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Outlook for Asian Containerboard Markets
Beth Lis
VP, Asian Paper & Packaging
2020 | Fastmarkets | Outlook for Asian Containerboard Markets
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2
Agenda
2019 | Fastmarkets | Global Containerboard and Boxboard Outlook
• Economic overview
• Chinese containerboard demand
and supply outlook
• Developments and outlook for
Asia excluding China
• Risks and conclusions
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Pace of economic recovery varies across Asia with China leading the pack
CHINA’S ECONOMIC RECOVERY
UNDERWAY AND GAINING MOMENTUM
• Seeing gradual revival led by supply side and from
infrastructure investment and government
spending
• Exports stronger than anticipated
• Initially aimed at maintaining employment with
less consumer stimulus than other countries
INDICATIONS OF IMPROVEMENTS IN
CONSUMER SPENDING AND SERVICE
SECTOR ACTIVITY
• Optimism is growing
2020 | Fastmarkets | Outlook for Asian Containerboard Markets 3
35
38
41
44
47
50
53
56
59
62
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Jan 2
01
9
Fe
b 2
019
Mar
2019
Apr
2019
May 2
019
Jun 2
01
9
Jul 20
19
Aug
20
19
Sep
20
19
Oct 2
019
Nov 2
019
Dec 2
019
Jan 2
02
0
Fe
b 2
020
Mar
2020
Apr
2020
May 2
020
Jun 2
02
0
Jul 20
20
Aug
20
20
Sep
20
20
Retail sales (YoY) Industrial production (YoY) Exports (YoY) PMI
Source: National Bureau of Statistics
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Recovery in other parts of Asia on varying paths
ECONOMIES WITH BETTER CONTROL OF COVID-19
OUTPERFORMING THOSE THAT ARE STRUGGLING
• Dependency on the service industry and tourism for growth
is another factor causing variability
• India, Indonesia and Thailand faring the worst while South
Korea, Taiwan and Vietnam relatively better
2020 | Fastmarkets | Outlook for Asian Containerboard Markets 4
-40%
-30%
-20%
-10%
0%
10%
20%
Jan 1
9
Fe
b 1
9
Mar
19
Apr
19
May 1
9
Jun 1
9
Jul 19
Aug
19
Sep
19
Oct 1
9
Nov 1
9
Dec 1
9
Jan 2
0
Fe
b 2
0
Mar
20
Apr
20
May 2
0
Jun 2
0
Jul 20
Aug
20
Sep
20
Retail salesPercentage change year-over-year
China IndonesiaSouth Korea TaiwanJapan ThailandVietnam
PATH OF RECOVERY WILL DEPEND ON SEVERAL
FACTORS
• Effectiveness of stimulus undertaken by governments
• Ability to bring spread of COVID-19 under control and
contain flare-ups
• Linkages to China’s supply chain and recovery
-80%
-60%
-40%
-20%
0%
20%
40%
Jan 1
9
Fe
b 1
9
Mar
19
Apr
19
May 1
9
Jun 1
9
Jul 19
Aug 1
9
Sep 1
9
Oct 1
9
Nov 1
9
Dec 1
9
Jan 2
0
Fe
b 2
0
Mar
20
Apr
20
May 2
0
Jun 2
0
Jul 20
Aug 2
0
Sep 2
0
Industrial productionPercentage change year-over-year
China IndonesiaSouth Korea TaiwanJapan ThailandMalaysia Vietnam
-
5
2.9% 2.3%
-4.4%
4.0%2.8%
2018 2019 2020 2021 2022
USA
1.9% 1.2%
-8.0%
5.1%2.0%
2018 2019 2020 2021 2022
Europe
0.3% 0.7%
-5.8%
2.4% 1.5%
2018 2019 2020 2021 2022
Japan
Economic outlook deteriorated as
COVID-19 extended its reach
6.6% 6.2%
2.3%
8.0%
5.6%
2018 2019 2020 2021 2022
China
Pandemic brought global economic
activity to a halt
▪ China
o COVID-19 hurt economy early, with Q1 falling 6.8%
(YoY), but bounced back 3.2% in Q2 and 4.9% in
Q3
o Momentum may be building, but some concerns
▪ Japan
o Already hurt by consumption tax implemented late
in 2019
▪ India
o Already losing momentum due to weak investment
and sluggish industrial activity
o Lockdown through early May devastated the
economy, but now mounting gradual recovery
▪ Southeast Asia
o Weakening conditions across the region
o Stimulus packages announced with varying degrees
of cash handouts, business support and tax cuts
2020 | Fastmarkets | Outlook for Asian Containerboard Markets
6.8%5.0%
-9.5%
10.0%
6.0%
FY2018 2019 2020 2021 2022
India
5.1% 4.5%
-2.6%
6.2%4.9%
2018 2019 2020 2021 2022
Southeast Asia
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Global containerboard demand is dominated by Asia
North America
18%
Latin America
8%
Europe21%China
28%
Other Asia20%
All other5%
2020 | Fastmarkets | Outlook for Asian Containerboard Markets
GLOBAL DEMAND REACHED 171 MILLION TONNES
IN 2019, WITH ASIA ACCOUNTING FOR 83 MILLION
TONNES
6
China58%
Japan11%
South Korea, Taiwan,
Hong Kong SAR8%
Southeast Asia14%
India7%
Other2%
CHINA ACCOUNTED FOR 58% OR 48 MILLION
TONNES OF ASIA’S TOTAL
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Snapshot of Chinese containerboard market: Weak demand and plenty of supply in 2020
