What Do China s Paperboard Demand Growth and Macro Outlook Indicate for Waste Paper Demand?

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1 What Do China s Paperboard Demand Growth and Macro Outlook Indicate for Waste Paper Demand? Han Yao Economist, Asian Paper Packaging RISI Asia September 23,

2 Quick Bio Direct RISI s Asian Paper Packaging Service, including monthly and quarterly analytical and forecast reports focused on containerboard and boxboard sectors Principal author of RISI's China Boxboard Study: Digging One Layer Deeper, Indonesian Packaging Paperboard Market Study, as well as the monthly Asian Pulp and Paper Monitor (APPM) Completed/contributed to a number of special studies including World Wrapping Paper Study (2013), World Boxboard Study (2012), China and Thai Paperboard Study (2011), China Packaging Paper Market Study (2011) 2

3 Topics to Cover Grade definitions Paperboard and waste paper intensity analysis: Use of paperboard more correlated with investment or consumption share of GDP? Macro level trends in 2014 so far Containerboard and boxboard market outlook until 2016 Containerboard price and imported OCC indices A few more thoughts 3

4 Containerboard and Boxboard Grade Definitions Virgin Grades KLB: Kraftliner SCM: Semichemical medium IVB: Ivoryboard Recycled Grades RLB: Kraft top liner and testliner WTL: White top liner and white top testliner RCM: Recycled medium or recycled fluting WLC: Coated duplex board URB: Uncoated boxboard grades 4

5 China Leads Asian Demand for Containerboard to Far Surpass Other Regions (2013) China World Total 149 MM Tonnes Up 14% from % 21% 19% 2% 11% Asia Total Europe North America Africa All Other 5

6 Containerboard Demand Versus GDP: Changing Nature of Growth Pattern, E 20% GDP Growth Containerboard (CNT) Growth 15% 10% 5% 0% 6

7 A Closer Look at GDP Composition: Investment and GDP Excluding Investment, % 20% 15% 10% 5% 0% % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Investment(Share of GDP) Investment 线性 (Investment) GDP excl. Investment 线性 (GDP excl. Investment) Source: World Bank 7

8 Investment Induced Growth Path over Last Decade for China s Economy Excessive Corporate Income Investment Capital Stock Household Income 8 Source: IMF WP13

9 Key Scenario: Use of Paperboard More Correlated with Investment or Consumption? Changes in China s Paperboard and Waste Paper Intensities Intensity against GDP(excl. Investment) Paperboard (Containerboard & Boxboard) Total Waste Paper Trend ( ) 1.7% 5.8% *Jump (2009) 6.7% 7.3% Trend ( ) -2.8% -3.1% * Measurement on the impact of the 2009/10 RMB 4 trillion massive stimulus 20% 10% GDP excl. Investment Investment 9 0%

10 China s Official PMI Index Suggests Manufacturing Conditions from August 2013-August 2014 Were Relatively on Par with August 2012-August August 2013-August 2014 August 2012-August 2013 August 2010-August 2011 August 2008-August Month 10

11 Domestic Retail Sales Growth Continues to Moderate Due to Slower Income Growth and Government Efforts to Discourage Conspicuous Consumption 25% 20% 15% 10% 5% 0% Percent, Growth 07 M S 08 M S 09 M S 10 M S 11 M S 12 M S 13 M S 14 M 11

12 China s Consumer Goods Exports Further Accelerate as Leading Indicators Continues to Trend Upward 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Export Growth (Annual % Change, LHS) Composite Leading Indicators: United States (RHS) Composite Leading Indicators: OECD Europe (RHS) 07 M S 08 M S 09 M S 10 M S 11 M S 12 M S 13 M S 14 M

13 Our New Forecast Suggests That Chinese Annual Growth Will Average 2.5% in , Due to Uncertainties in Fulfilling Its Five-Year Plan Target and Rebalancing the Industry Demand Growth-Baseline Scenario High Growth Scenario 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 13

14 China Containerboard Market Balance Will Not Start Improving Any Earlier Than 2015/2016 Growth, Million Tonnes Demand Capacity

15 New Chinese Boxboard Supply (Designed Capacity of Confirmed Expansion Projects) Focused on Virgin Grades Since 2013 Million Tonnes Recycled Grades Virgin Grades F 2016F 15

16 China Containerboard Price and Imported OCC Indices (Base=2000), Kraft Top Liner Corrugating Medium US OCC to China

17 A Few More Thoughts A lack of success in rebalancing China's growth pattern would be among the most serious mediumterm risks for China and the world economy, according to the World Bank Theoretically, excessive investment and capacity only raised output at the time of implementation ( ), with little impact on future growth (2012 and beyond) In other words, some of the end-use consumption growth that boosted paperboard demand in previous years may not have been self-sustaining. 17

18 A Few More Thoughts Will China continue to miss its Five-Year Plan target (medium-term risk)? In 2012, the actual growth in total paper and board from CPA's figure was short by more than 1.3 million tonnes compared to the annual growth target of 4.6% stated in the 12th Five-Year Plan ( ) The gap between the association's figure and target was more than 700,000 tonnes in

19 Thank you for your attention! For more information: Regular Coverage: Asian Paper Packaging 5-Year & 15-Year Forecasts Asian Paper Packaging Capacity Report Asian Pulp & Paper Monitor Han Yao, RISI Asia Phone: (Cell)