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We talked to Alejandro Mata Lopez, director, Europe packaging and graphic papers, about the outlook for the global paper packaging sector market, the supply and demand trends and the risks and opportunities for 2024 and beyond, following his presentation at the Fastmarkets Forest Products Europe Conference.
Alejandro’s presentation includes the following data vizualisations:
To download Alejandro’s presentation slides, fill in the form here.
The global paper and packaging industry is not used to oversupply. Historically, the market has grown annually between 2.5-3.5% per year and, when new capacity comes online, it usually takes a few years to be fully absorbed by the market. But that dynamic changed in 2020, with investment in capacity coinciding with a fall in demand, reaching the point where we faced a global trend of low operating rates and widespread oversupply.
While there are plenty of challenges, our overall outlook is cautiously optimistic. The outlook is not without risk, but growth is there if you look for it.
Key points:
40 million tonnes of overinvestment in capacity – almost 11% above historical operating rates – is the key behind the slowdown in growth in the global paper packaging industry. Global paper and board figures in 2023 stood at 409.7 million tonnes, a 3.1% drop from 2022.
The global pandemic pushed up demand in 2021 and early 2022, causing bloated inventories driven by overproduction and a widespread destocking scenario through 2023.
Boxboard is carrying the most oversupply (13%) compared to its capacity, due to the availability of cheaper alternatives. While containerboard accounts for 65% of all oversupply in the market, at 188.2 tonnes it represents almost half the 2023 global packaging paper segment.
We forecast lower-than-expected packaging paper demand levels in 2025. This can partly be explained by changing consumer behavior habits, such as ordering online more, eating out less and preferring cheaper, more sustainable options.
“We have seen global oversupply trends, particularly in Europe and Asia, driven by overinvestment in capacity and pandemic-induced demand shifts. Demand weakness in Asia and Europe will keep markets in oversupply until 2027 at least.”
Alejandro Mata Lopez, Fastmarkets
Boxboard was the most impacted segment and faced more destocking than others. Much boxboard end-use is in premium packaging products such as consumer electronics, cosmetics, perfumes and jewelry. All those areas did very poorly in 2023, due to consumer behavior not rebounding to its 2021 levels.
The huge pandemic-driven containerboard surge in 2021 led to the widespread destocking of 2023. The wrapping paper segment has performed better due to the more durable kraft’s exposure to the construction industry and government spending.
We have seen more businesses plan for fiber-based packaging to replace plastic packaging solutions, but has the demand been strong enough to justify it? Many companies overcommitted to capacity for plastic substitution solutions that has yet to materialize at expected levels.
The outlook for boxboard is not all bad though, with demand set to increase as plastic substitution becomes the norm and awareness of the sustainability of fiber-based packaging rises. These trends, alongside improving living standards in new markets and accelerating interest in convenient packaging, will boost demand and provide further opportunities in the market.
“When inflation started rising, many consumers started buying cheaper alternatives to the products they usually bought. Those products use plastic packaging rather than fiber-based packaging, which contributed to the increase in firms destocking their boxboard supplies.”
The industry faces low operating rates across the world, especially in Europe and Asia. Market dynamics since 2020 led to companies in all areas bringing capacity up due to Covid uncertainties – although this was offset in North America by closures – while at the same time demand simply wasn’t there.
Almost 70% of the 40 million tonnes of overcapacity is in Asia, which accounts for around half of the global market. Demand weakness in Asia and Europe together with significant increases in capacity will keep markets in oversupply.
We forecast Asia will continue to grow twice as fast as Europe and North America. Much will depend on demand in China, which is a strong driver for consumption and exports from Europe, North America and now Latin America.
With deforestation regulations on the way in Europe, sustainable packaging could be more expensive for European paper packaging firms compared to those in North America unless they find a way to adapt.
“Only 28% of the global packaging paper industry in the 1990s was in Asia, but it now accounts for around 50% of the total. North America has been more cautious in capacity expansion compared to Europe and Asia. European companies will need to adapt to a new wave of regulatory changes and rising costs to remain competitive.”
Machine learning and algorithms helps optimize packaging sizes in e-commerce, which reduces the amount of containerboard and boxboard consumption. Over the past five years, these algorithms have reduced the use of corrugated boxes by more than 35%.
Underperforming graphic paper producers are converting their plants to produce packaging paper grades to optimize their capital machinery investments, including funding machine learning.
While the industry is already very advanced in its automation, there is potential for further progress in the automation of paper-making processes, with machines up to eight meters wide being coded automatically.
“Companies are using artificial intelligence and machine learning to tailor packaging size better, which reduces excess packaging and waste. The outlook predicts more automation in the next 5-10 years, powered by algorithms and robots. We may see companies converting into more niche markets like specialty paper grades or industrial packaging.”
Global mergers and acquisitions (M&A) such as Smurfit Kappa and WestRock, and International Paper and DS Smith could lessen choice for paper buyers. But with only around 10% of the global market between these four players, it hardly makes for an oligopoly.
Packaging papers are very much driven by demographics. In Europe, plateauing population numbers have coincided with deceleration in growth.
However, containerboard net exports from Europe (excluding Russia) to the Middle East and Asia now make up about 50% of all European exports.
Much of Asia is still catching up with the rest of the world and by mid-2025 we will be back at the normal growth pattern for Asian markets. In China however we are seeing slow population growth which could stem the pace of its growth.
“Improving living standards in new markets will increase the per capita consumption of packaging paper. Growth in mature markets can range from 1-2%, while growth in emerging markets can reach 3-4% per year.”
In 2025 and beyond, we expect a return to historically consistent levels of 3-3.5% annual growth for corrugated and 2.5 to 3% growth for boxboard.
This trajectory may take a while as we still have a lot of global economic headwinds, and risk factors such as energy prices, inflation and global instability.
“Challenges remain but there are opportunities. We expect average growth in capacity in the industry will slow down, which will allow for a gradual recovery in operating rates in the next five years and beyond.”
Ajelandro first presented these findings at the Fastmarkets Forest Products Europe Conference. Access his presentation slides here.
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