2007 to 2018 by Region Global KraftlinerPrices2007to2018by Asia Pacific sep-08 ene-09 may-09 sep-09 ene-10 may-10 Source: Source: Fisher Europe sep-10 ene-11 © 2019 Fisher © 2019 International, Fisher Inc. may-11 Solve Solve sep-11 Next Latin America Latin ene-12 ™ © 2019 Fisher 2019 © International, Fisher Inc. may-12 sep-12 ene-13 may-13 sep-13 Middle East Middle ene-14 may-14 sep-14 ene-15 may-15 North AmericaNorth sep-15 ene-16 may-16 sep-16 ene-17 may-17 sep-17 ene-18 may-18 12 sep-18 Facts about the global containerboard market © 2019 Fisher International, Inc. What Grades Make Up “Containerboard”? Global Containerboard Capacity by Finished Product Linerboard Corrugated Medium Bleached Kraftliner Kraftliner Recycled Corrugating Medium Recycled Liner Recycled White Top Liner Virgin Corrugating Medium White Top Kraftliner Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 14 What Types of Fiber Are Containerboard Made From? Global Containerboard Capacity by Grade by Furnish Linerboard Corrugated Medium Chemical Mechanical Recycled Other Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 15 Where Is Containerboard Made? The largest markets are Asia, North America, then Europe Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 16 Where Is Containerboard Made? Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 17 Where Is Virgin Liner and Medium Made? However, virgin linerboard is made where the fiber is Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 18 Two Big Cycles in the History of Global Containerboard Capacity Global Containerboard Capacity by Capacity Build Year Africa Asia Pacific Europe Latin America Middle East North America Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 19 The Capacity Boom in Asia Has Made it the World’s Largest Containerboard Market Global Capacity Evolution by Region by Year Asia Pacific Europe Latin America Middle East North America Asia now has ~50% of the world’s containerboard supply Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 20 Worldwide, Containerboard Consumption Grows Closely with Wealth (GDP / Person) 110 Taiwan Austria 100 Germany South Korea 90 United States 80 Japan Australia 70 Netherlands Poland 60 Spain Canada Thailand China 50 Italy France 40 Turkey Production/Capita (kg) Production/Capita Malaysia 30 Saudi Arabia South Africa Russia Mexico United Kingdom 20 Indonesia Brazil Argentina 10 Vietnam Egypt India GDP-PPP/Capita (USD) 0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 As countries GDP grows, so does containerboard demand Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 21 Globally, There Are 960 Companies that Make Containerboard – The Top 5 Account for 21% Global Containerboard Capacity Share by Company Worldwide, containerboard is a fragmented market Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 22 Global Containerboard Supply Is Most Consolidated in North America; Least in Asia (But That Will Change, Soon) Global Containerboard Capacity by Company, by Region Companies with less than 1% capacity share Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 23 $100 $200 $300 $400 $500 $600 $700 $800 $- Connected Well Are Linerboard and Medium Dynamics Globally, feb-07 jun-07 oct-07 feb-08 jun-08 oct-08 feb-09 Global LinerandMediumPrices2007to2018 jun-09 oct-09 feb-10 jun-10 Source: Source: Fisher oct-10 Corrugated Medium Corrugated feb-11 jun-11 © 2019 Fisher © 2019 International, Fisher Inc. Solve Solve oct-11 Next feb-12 ™ jun-12 © 2019 Fisher 2019 © International, Fisher Inc. oct-12 feb-13 jun-13 Linerboard oct-13 feb-14 jun-14 oct-14 feb-15 jun-15 oct-15 feb-16 jun-16 oct-16 feb-17 jun-17 oct-17 feb-18 jun-18 24 oct-18 Containerboard manufacturing costs © 2019 Fisher International, Inc. Fiber, Followed by Energy, Labor, and Materials, Are the Largest Drivers of Containerboard Costs Global Average Cost Structure of Containerboard Producers Raw Material Fiber Pulps Chemicals Energy Labor Materials Overhead Credits Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 26 Though Costs Can Vary Widely by Region, Country (and Company, Even) Global Container Cost Curve by Region, 2019 Q1 Region Africa Asia Pacific Europe Latin America Middle East North America Source: Fisher©Solve 2019 Next Fisher™ © International, 2019 Fisher Inc.International, Inc. 27 A word about cost curves and their importance– a trip back to your Economics class © 2019 Fisher International, Inc. In Classical Economics, the Price is Determined by the Intersection of Supply and Demand Demand Supply Price (or Cost) Quantity © 2019 Fisher International, Inc.