Outlook for Global Recovered (RCP or PfR) Markets · India, Thailand, Vietnam and Indonesia • Fast‐growing demand and relatively low paper recovery rates • Suppliers Western

Outlook for Global Recovered Paper (RCP or PfR) Markets

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Kurt SchaeferVP, Fiber

Hannah ZhaoSenior Economist, Recovered Paper

European ConferenceMarch 2017

PMIs Booming in China and GloballyOfficial (China), Caixin (China) and Global PMIs

2© Copyright 2017 RISI, Inc. | Proprietary Information

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Official Caixin Global

Official PMI: State-Owned Enterprises, Caixin PMI: Small and Medium-sized Enterprises, Global PMI Source: World Bank Global Economic Monitor

Sharp OCC Reversal GloballyOCC Import/Export Prices

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50

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06 07 08 09 10 11 12 13 14 15 16 17

US Dollars per Ton

ne

OCC China Import (CIF) OCC US West Export (FAS)

OCC N. German Export (FAS) OCC N. German Export in €

• Surging OCC prices in last few months, in line with PMIs

• Price increase in Europe was slower than in China and North America because Europe is less dependent on exports


Sharp OCC Reversal Globally (Cont.)Domestic OCC Prices

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06 07 08 09 10 11 12 13 14 15 16 17

USA ‐ $/Tonne (L) German ‐ €/Tonne (L)

German ‐ $/Tonne (L) Chinese ‐ RMB/Tonne (R)

• Surging domestic prices in China and USA in 4Q16 and 1Q17 vs. relatively stable prices in Europe

• Much higher starting points for European OCC prices (compared to US and Chinese prices)

• Sharp devaluation of Chinese renminbi against US dollar

• Lower‐than‐expected US supply during the winter holiday season because of the “Amazon effect”

• Increasing transportation and labor costs for Chinese domestic RCP suppliers

• Strong rise in paper and board prices in China


The “Amazon Effect” on Corrugated Demand and OCC Supply Is Growing


Multiple boxes, household collection stream

Chinese Containerboard and OCC Prices: An Upward Spiral

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Renm

inbi per Ton

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Testliner Price in East China

Chinese Domestic OCC Price

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• Surge in capacity closures tightened Chinese paper and board markets and pushed paper prices up strongly in the second half of 2016

• Positive feedback loop: higher testliner prices and higher OCC prices have been supporting each other on their way up

Global ONP Market Also Posting Gains, After Years of Stability

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06 07 08 09 10 11 12 13 14 15 16 17

China Import ‐ $/Tonne

German ‐ $/Tonne

German ‐ €/Tonne

USA ‐ $/Tonne


• Similar to OCC, US and Chinese ONP markets were much stronger than Europe in last few months

• The strong pricing in 2016 was caused mainly by the constrained supply due to the continuous fall in newsprint consumption

• ONP demand from recycled cartonboard sector was healthy

• Prices for recycled cartonboard also jumped significantly in China

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OtherAsiaWestern EuropeNorth America

Falling Newsprint ConsumptionCan global ONP supply meet the demand from paper and board industry and other sectors?


Global “High Grades” Market Seeing More Mixed Development

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06 07 08 09 10 11 12 13 14 15 16 17

China IM SOP ‐ $/tonne

German 310 ‐ $/tonne

US SOP ‐ $/tonne

German 310 ‐ €/tonne


• Prices for high grades also rebounded in China and USA in 2016 due mostly to the limited supply (falling P&W consumption)

• Chinese imports of US high grades increased significantly by 20%

• European markets were fairly stable

World Tissue Output Trending Opposite of P&W Paper Consumption

• Falling P&W paper consumption means shrinking supply of recycled high grades

• Growing tissue production Healthy demand for

high grades, despite the slight drop in recycled fiber furnish share in the world tissue sector


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P&W Consumption (L) Tissue Production (R)

Domestic RCP Strong in W. EuropeDomestic Demand vs. Net Exports

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Domestic Demand Net Exports Recovery Rate (R)Net Export Share

2000: 6%

2004: 11%

2008: 16%

2012: 16%

2014: 14%

2015: 15%

2016: 15%

• European net exports dropped in 2016 despite the weak euro and British pound• Strong domestic demand from the recycled paper packaging sector was the major

factor supporting the strong European RCP market in 2016• Very high recovery rates constrained supply and also helped tighten the market