Chinese containerboard markets have been on a roller coaster ride in 2020
• Demand already dropped in 2018-2019
Attributed to weaker economy, plastics substitution and use reduction
But really driven by RCP constraints
• Early this year, demand was affected by lockdowns but gradually
came back as activity levels picked up
Definite support from e-commerce, online food delivery
Exports better than once anticipated
Potential supplies have been ample
• Rising capacity, but domestic supplies still being affected by fiber
availability
• Imports available and climbing
2020 | Fastmarkets | Outlook for Asian Paper and Board Markets 7
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Chinese containerboard demand projected to fall 2% in 2020
2020 | Fastmarkets | Outlook for Asian Paper and Board Markets 8
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
44
45
46
47
48
49
50
51
52
2015 2016 2017 2018 2019 2020 2021 2022
BROADLY, GROWTH AFFECTED BY
• Sluggish consumer expenditures due to rising
job losses, reduced wages and uncertainty
• Reduced exports due to global recession
o Exports accounted for 18.4% of GDP in
2019, according to World Bank data
o Doing better than once expected due to
PPE and electronics exports to support at-
home school and work in other parts of
world
• E-commerce
• Competition with plastics
DEMAND PREDICTED TO POST SOLID
RECOVERY IN 2021-2022
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Snapshot of containerboard markets in rest of Asia: COVID-19 has dramatically changed the outlook
Japan off sharply, but South Korea and Taiwan holding up remarkably well
• Japan already affected by rise in consumption tax, COVID-19 has made situation worse
• South Korea and Taiwan supported by growth in electronics demand and relatively good
control of the virus
2020 | Fastmarkets | Outlook for Asian Containerboard Markets 9
Southeast Asia is a mixed bag, but seeing softening in demand
• Vietnam and Malaysia doing okay, while Indonesia, the Philippines and
Thailand struggle
• Negative impact on segments like beverages, electronics and
automotive sectors, but food and e-commerce offering some support
India hit hard as lockdown halts activity, consumers still hesitant even after reopening
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Demand growth in rest of Asia will be sharply lower in 2020
2020 | Fastmarkets | Outlook for Asian Containerboard Markets
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2016 2017 2018 2019 2020 2021 2022
Japan South Korea, Taiwan and HK SAR
Southeast Asia India
Other Total percentage change
CONTAINERBOARD DEMAND IN
ASIA EXCLUDING CHINA PREDICTED
TO FALL 7% IN 2020
• Second quarter will be the worst, followed
by a slow, gradual recovery in second half
LOCKDOWNS THROUGHOUT THE
REGION SPARING NO ONE
• Global recession translates to bleak
outlook for export-oriented economies
• Flare-ups inhibiting service sector and
consumption
REBOUND IN 2021-2022 AS
ECONOMIES GRADUALLY RECOVER
10
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Asian containerboard demand loss in 2020 will be unprecedented
-4%Significantly worse than global
economic crisis of 2008-2009
-3.2 MT0.85 MT loss for China and 2.3
MT loss for rest of Asia
5% per yearRebound in 2021-2022 for
combined increase of 7.5 MT
-12%
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
Thousa
nd t
on
ne
s
China tonnage change Rest of Asia tonnage change %ch China %ch Rest of Asia
2020 | Fastmarkets | Outlook for Asian Containerboard Markets 11
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New RCP policies are changing how companies operate
Constrained fiber supplies in China driving up containerboard imports and reducing production• Benefitting exports by other Asian suppliers
Many companies are making investments in light of the new policies• Policy changes initially caused delays in Chinese projects, but seeing wave of projects in
late 2019 and 2020
• Numerous containerboard projects in the works in Asia outside of China in 2020-2022
• New investments in wood pulp capacity in China and RCP pulp outside China
Other Asian countries also imposing new RCP policies• Ban on mixed paper in India
• Greater scrutiny in Indonesia, Vietnam and Taiwan
2020 | Fastmarkets | Outlook for Asian Containerboard Markets 12
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Chinese linerboard imports climbing again in 2020
