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Whether from consumers, ESG directives, shareholders or a sense of duty, there has been an increase in awareness of a need for an alternative to traditional packaging materials, particularly plastics. Regulation has already come into force in some markets, and technology innovations such as fiber-based packaging and barrier technology are in development to find sustainable packing solutions.
However, overinvestment in capacity in recent years, combined with pandemic-driven increases in demand, has led to a global oversupply crisis, particularly in Europe and Asia. The balance between supply and demand on a global scale means that the immediate future for sustainable packaging is uncertain.
The Fastmarkets team consistently monitors market shifts to provide timely, accurate and valuable insights. We are committed to supporting informed decision-making with in-depth analysis of the key factors driving market trends, prices and forecasts in the global paper packaging market.
The need to switch to sustainable packaging is undeniable from an environmental and business perspective. While sustainable packaging is sometimes thought to be primarily a social and ESG policy, it is now also becoming a regulatory requirement in many markets to move towards more circular economies.
Offering more sustainable products may not immediately improve business margins – it will come at a cost, and this is something that the industry may need to accept and understand
The challenges and costs over the next ten years could at first create more problems than solutions, but equally there are opportunities for growth in some markets.
Overcapacity in the packaging industry in China has led to dwindling demand for recycled pulp manufactured in Southeast Asia, where most plants are operated by Chinese parent companies, with output shipped back to feed their machines or to be sold on the Chinese market.
There’s a huge amount of boxboard capacity growing in China. But lower consumer confidence and slower industrial production has driven a decrease in demand.
In 2017, China began banning the import of papers for recycling, which affected its ability to produce recycled containerboard. As a result, many Chinese companies have invested in nearby countries to produce containerboard and export it to China. China-affiliated recycled pulp mills in Southeast Asia, especially Thailand, usually pay a premium price for US premium brown grades, such as double-sorted OCC (DS OCC 12).
With OCC demand from the recycled pulp plants subdued, suppliers sought to sell US tonnages to regional board mills at discounted prices. As a result, sellers’ offer prices were split – DS OCC offered to China-based customers was priced at $220-230 per tonne, while offers to regional board manufacturers were below $220 per tonne.
Low-grade paper consumption remained understated across key consuming regions in July. The general feeling among traders is that the three key areas of packaging, agriculture, and manufacturing are experiencing muted demand across the board.
Wooden and wood-polymer composite pallets have consistently been shown to have the best environmental impact in all categories, yet the pallet market is only showing signs of life this year after retrenchment in 2023.
Market indicators including industrial hardwood and low-grade softwood lumber demand suggest that most of the increase in pallet production over the past year has been on the recycled side of the market rather than the new side.
Total shipments of corrugated boxes, boards and accessories in Brazil grew by 8% between January and May, according to data from the local packaging paper association (Empapel). This is higher than our forecast of around 5% released in January, and much more than the market consensus at that time for a relatively timid recovery of 1-2%. This is partly due to the improving living standards in major new markets – including Brazil – which have pushed up the per capita consumption of packaging paper.
Overall paper packaging and boxboard production data show a similar trend, increasing by 9.9% and 4.9% year over year respectively between January and April from the same period in 2023, while domestic sales for both grades declined by 0.4% and 2.5%, according to data from the Brazilian Tree Association.
“A significant disruption in sustainable packaging trends is a macro development. It is such an important factor to consider particularly when trying to understand consumer and companies’ behavior towards sustainability.“One factor that must be highlighted is the current image many people have of paper and board products. Many believe that if you use paper packaging material, you’re killing trees, which is not true. Generally, paper is a very sustainable product, fully recyclable and has lots of green credentials behind it.“The paper and board industry needs to get smarter with its communications. In comparison to other industries like plastic, metals, and chemicals, the paper industry has not been as smart at communicating its message, advocating for what they represent and what they do for the environment, and defending its purpose.”Alejandro Mata Lopez, director, Europe packaging and graphic paper, Fastmarkets
“A significant disruption in sustainable packaging trends is a macro development. It is such an important factor to consider particularly when trying to understand consumer and companies’ behavior towards sustainability.“One factor that must be highlighted is the current image many people have of paper and board products. Many believe that if you use paper packaging material, you’re killing trees, which is not true. Generally, paper is a very sustainable product, fully recyclable and has lots of green credentials behind it.“The paper and board industry needs to get smarter with its communications. In comparison to other industries like plastic, metals, and chemicals, the paper industry has not been as smart at communicating its message, advocating for what they represent and what they do for the environment, and defending its purpose.”
Europe is currently facing a wave of new regulations aimed at making the paper industry source more sustainable solutions. Not surprisingly, it is likely to make European sustainable packaging more expensive compared to North America. European companies will need to adapt to these regulatory changes and rising costs to remain competitive.
The EU Deforestation Regulation (EUDR) legislation came into force on June 29 and is due to be introduced across the European Union from December 30, 2024, unless the European Commission’s proposal to delay the implementation is approved. This legislation declares that products shall not be sold or produced in Europe unless they are deforestation-free, produced by following country legislations and covered by a due diligence statement.
