Fastmarkets RISI MENA Containerboard Market Outlook Forces shaping the containerboard industry Abdulla Zaid Economist, Paper Packaging All forecasts and statistics contained in this presentation are based on public information and Fastmarkets RISI proprietary market analysis. 2019 | Fastmarkets | MENA Containerboard Market Outlook 1
Agenda • Paper packaging overview • Containerboard trends • Recycled demand outlook • Recycled supply outlook • Market overview and costs 2019 | Fastmarkets | MENA Containerboard Market Outlook 2
Paper packaging growth outlook 10% Early movers Expansion 8% Paper packaging grades Containerboard 6% 4% Containerboard: 56% CAGR (2014 - 2018) Boxboard Boxboard: 30% 2% Kraft and specialty paper: 0% 14% Infancy Saturated -2% Kraft and specialty paper -4% -6% Substitution effect -8% Income effect -10% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Consumption (thousand tonnes) 2019 | Fastmarkets | MENA Containerboard Market Outlook 3
Where are we in the business cycle? • Deceleration in the global economy • Containerboard demand slowing • Markets becoming oversupplied 2019 | Fastmarkets | MENA Containerboard Market Outlook 4
Growth potential is strong Containerboard regional demand 100 North America Latin America 90 Europe Sub-Saharan Africa Oceania Far East Asia 80 World MENA 70 Kilograms per capita Kilograms per capita 60 50 40 30 Substitution effect 20 10 Income effect 0 12 kg lower than global, 0 10,000 20,000 30,000 40,000 50,000 60,000 Latin American and Far GDP per capita East Asian averages 2019 | Fastmarkets | MENA Containerboard Market Outlook 5
Demand outlook is different within MENA Containerboard regional demand Top performers 50 Saudi Arabia United Arab Emirates 45 Egypt GCC 1. Israel : 48 kg / person 40 North Africa Other Middle East 2. UAE : 41 kg / person 35 Kilograms per capita 3. Saudi Arabia : 26 kg / 30 person 25 . . 20 . 15 12. Egypt : 9 kg / person Substitution effect 10 Substitution effect 5 Income effect Income effect 0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 GDP per capita 2019 | Fastmarkets | MENA Containerboard Market Outlook 6
MENA containerboard substrates Kraftliner Furnish not less than 80% chemical pulp 526,000 tonnes, 12% of total containerboard demand 12% Recycled liner Furnish less than 80% chemical pulp 35% 2 million tonnes, 47% of total containerboard demand Semichemcial medium Contains semichemical pulp, neutral sulphite semichemical pulp 215,000 tonnes, 5% of total containerboard demand 47% 5% Recycled medium Produced using mostly recycled fibers 1.5 million tonnes, 35% of total containerboard demand Kraftliner Recycled liner Semichemical medium Recycled medium 2019 | Fastmarkets | MENA Containerboard Market Outlook 7
An accelerating trend to replace virgin with recycled Containerboard demand and substrates 5,000 88% 4,500 86% 4,000 84% 3,500 Thousand tons 82% 3,000 80% 2,500 78% Million tonnes 2,000 76% 1,500 74% 1,000 72% 500 0 70% Total tonnage growth in 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 apparent consumption Kraftliner Recycled liner Semichemical medium Recycled medium Recycled share between 2019 and 2021 2019 | Fastmarkets | MENA Containerboard Market Outlook 8
A deep dive into recycled demand outlook 9 2019 | Fastmarkets | MENA Containerboard Market Outlook
Imports still provide headwinds for domestic producers of recycled linerboard Imports and domestic production as shares of demand Imports share of demand 2,500 45% 32% 40% 2,000 35% 30% Thousand tonnes Import waves in 2012 and 1,500 25% 2016 20% Expected import wave in 2020 : 1,000 Imports share of demand = 15% 40% 10% 500 5% 0 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Imports Domestic production Imports share (R) 2019 | Fastmarkets | MENA Containerboard Market Outlook 10
Europe dominates the MENA imports market for recycled linerboard European share of imports 800 90% 700 600 European exports account for an average of 91% of MENA Thousand tonnes 500 imports from 2008-2018 400 Asian exports maintained an average of 7% 300 200 100 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Asia Rest of world Europe 2019 | Fastmarkets | MENA Containerboard Market Outlook 11
