European cartonboard markets battered by escalating energy prices amid slowing demand

The European cartonboard market began to soften over the summer as what had recently been talk of overwhelming demand and short supply was soon overcome by talk of skyrocketing energy prices and producers began to push through price increases in September, which often took the form of variable energy surcharges.

However, as orders began to slow down and energy-driven price increases kept coming, even amid worries that inflation would begin to affect purchasing power, observers began to speak about how unprecedented and strange the market situation is.

“If the market is slowing down, you would think prices are going down, but because of energy, logistics, chemicals [and other costs], prices are going up,” one producer of white-lined chipboard (WLC) said. “When the market calms down, people have the idea that prices will come down, but we aren’t seeing that,” another producer on the folding boxboard (FBB) side added.

FBB prices sheltered but not spared

Already in June, some market players reported that the FBB situation was beginning to relax. “Demand has come down a bit,” one trader said. “It is not as tense and complicated [as it was earlier in the year] and the situation is somewhat more manageable,” he added.

“Prices will stay stable unless there is a full gas cutoff from Russia,” a producer said early in the summer, in a prediction that turned out to be prescient as Russia drastically reduced its gas flow through the Nord Stream 1 pipeline to Europe in September. And though FBB mills are typically less dependent on energy, since many Scandinavian mills where much of Europe’s FBB is produced are integrated, a number of FBB producers announced energy surcharges.

Though the breakneck demand for FBB has somewhat abated, the industry continued to struggle mightily with transport issues, a trend that showed no signs of easing over the course of the summer.

“Transport to France is a nightmare. Everything is late. There is a lack of trucks, drivers and return freight,” a trader said. “Logistics are not improving,” another trader added later in the summer. “Board is ready for delivery but there are no trucks to pick it up,” he said. All the same, one converter reported that July was “the best month in terms of [availability] in the last 18 months.”

In June, reports of stocks beginning to grow significantly throughout the supply chain were heard. “Stocks are building,” one large end user said. “We have high stocks and mills are getting nervous,” he added. He even reported receiving some spot offers, which would have been virtually unheard of earlier this year. “There is no dire shortage as there was in Q1,” he added. “The market is calming down and retail and brand owners are postponing orders because stocks are full and [they] understand that buyers are spending less,” said a producer, echoing that perspective.

A number of players on both the buying and selling sides reported that Chinese board was beginning to appear again on the European market though not yet to a significant degree. “Asian producers are interested in coming back [to Europe],” one converter said. “Stocks are still high there and they are [willing to offer] price reductions.”

One producer predicted that consumers would have significant struggles coping with inflation and energy costs which he said will have downstream effects on the packaging industry. “If energy comes under control and there is a break on inflation, spending continues. However, I think people will shift one gear back in their buying,” he said.

WLC trapped in energy crisis

WLC demand followed FBB in loosening somewhat during the summer months, although the market was still extremely stressed due to the impact of input costs.

“It is a more relaxed situation and customers now have some stocks,” a producer said at the end of June, agreeing that demand was slackening. “We are more used to working like this. We don’t consider it a turnaround, but we are no longer receiving 20 phone calls a day [asking for volumes],” he added.

“It was a comparably normal August,” another producer noted a few months later. “Consumption [of board] was not as high as it should have been during the summer,” another said at the end of August. “We had soft sales [in August],” a fourth said. “They are dramatically down,” he added.

And while the supply situation did not feel as stressed as it had earlier in the year, energy prices spelled trouble for many mills.

“Energy is already a huge problem and there are going to be many mills closing down. Mills in Italy and Germany [producing grades other than cartonboard] are taking downtime. Governments have to find a solution. They cannot just say, ‘go into the open sea and swim.’ We didn’t cause this problem and we need some support. The energy prices are crazy, no industry can work with these prices. [If the governments do not provide support,] it will be a domino effect. One industry will fall after the other and people will lose work,” a producer said referencing Europe’s energy dilemma.

“The recycled board industry is in deep [trouble] and I don’t see it coming out anytime soon,” an end user noted.

With the energy crisis in mind, a number of producers introduced energy surcharges during Q3, many of which were variable, which directly tracked the cost of energy in Europe and applied a shifting additional cost to board orders.

For some producers, the increase started rather small at Euro 50/tonne in September, though that number is projected to rise in October because some surcharges track the energy index with a two-month delay. Therefore, the significant rise in August will only be felt in October, though it is expected to be hundreds of euros.

At least one producer has not yet announced a price increase. “Some producers are very conservative with their increases,” one producer said. “It’s very short-term thinking,” he warned.

And as prices started to climb in September, as in months prior, the overall consensus on the market was to take or leave the board at the price that it was being offered by producers.

In terms of pricing, the beginnings of a wider spread were forming between producers who were insulated from energy costs compared to those who were more exposed. This was the case for FBB as well.

Some buyers still felt that the situation was fairly critical though, and one converter summed up his feeling about rising board prices in a succinct manner: “The most expensive board is the board you don’t have.”