This means that production and trade of virgin board grades in and out of Europe might be at risk. Europe accounted for 22% of the global “virgin-fiber-based” paper and board demand in 2023. While the EUDR excludes recovered paper products, close to 55% of global paper and board could be impacted by the legislation. The cost of compliance is estimated to range between $170 million to $2.5 billion a year. As European companies are more likely to comply, their global competitiveness is likely to suffer. This could put European exports at risk as Europe is a net exporter of every paper and board segment.
The EUDR could also leave the Latin America market exposed, as the region’s exports account for almost 60% of all European pulp and paper imports. Compliance costs of operating in high deforestation-risk countries are likely to increase incentives for companies to switch to low-risk jurisdiction.
The main concerns include the need for clarification and guidance on due diligence due to the amount of data management needed. There is also a concern that challenges to comply and costs represent a higher mountain to climb for small players.
“It’s not only the EUDR, but also at least two or three pieces of legislation over the past two to three years. Each one of those could derail paper making in Europe, and we are not seeing any sort of similar developments anywhere else in the world. “The legislation is well intended – it looks for a better planet and a better purpose for the industry – but the problem is how it is being implemented, and in the time frame they have in mind.“There is a huge risk for Europe of a loss of competitiveness globally. Having a more protected market means that many overseas suppliers might not be interested in coming and operating in EU countries because of the regulatory hurdles that it represents.”Alejandro Mata Lopez, director, Europe packaging and graphic paper, Fastmarkets
“It’s not only the EUDR, but also at least two or three pieces of legislation over the past two to three years. Each one of those could derail paper making in Europe, and we are not seeing any sort of similar developments anywhere else in the world. “The legislation is well intended – it looks for a better planet and a better purpose for the industry – but the problem is how it is being implemented, and in the time frame they have in mind.“There is a huge risk for Europe of a loss of competitiveness globally. Having a more protected market means that many overseas suppliers might not be interested in coming and operating in EU countries because of the regulatory hurdles that it represents.”
Should consumer spending and industrial production improve as we expect, this will drive a higher demand for boxboard. Looking further ahead, trends such as green initiatives, and movements to reduce disposable plastic waste, should contribute to a greater consumption of boxboard in the coming years.
However, softer growth in the European economy has created concerns about the expected demand recovery in the second half of 2024. The reduction in new orders continued, as did the underperformance in the German and French economies compared with other regions.
So far this year, the eurozone economy has shown a slow recovery, primarily due to weak consumption and investment growth.
Tackling inflation with high interest rates will help the European economy into slow growth in 2024, with a rebound expected to start in 2025 and continue in 2026.
Eurozone industrial production has remained below pre-2008 recession levels. After growing by 8.8% in 2021, 1.9% in 2022 and -2.1% in 2023, our forecast shows industrial production growth falling to -2.2% in 2024 before improving to 1.1% in 2025 and 1.7% in 2026.
Due to the slowdown in 2023-24, industrial production growth will average only 1% per year over our forecast for the 2024-28 period. Potential trade wars between Europe and China following the results of the US election would put supply chains at risk.
The recessionary slowdown of 2023-24 is caused by the fallout from high inflation — addressed with rapid interest rate hikes by central banks — as well as consumer reticence and Russia’s war on Ukraine.
The recovery starting in 2025 will be supported by improving global economic conditions and easing inflation pressure. The anticipated real gross domestic product (GDP) in the euro area is expected to grow 0.6% in 2024, 1.5% in 2025 and 2.1% in 2026, averaging 1.7% per year through 2028.
“Sustainable products will come at a cost, and that’s something that the industry will need to accept and understand. Sustainability, although it is a hugely important topic, becomes second in importance to consumers when we are going through difficult times from a macroeconomic point of view. “Procurers need to try and control their input costs as much as possible. The only thing they can do is to try to increase their production cost as little as possible. To do that, they will need to be in direct communication with their paper or board suppliers, because it is also in the interest of paper companies to be part of the solution. The industry is making significant innovations to help converters and brand owners to offer more sustainable packaging solutions to their consumers.”Alejandro Mata Lopez, director, Europe packaging and graphic paper, Fastmarkets
“Sustainable products will come at a cost, and that’s something that the industry will need to accept and understand. Sustainability, although it is a hugely important topic, becomes second in importance to consumers when we are going through difficult times from a macroeconomic point of view. “Procurers need to try and control their input costs as much as possible. The only thing they can do is to try to increase their production cost as little as possible. To do that, they will need to be in direct communication with their paper or board suppliers, because it is also in the interest of paper companies to be part of the solution. The industry is making significant innovations to help converters and brand owners to offer more sustainable packaging solutions to their consumers.”
For procurement teams, the tradeoff between cost optimization and choosing the most environmentally friendly solutions cannot always work in tandem.
The shift to sustainable packaging takes place against a backdrop of the EUDR reconfiguring trade and supply chains across deforestation-linked commodities over the next decade, increased operation costs, slow macroeconomic growth and the effects of technology and innovation.
Ultimately, sourcing sustainable alternatives results in increased costs, risks and emerging trends that will present unprecedented challenges in the packaging sector. In an uncertain future, Fastmarkets is the partner you need to navigate the changing world of sustainable packaging.
Interested in learning more about the global sustainable packaging market? We provide a range of market intelligence, including short-term forecasts, price data and market coverage to keep you one step ahead of the market. Speak to our team and find out more today.