The lion’s share of MENA recycled liner imports in 2016 came from Spain Spanish share of European imports 800 48% 700 600 Spanish recycled liner exports to 500 Thousand tonnes MENA reached 330,000 tonnes in 2016, or 48% of European 400 LNR exports to MENA 300 Polish recycled liner exports to MENA peaked in 2016 at 61,000 200 tonnes, or a 9% share 100 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Spain Poland Italy Belgium Germany Turkey Rest of Europe 2019 | Fastmarkets | MENA Containerboard Market Outlook 12
Brace yourselves for another import wave 13 2019 | Fastmarkets | MENA Containerboard Market Outlook
Weak European demand and growing capacity signal acceleration in recycled liner net exports European capacity-demand gap growth (2019-2021) 1,400 1,200 6.4% 1,000 800 Thousand tonnes European capacity will grow faster than demand (2.8% vs 600 3.3%) annually 400 Weak European demand 200 should widen demand-capacity gap and increase recycled 0 liner net exports 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 -200 A portion of the European exports will find its way to the -400 MENA markets Change in European capacity Change in European demand Change in European net exports 2019 | Fastmarkets | MENA Containerboard Market Outlook 14
Musical chairs dynamic: unloading excess recycled liner tonnage during weak European demand environment When growth music stops 900 2.0 European market condition 1.8 800 index gives indication of 1.6 market strengthening and 700 weakening (2008 = 1.0) 1.4 600 Thousand tonnes Weak recycled liner demand 1.2 2008 = 1.0 500 and oversupply in Europe are 1.0 the catalyst of MENA market 400 0.8 volatility 300 0.6 200 0.4 Excess MENA imports 100 0.2 0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 European recycled liner exports to MENA European recycled liner market condition index (R) 2019 | Fastmarkets | MENA Containerboard Market Outlook 15
Algeria and Saudi Arabia absorbed most of the European recycled exports Less than 15,000 tonnes / year 15,000–50,000 tonnes / year 50,000–100,000 tonnes / year More than 100,000 tonnes / year 2019 | Fastmarkets | MENA Containerboard Market Outlook 16
GCC-TSAIP antidumping investigation and results: reshaping MENA trade outlook Grades under investigation HS Code Definition Result: GCC antidumping duties? 48041100 Kraftliner, uncoated, unbleached, rolls/sheets No Kraftliner 48041900 Kraftliner, uncoated, bleached, rolls/sheets No 48043100 Kraft paper uncoated, unbleached, wt nov 150 g/m², NESOI No 48043900 Kraft paper, uncoated, bleached, wt nov 150 g/m², NESOI No Kraft and specialty paper Kraft paper/paperboard, uncoated, unbleached, wt 150 g/m² or 48044100 No ov, nov 225 g/m², rolls/sheets, NESOI Semichemical fluting paper (corrugating medium), uncoated, Semichemical medium 48051100 YES rolls/sheets Fluting paper of recycled liner board weighing YES, except fluting paper of recycled liner 48051910 150 g/m² or less board weighed less than 105 g/m² Fluting paper, NESOI, weighing over 150 g/m², uncoated, in Recycled medium 48051920 YES rolls/sheets, 48051990 Other fluting paper YES Testliner, uncoated, wt nov 150 g/m², rolls/sheets, spec ch48- YES, except testliner paper of recycled liner 48052400 note3 board weighed less than 105 g/m² Testliner Testliner, uncoated, wt ov 150 g/m², rolls/sheets, spec ch48- 48052500 YES note4 2019 | Fastmarkets | MENA Containerboard Market Outlook 17
Final dumping margin as a percentage of the CIF value Country Company Final dumping margin Sociedad Anonima Industrias Celulosa Aragonesa (SAICA) 24.6% Spain Other companies 31% Poland All companies 34% 2019 | Fastmarkets | MENA Containerboard Market Outlook 18
Resurfacing: Supply outlook & market overview 2019 | Fastmarkets | MENA Containerboard Market Outlook 19
European imports are the main driver in MENA production volatility Recycled containerboard production, capacity and operating rates Average operating rate (2019-2021) 2,500 85% 68.8% 2,000 80% Capacity growth is expected to surpass demand, leading to Thousand tonnes 1,500 75% lower operating rates Imports are expected to 1,000 70% increase its share of demand from 31% in 2018 to 41% in 2020, providing further 500 65% downward pressure on operating rates 0 60% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Capacity Production Operating rates (R) 2019 | Fastmarkets | MENA Containerboard Market Outlook 20
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