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The European sack kraft market cooled moving into 2023. Prices for unbleached paper were either flat or down, typically by some Euro 50/tonne, and flat for bleached paper as players throughout the supply chain attempted to destock their inventories which had grown to extremely high levels throughout 2022 as the struggle to acquire adequate volumes of paper apparently led to a sizable amount of over-ordering.
“Stock reduction is the game,” said one converter. “The market is returning to normal, with lead times improving because customers are pushing back orders,” he added. A number of his peers echoed this sentiment, with many of them complaining that the demand situation is difficult to ascertain because of the high stocks. Producers confirmed this as well, with one reporting that “there is a postponement of orders from brand owners. From March, stocks will be depleted, and demand will improve.”
Other contacts posited that the drop in demand was linked equally to a decrease in consumption in Europe as a result of the difficult macroeconomic situation and consumers being more careful as a result. Linked to the difficult macroeconomic situation is the drop in demand for bags for building materials due to the reduction in building stemming from higher interest rates.
Demand for cement [sacks] has fallen off a cliff since October.
Not all contacts were doom and gloom, however. “We are receiving fairly positive signals from the cement industry,” said one converter who reported a record dispatch in December and that the first few weeks of January were good as well for his company. “The situation is better than everybody is making out. The market mood is not as good as the real situation,” he said, adding that a pickup in Q2 or Q3 should be expected given that it could take the entire first quarter for stock levels to normalize.
In terms of pricing, some buyers reported that their levels were unchanged into 2023. However, one of those who reported flat pricing said that “producers are desperately clinging onto [price] levels.” Others viewed the situation as more stable, including one converter who suggested that the effects of sanctions removing all Russian volumes from western Europe had prevented price erosion and stopped sack kraft, so far, from meeting the fate of other grades of paper and board which have seen significant drops in price in recent months.
The overall drop in paper demand has meant a reduction in lead times as well, with some contacts reporting that they had shrunk to as little as two weeks. Most, however, reported lead times to be in the four-to-six-week area.
Other buyers reported drops in price ranging from Euro 30-200/tonne, though the vast majority of the reductions were in the Euro 50/tonne area. The producers who reduced prices were largely those in continental Europe who had been more impacted by energy prices when they peaked, rather than those in Scandinavia, which meant that the higher ends of the price range came down to more normal market levels.
The market appears to have balanced itself now that the impact of the sanctions on Russian paper have been in place for some time, some contacts said. “Segezha is now selling paper into the Middle East, Africa and the Far East, so European producers are not selling there anymore. As a result, the European market has rebalanced,” a producer said.
Overseas spot prices have decreased significantly, contacts reported. “We have seen [other] mills trying to entice buyers [overseas] with lower prices, but it does not work,” a producer said.
Similarly, inside of Europe, the price question did not appear to be a particularly impactful factor. “Usually, when I call customers, the first thing they ask about is pricing. Now, they complain about their high stocks and they ask about prices at the end [of the conversation] but only because they are curious,” said a producer.
Looking ahead, most buyers were united in the opinion that prices would remain flat into the next quarter. “I think we could get these prices for the next six months,” said one converter. “There is no hint of any price movement for Q2. If it gets really quiet, [producers] will stop the machines [instead of lowering prices],” he suggested.
Nobody speaks about price increases for paper anymore. There could be future price decreases, but nobody knows how much.
For some, there was light at the end of the tunnel in this cooling market. “As soon as inventories come down, demand will improve. [Things] will pick up in April,” one converter suggested. “The first nine months of 2022 were so good, it didn’t matter that the last three months were slow. Perhaps the same thing will happen in 2023, but in reverse. The first three months could be slow, but we could have a [banner year] for the rest of the year,” he added.
For others, the situation did not appear as bright. “It is more likely that we will be speaking about a worsening market in April than an improving one,” a buyer said.
“It has been a bouncing ball over the last few years with Covid-19 and the war in Ukraine,” a converter said. “We cannot have market certainty until we know what happens with Ukraine. Still, even if the war ends tomorrow, I think the sanctions will stay for at least another two or three years,” he added.
“Prices for white paper have not been touched,” said one converter, and a number of other sources on both the buying and selling sides of the market confirmed that the levels for bleached paper were unchanged into 2023 amid a better demand situation than on the unbleached side.
“Things are pretty normal right now,” said one producer who confirmed flat pricing and also noted that his customers were demanding their allocations, with some asking to increase them for this year. “We are struggling to load as many trucks as we can,” he added.
However, as is the case with the unbleached side of the market, some producers and converters reported that overall order intake was low from their respective customers. “When I speak to customers, they say that their warehouses are still full,” reported one converter.
Still, another converter said that lead times are just barely shorter than those of last year. Citing a quiet market for other end use segments, he said that the food industry is helping to keep his business more stable.
This article was first published in our PPI Europe newsletter. Find out how you can access the latest market developments in Europe directly from your inbox by speaking to our team.
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