2019 | Fastmarkets | Asian Containerboard Markets
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50
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Jul 2017
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Jul 2018
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Jul 2019
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b 2
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2020
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2020
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02
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Jul 2020
Aug 2
020
Sep 2
020
Asia North America Western Europe Oceania Other
13
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Chinese corrugating medium imports also soaring
2019 | Fastmarkets | Asian Containerboard Markets
0
50
100
150
200
250
300
350
400
450
500
Jan-2
017
Fe
b-2
017
Mar-
201
7
Apr-
2017
May-2
017
Jun-2
017
Jul-2017
Aug-2
017
Sep-2
017
Oct-
2017
Nov-2
017
Dec-2
017
Jan-2
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b-2
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Mar-
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8
Apr-
2018
May-2
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Jun-2
018
Jul-2018
Aug-2
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Sep-2
018
Oct-
2018
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Apr-
2019
May-2
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Jul-2019
Aug-2
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Sep-2
019
Oct-
2019
Nov-2
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Dec-2
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Jan-2
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b-2
020
Mar-
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0
Apr-
2020
May-2
020
Jun-2
020
Jul-2020
Aug-2
020
Sep-2
020
Asia North America Western Europe Other
14
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Changing trade patterns for containerboard in AsiaThousand tonnes
2020 | Fastmarkets | Outlook for Asian Containerboard Markets 15
0
2,000
4,000
6,000
8,000
10,000
12,000
2016 2017 2018 2019 2020 2021 2022
Chinese imports
Asia North America Western Europe Oceania Other
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2016 2017 2018 2019 2020 2021 2022
Asia excluding China imports and exports
Imports Exports
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Chinese capacity: Rising or falling?Change in million tonnes
2019 | Fastmarkets | Asian Containerboard Markets
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
-3
-2
-1
0
1
2
3
4
5
6
7
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Demand Capacity Tracked Operating rate
DESPITE THE NEW RCP POLICIES, NEW
MACHINES ARE STILL COMING ON
• The list of announced projects is long
• Initially many were delayed, but 28 projects
started or are slated to start in second half of
2019 and 2020 (total of about 9 million tonnes)
• Another seven projects (2.5 million tonnes)
look set to start in 2021
TRACKED INCREASES ARE BEING
OFFSET BY ASSUMED CLOSURES
• Otherwise, operating rates would be even
lower than shown
16
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Operating rates in Asia excluding China retreating from 2018 peak
2020 | Fastmarkets | Outlook for Asian Containerboard Markets
80%
82%
84%
86%
88%
90%
92%
94%
96%
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Demand Capacity Net exports Operating rate
SUBSTANTIAL AMOUNT OF CAPACITY
ON TAP
• Numerous containerboard projects in the
works in Asia outside of China in 2020-2022
• Conversions of graphic paper capacity
• Projects intended to feed rising demand
across the region
PROJECTS INCLUDE
• Five projects with 3.6 million tonnes of
capacity by Chinese producers
• 15 projects with 3.7 million tonnes of capacity
by non-Chinese suppliers (excluding India)
NET EXPORTS EXPANDING SHARPLY
BUT NOT ENOUGH TO OVERCOME
WEAK LOCAL DEMAND IN 2020
17
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Key takeaways
Asian markets are oversupplied and operating
rates have collapsed
01
2020 | Fastmarkets | Outlook for Asian Containerboard Markets
02
03
04
18
There are robust capacity expansion plans in
every world region
Asian containerboard demand will fall sharply
in 2020, before rebounding in 2021-2022
Level of uncertainty is high as fears of a
recurrence remain, hampering true recovery
until vaccine can provide more confidence