What’s influencing global paper packaging price trends?

The global paper packaging market defied the deep recession caused by the pandemic and remained stable in 2020. Containerboard benefited from a massive shift to consumer goods consumption and this solid market growth as able to offset weakness in other grades. In fact, containerboard and other major grades recovered nicely to drive the strongest paper packaging demand growth since the 2010 recovery.

Now with pandemic conditions beginning to ease in many markets, some of the tailwinds from 2020-21 are expected to dissipate. We estimate global paper packaging market demand will rise 3.1% per year in 2022-2026, so long as a new economic crisis does not erupt.

It’s critical for packaging buyers and suppliers across the supply chain to pay attention the major headwinds that are pushing against the momentum built in the last 2 years.

Here’s what packaging procurement professionals and other market players should be asking:

What are the trends in global packaging demand in terms of tonnage? 

Global paper packaging demand growth averaged 5.8 million tonnes per year in 2014-2018 before global manufacturing weakness caused a retreat in 2019. Demand was flat in 2020 before rising 12.7 million tonnes in 2021, so the market is still on pace or even slightly behind its long-term trend.

Some of the 2020-21 trends, such as booming e-commerce and remote work, may prove lasting in the coming years. However, there is a great deal of uncertainty about demand growth in 2022 and beyond because of factors such as expected return to services consumption, the Russia-Ukraine war, continued pandemic restrictions in China and heavy inflation. We estimate a growth in tonnage in 2022 despite the war but growth may not be as significant as it could have been.

In terms of grades and weights, where is the growth happening? 

Containerboard was the strongest paper packaging market in 2020 due to its role in the production and distribution of essential goods, as well as the increased emphasis on e-commerce. Although several cartonboard grades associated with packaged foods performed well, many other paper packaging grades were negatively impacted by the huge reduction in services spending.

In 2021, healthy demand recoveries spread across all grades, driven by continued tailwinds for containerboard and improving pictures for services. The spectacular e-commerce performance of 2020-21 has increased the importance of this dynamic sector’s role in driving containerboard demand growth. However, containerboard may be the segment most exposed to post-pandemic headwinds if goods consumption tumbles.

In 2022, growing resistance to single use plastics will continue to create opportunities for paper-based alternatives, with the trend beginning to find traction in Europe. Though the war in Ukraine, high inflation and paper scarcity is presently slowing this transition down, you can expect plastic resistance to still influence more containerboard and boxboard volume growth by increasingly by 2030. This is the deadline that many governments and companies are aiming for a complete ban on single use plastics.

What is happening to capacity? 

As the pandemic drove desire for more packaged goods, the market tightened and prices rose, triggering a strong supply response. Across the globe, many producers have announced major investment programs to increase capacity.

The ongoing packaging market expansion includes many graphic paper machine conversion projects since the pandemic was a major catalyst for a decline in graphic paper demand. Packaging market conditions have also drawn new producing players, which can be much more disruptive to the market than upgrades by existing producers.

While many market segments remained tight in early 2022, with price increases still keeping up with rapid cost inflation, the wave of capacity that will hit packaging markets over the next several years is expected to outpace demand growth. Containerboard is the remains as the major growth-driving grade.

Where is growth mostly taking place?

In 2020-21, some of the most impressive paper packaging demand growth occurred in North America and Europe, where heavy fiscal stimulus played a major role in enabling intense goods consumption and high vaccination rates allowed services to make an earlier, more robust recovery.  

Notably, packaging demand in the Chinese market, the major engine of global growth over the past 15 years, still remained below its 2018 level in 2021. North America and Europe accounted for 65% of global demand growth in 2020-21, rising a total of 8% compared to only 2.9% in the rest of the world.

Now in 2022 the leading growth region is less clear. If not for the returning Covid-19 lockdowns in China, we would expect the China to reemerge as the main driver of global demand growth since post-pandemic trends would be slowing European and American growth.

Major factors dampening regional growth in 2022 is the Russian-Ukraine war’s impact on European economic growth, rapid inflation and the possibility of recession in the US and Europe, and the shift of consumer spending back to services from consumer goods.

Europe will not be the strongest growth market in the 2022-2025 period. Fastmarkets economists suspect we need to watch for signs of a sort recession, followed by a long slow growth period, much like what we saw in 2012-2016.

How do these market dynamics impact regional markets?

Professionals across the paper packaging supply chain should stay on top of major macroeconomic trends to anticipate shifting commodity market dynamics. Get a better understanding of the key drivers behind current inflation trends here.