China RCP Imports: Changing Sources 2016/2015

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Percen

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• Chinese imports decreased by 3% in 2016 thanks to improving domestic collection

• Chinese imports from W. Europe increased only marginally even with the help of weak euro and British pound because strong domestic demand left limited volume available to be exported from Europe


Chinese RCP: Rising Domestic SupplyDomestic Collection vs. Imports


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Million Tonn

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Net ImportsDomestic CollectionApparent Recovery Rate (R)Import Share (R)

Import Share

1995: 10%

2000: 20%

2005: 49%

2009: 44%

2013: 39%

2015: 38%

2016: 36%

• China has been trying hard to improve its domestic collection, but is still far from being self‐efficient in terms of RCP, and Chinese imports still play a critical role in global RCP markets

US RCP Exports: Changing Destination 2016/2015

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• Total US exports showed no change in 2016

• US exports to China dropped by 3% in 2016, with most of the drop being posted in the first half of 2016

• US exports to most other Asian countries and Mexico increased significantly


US RCP Market: Recovery Rate RisingDomestic Demand vs. Net Exports

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Domestic DemandNet ExportsRecovery Rate (R)

Net Export Share

2000: 22%

2004: 27%

2008: 36%

2012: 41%

2014: 39%

2015: 40%

2016:40%


• Net exports took about 40% of total US RCP collection, much higher than the share for Europe. So, the US RCP market has been and will continue to be significantly impacted by the export sector.

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“Other Asia” RCP Demand RisingDomestic Collection vs. Imports


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Domestic RecoveryNet ImportsRecovery Rate

• Net imports rose again in 2016, together with growing demand from India, Vietnam, Thailand and other developing countries in this region

• The less efficient recycling systems in these countries means that they will import more RCP in the future

Net Import Share 2000: 29%2010: 18%2015: 18%2016: 19%

World RCP Markets in 2017‐2018

• Western Europe RCP demand will remain strong in 2017‐2018 Expanding containerboard output and increasing recycled capacity will be the major driving factor for more RCP usage• About 800,000 tonnes of recycled

containerboard capacity started up in 2016• 2.5 million tonnes of new recycled capacity is

scheduled to come on stream in 2H17 Developments of other PAB sector, however, will limit the total RCP consumption increase


Western European PAB Production and RCP Usage Rate

0.44

0.46

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Million Tonn

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Newsprint P&W Containerboard Tissue Other RCP Usage Rate (R)


• Growing containerboard and cartonboard output and gradually rising RCP usage rate will keep European domestic demand strong


• Asian demand China

• Higher environmental standard → more capacity closures and consolidation in paper and board industry → growing RCP usage

• Continued expansion in recycled containerboard capacity

• Beijing has been trying hard to improve the domestic paper recycling system

• Regulation– Control on RCP imports will continue, on both quality and quantity



• Asian demand Other Asia

• Faster PAB output and RCP demand growth than China, especially in the emerging economies

• Paper packaging sector will post major RCP consumption gain

• More than 2 million tonnes of new recycled containerboard capacity to be added in 2017‐2018, mostly in Vietnam, Indonesia, Thailand and India


International Trade

• China will continue to import a lot of RCP Slowing but still growing RCP demand Domestic collection growth

• Growing e‐commerce – More packaging materials circulated and collected domestically

• Domestic RCP– Improving quality, better control and stable supply

• Potential support from governments

Beijing will continue to control RCP imports, both quality and quantity


International Trade• New big importers: Other Asia India, Thailand, Vietnam and Indonesia

• Fast‐growing demand and relatively low paper recovery rates

• Suppliers Western European exports are likely to decline due to the strengthening domestic demand North America may export more RCP

• Still relatively low recovery rates and growing PAB consumption

Japan and Oceania will see little export increase• Already very high recovery rates


OCC/UKP Market Analysis and Outlookwww.risiinfo.com/occ‐ukp

Outlook for Global Recovered Paper Marketswww.risi.com/recoveredpaper

The China Recovered Paper Market: A Comprehensive Analysis and Outlook www.risi.com/chinarcp

World Pulp and Recovered Paper 5‐Year & 15‐Year Forecastswww.risi.com/WPRP5www.risi.com/WPRP15

World Recovered Paper Monitorwww.risi.com/wrpm

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Outlook for Global Recovered (RCP or PfR) Markets · India, Thailand, Vietnam and Indonesia • Fast‐growing demand and relatively low paper recovery rates • Suppliers Western