North American Containerboard Outlook

1. North American Containerboard Outlook Ken Waghorne Vice President, Paper Packaging August 2013

2. Today’s Agenda • Economic Overview • North American Domestic Demand • Global Trade Issues • Asia • Europe • Latin America • Rest of World • Other Factors Affecting Prices • RISI’s North American Price Projections

3. Global Economy Improving Moderately Annual Real GDP Growth Source: IMF, RISI

4. Emerging Economies Continue to Support Global GrowthGlobal Real GDP* Growth *Measured at purchasing power parity exchange rates Source: IMF, RISI 4

5. US Household Net Worth Almost Back to Pre-Recession Level Index, Starting Quarter = 100 Source: Federal Reserve

6. Housing Momentum BuildingExisting Home Sales and Housing Starts, Thousands of Units Source: NAR, BEA

7. Consumption Growth AcceleratingReal Consumption Expenditure, Annualized Percentage Change; Unemployment Rate Source: BLS, RISI

8. Consumer Spending on Food and Beverages (Billion 2005 Dollars) Was Weak in 2011-2012 8

9. Manufacturing Growth Supporting EconomyIndex of Industrial Production, Jan 2000 = 1.00; PMI

10. Durable Goods Drives ManufacturingIndex of Industrial Production – Durable, Non-Durable Goods, Jan 2000 = 100

11. Low Natural Gas Prices Helping US ManufacturersHenry Hub Natural Gas, West Texas Intermediate Crude Oil, $/MMBtu 11

12. The Declining Merchandise Trade Deficit Should Allow Manufacturing to Grow Faster Than Consumer Spending 12

13. Growth in Industrial Production (Percent) Is Expected to Exceed GDP Growth from 2013 to 2015 13

14. Today’s Agenda • Economic Overview • North American Domestic Demand • Global Trade Issues • Asia • Europe • Latin America • Rest of World • Other Factors Affecting Prices • RISI’s North American Price Projections

15. US Box Market Should Be Poised to Rally • Shipments Fell 13% Between 2007 and 2009 • Steepest Decline for the Market Since the 1970s • Shipments in 2012 were just 4% higher than in 2009 • Far more subdued than the overall growth in manufacturing • But fairly well in line with the performance of nondurable goods • Uneven US economy held shipments flat in the first half of 2013 • But market should accelerate by second half of the year • Shipments should increase 1.6% in 2013 and 3.7% in 2014 • Long-term growth in box shipments will average 1.8% • Containerboard demand should grow at a more moderate 1.2% pace • Shift to lightweight liner will take hold in North America

16. Corrugated Box Shipments Have Been Volatile Since Mid-2012, But the Trend is Relatively Flat Thousand Short Tons Billion Square Feet 16

17. Containerboard Cutup Has Exceeded Box Shipments in 2005, Implying Strong Growth in Non-Box Uses of Corrugated Sheets 17

18. US Box Shipments Tracked Closely with Nondurable Goods Production for Most of 2011-2012 -- Decline in Early 2013 Indicates an Inventory Drawdown BSF per Index Unit 18

19. RISI’s Forecast: Box Shipments Should Recover Strongly Following Soft Patch of Early 2013 Annualized Growth Rate (%) 19

20. Growth in US Containerboard Apparent Consumption Is Expected to Remain Quite Slow Growth, Million Tons 20

21. Today’s Agenda • Economic Overview • North American Domestic Demand • Global Trade Issues • Asia • Europe • Latin America • Rest of World • Other Factors Affecting Prices • RISI’s North American Price Projections

22. Asian Demand for Containerboard Far Surpasses Other Regions (2012)

23. Asian Demand Growth Should Bottom Out in 2012, But the 2013-2014 Recovery Will Be Modest Relative to Trend of the Last 10 Years Annual Change in Million Tonnes 23

24. Chinese Demand Growth Is Expected to Average 2.1 Million Tonnes per Year in 2013-2014 24

25. Asian Containerboard Market Remains Oversupplied in 2013, But the Situation Might Start to Improve in 2014 Growth, Million Tonnes 25

26. Asia Is Expected to Be a Small Net Exporter of Recycled from 2013 Onward Million Tonnes 26

27. The Western European Containerboard Market Has Suffered from Economic Distress since 2008 with Recycled Share Increasing Further 27

28. Euro Area Production Trending LowerIndustrial Production Indices, 2010=1 Source: Eurostat 28

29. Growth in Western European Containerboard Demand Is Not Expected to Resume Until 2014 Once Industrial Production Begins to Drive Box Demand Annual Change in Million Tonnes 29

30. Eastern European Containerboard Market: Much Smaller than the Western European Market (9.1 Million Tonnes in 2012) But Growing Rapidly 30

31. Eastern European Demand Will Grow Almost 750,000 Tonnes in 2013-2014 Annual Change in Million Tonnes 31

32. The Western European Recycled Containerboard Industry Is Still Relying on Exports to Maintain Market Balance Western European Net Exports, Thousand Tonnes 32

33. Poor Profit Margins (Prices/Variable Costs in Euros per Tonne) Should Lead to Permanent Closures in the European Recycled Containerboard Market 33

34. Assumed Capacity Closures in the Western European Recycled Containerboard Market Will Help Lift Operating Rates by 2% 34

35. Latin American Containerboard Demand Should Expand Faster Than Supply in 2014, Leading to Increased Regional Net Imports Growth, Thousand Tonnes 35

36. Brazil Is the Only Net Exporter in Latin America and Sells Throughout the WorldKraftliner Exports, Thousand Tonnes

37. African Containerboard Demand Will Continue to Outpace Supply, Allowing Some Further Increase in Imports Growth, Thousand Tonnes 37

38. Capacity Expansion Will Exceed Demand Growth in the Middle East Through 2014, Leading to Declining Net Imports Growth, Thousand Tonnes 38

39. Capacity Removals in Oceania in 2012 Helped Tighten the Market, But Another Expansion Round is Possible in 2017-2018 Growth, Thousand Tonnes 39

40. Net Imports into Latin America and Africa Will Grow in 2013-2014, But Conditions Remain Challenging in the Middle East Million Tonnes 40

41. Latin America and Canada Are the Dominant Destinations for US Kraftliner Exports Million Tonnes, Annual Rates 41

42. Although Challenges Will Remain Through 2013, US Producers Are Well Positioned to Meet Future Growth in Global Kraftliner Demand Share of Production Million Tons 42

43. Today’s Agenda • Economic Overview • North American Domestic Demand • Global Trade Issues • Asia • Europe • Latin America • Rest of World • Other Factors Affecting Prices • RISI’s North American Price Projections 43

44. North American Brown Linerboard Mills Have Some of the Lowest Costs in the WorldCash Costs, First Quarter of 2013

45. Several Recycled Mills Were Quite Competitive with Kraftliner in Early 2013 Cash Costs, First Quarter of 2013

46. Old Corrugated Container (OCC) Costs Should Trend Upward Again Once Global Containerboard Demand Accelerated Dollars per Short Ton

47. Driving Factor Behind OCC Price Increases: The Developing Markets Will Continue to Provide All Growth in Global Containerboard Demand Through 2014 47

48. Recycled Production Costs Are Expected to Rise Faster that Kraftliner Costs Through 2014Average Total Cost, US Dollars per Short Ton 48

49. N. American Industry Has Learned to Remove Capacity as Demand Falters, But Conversions from Graphic Paper Provide a New Dynamic Thousand Short Tons 49

50. Capacity from New Entrants Will Eventually Drive Containerboard Operating Rates Down 50