• Supply/demand dynamics and cost inflation drove kraftliner (+49%) & testliner (63%) prices higher in 2021: Containerboard demand has been strong since Q4 20A. Despite previous concerns around oversupply, supply has struggled to match the significant uptick in demand. Coupled with growth in containerboard exports, this has led to a tight containerboard market.
  • Corrugated volume growth has been >8% since Q4 20A: European recovery has been stronger than expected. Strong corrugated growth has been driven by e-commerce, demand for goods (vs. services) and low inventories throughout the supply chain. Key risks to volumes are economic weakness and the potential impact of inflation on consumption.
  • 2020-21 saw incremental demand exceed new capacity: However, the European containerboard market is expected to normalize in the next 24 months. Based on current estimates, the market is expected to remain tight in 2022.
  • In the MT, containerboard demand from plastic substitution is likely to outpace demand from e-commerce: E-commerce was close to 50% of growth in 2020; however, closer to 20% in 2021 and is expected to be in the range of 15-17% from 2022 onwards. Plastic substitution and e-commerce is expected to account for c.50% of containerboard volume growth from 2023 onwards, with historical demand drivers expected to contribute c.750ktpa of growth.
  • European containerboard demand has benefitted from net exports, but trend likely to reverse: European containerboard benefitted from over 1mt of net exports in 2020, evenly split between kraftliner and testliner (2019: 28% kraftliner & 72% testliner). In 2021, this net export position reduced and is expected to reverse during 2022-23 as testliner exports come under growing pressure due to expanding capacity in Asia and fibre restrictions are less likely to influence Chinese/Asian containerboard production as producers get used to the “new normal”.
  • Next wave of capacity additions set to start from Q4 22E: Underperforming graphic paper markets have driven an increase in conversions to mostly recycled containerboard. Between 2022 and 2025, over 6mt of new capacity is likely to be added (mostly in Emerging Europe), with testliner comprising 74% of additions, followed by kraftliner (18%). This means that operating rates should moderate to 93% in 2022 and just over 91% in 2023. This compares to 94% in 2021 (closer to 96% if adjusted for temporary production curtailments: c.550-750kt lost).    
  • Bottom line: Since Q4 20A, containerboard prices have benefitted from both higher operating rates and higher production costs. In 2022, we expect these tailwinds to persist, supporting an 18-22% increase in the containerboard prices (vs. 2021 averages). Based on current estimates, the market should moderate in 2023; however, delays, cancellations and unplanned maintenance could shift the supply/demand balance as seen during 2020-21.
  • Mondi OVERWEIGHT TP R 424/share: All segments should have a stronger year. Balance sheet to strengthen further, provides opportunity for special dividends, assuming no major M&A. Our bullish outlook for containerboard, sack kraft and a continued UWF recovery drives a 1-YR rolled EV/EBITDA of 6.9x vs. 5-YR average of 7.5x.

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