If you’ve been active in the pulp and paper industry, then you likely have an idea of just how chaotic the market is.
From supply chain disruptions and an unprecedented lack of global demand to massive price fluctuations and an overstock crisis, the last few years have been a bumpy ride.
Given the instability, it’s understandable that there may be confusion about the state of the market, what led to the current paper climate, where the market is headed, and how to best navigate it moving forward.
The pre-pandemic pulp and paper market looked a lot different than it does today; print media was still in decline, but not a steep one, there was a balance between supply and demand, price levels remained reliable, and sustainability wasn’t as big of a priority.
It’s a much different landscape today; let’s dive in.
Pulp & Paper Overview: The Current Market & Its Influences
From high inventories throughout the entire value chain and high paper prices to a structural decline in paper consumption and reduced consumer spending, there is no lack of influence on today’s market.
It’s no secret that over the last few decades interest in paper has been on the decline.
The paper market of today is no different, as the global demand slump continues across all paper segments.
Growth in an already expanding telecommunication infrastructure was accelerated by the pandemic, as it pushed more sectors further online. With that in mind, newspapers, print media, and educational publications were hit especially hard.
As a result, industrial paper packaging categories experienced negative demand during this time, along with some of the industry’s most reliable market segments, like printing, writing, and newsprint.
With the exception of food and beverage and pharmaceutical categories, the paper industry as a whole experienced negative growth resulting from the wave of digitization that COVID accelerated.
Through 2020 and 2021, increased online buying due to the COVID-19 pandemic led to a boom in shipment box volume.
Businesses overbought boxes in order to keep up with and stay ahead of the demand. But, shipments began to plummet in 2022 as the world reopened, leaving those businesses straddled with massive amounts of overstock.
As a result of the packaging surplus, box manufacturers found themselves in a demand slump.
In response to overstock, and as a countermeasure against the demand slump, North American containerboard producers have developed a strategy of extensive (planned) machine downtime.
Planned machine downtime is the practice of shutting down equipment and machines in order to slow or stop production rates.
The idea behind this downtime strategy is to try and match supply to demand, reduce inventory, and increase exports while protecting current linerboard price levels.
Companies are now facing more and more machine downtime. Increased machine downtime, coupled with the fact that the linerboard market has become flooded with export offers from around the world, has led some North American companies to try and revive their exporting efforts.
Today, boxmakers are holding out for better demand. Economic and labor concerns have weighed heavily on the decision to close down a number of sawmills and pulp mills.
In the last two months, over 800 jobs have been lost in British Columbia (BC) alone as a result of mill closures and a dwindling fiber supply in the region. In the last twelve months, North America has seen roughly 860,000 tons of its containerboard capacity either permanently shut or converted to another non-containerboard grade, if you go back to 2020, that figure nearly doubles.
As it stands, it’s unclear how effective the mill closures and strategy of machine downtime will be in the long run, when destocking will end, or when demand will once again normalize.
At the moment, global softwood kraft pulp markets are expected to remain relatively stable.
This is thanks to a number of factors, including steady Chinese demand, high global pulp inventory levels, and the expectation that more hardwood pulp capacity will come online later in 2023.
Regardless, projections that the bleached kraft paper market will weaken in the first quarter have led to an anticipated slowdown in demand, as global kraft paper inventories return to normalized levels.
Still, expectations are hopeful moving through the first quarter.
Today, the containerboard and corrugated box markets are using machine downtime to try and create some stability in the wake of overstock.
The downtime strategy has had a noticeable effect:
- Linerboard’s price per ton on the open market has dropped by nearly a third of the increased price per ton from Q4 2020 to Q1 2023
- Corrugated converting plants have reduced their inventory by 13%, 340,000 tons, from July 2022 to December 2022
- Containerboard production dropped by 2.1 million tons, from 19.9 million in the first half of 2022, to 17.8 million in the second half
On top of this progress, we’ve seen the cost of producing linerboard decline year-over-year, much as a result of retreating recycled fiber and energy costs, increased trucking availability, and cheaper diesel fuel, compared to last year.
The pulp and paper industry consumes an incredible amount of resources, especially wood and water. Increased deforestation and water crises across the world have made the challenge of continuously managing raw materials and resources a major roadblock for growth in the market.
Chances are, we’ll continue to see the mismanagement of resources and overproduction as key issues through 2023, as governments the world over continue to tighten restrictions on sourcing wood from forests and water-consuming industries.
On the opposite side of the spectrum, increased consumer demand for eco-friendly materials has led to a shift in preference from plastic to paper, for packaging solutions. On top of that, many governments are instituting bans and restrictions on the use of plastic in packaging, which has had the effect of making paper a more attractive and viable option over plastic.
With paper being the most sustainable and recyclable packaging on the market, the potential for market growth as a result of this shift can’t be ignored.
Given how chaotic the market is right now, it’s hard to predict what the future will have in store.
Nonetheless, as the influence of e-commerce, sustainability, and advanced technologies spread across the world, there are some predictions that we can, with a certain degree of confidence, say will play a role in how the market continues to evolve.
Online retailing, and e-commerce as a whole, have experienced a steady rise across the globe. Countries like India, China, and Brazil in particular have seen a massive uptick in buying and selling goods and services online.
The proliferation of e-commerce has increased global demand for paper packaging materials. Perhaps more important, though, is how this has led to the development of the pulp and paper industry in countries where it previously did not exist.
As shipping is required to and from these locations, it’s anticipated that the rapid expansion of online retail in developing countries will support the global expansion of the pulp and paper industry as a whole. Projections show that the wrapping and packaging segment is expected to lead the market in the near future, in order to serve the huge demand created by e-commerce.
As online retail and the adoption of paper-based packaging materials grow, it has become a popular belief that e-commerce will end up with an annual demand total higher than pre-COVID levels.
The sustainable paper packaging market has significantly grown in response to mounting environmental concerns, both from consumers and governments.
Paper is an excellent recyclable and sustainable packaging material. In fact, with proper resource management, paper is the most recyclable and environmentally friendly packaging material currently available on the market.
As a result of the demand for eco-friendly packaging, leaders in the food, cosmetics, and fast-moving consumer goods sectors continue to work with paper manufacturers to develop sustainable packaging solutions. We expect that this relationship is likely to help boost the already rapid expansion of the pulp and paper industry.
Another result of the push for eco-friendly packaging solutions has been a wave of restrictions and regulations. Around the world, stores, supermarkets, and storage providers are adopting paper bags as a cost-effective alternative to non-recyclable plastic.
The concern for non-recyclable plastic has not only led to the increased use of pulp and paper but also accelerated the incorporation of modern and sustainable technologies in the industry.
At an increasing rate, manufacturers are opting to invest in emerging technologies, specifically pertaining to AI, data analytics, and the use of smart sensors.
These technologies will enable manufacturers to study the quality of the pulp and paper production process, automatically performing necessary tasks for optimization as they’re identified.
Similarly, the use of smart sensors has proven effective at identifying areas where information integration can be of use, or where energy use can be made more efficient. One example includes the improvement of quality control systems by using smart sensors to evaluate paper uniformity, orientation, and smoothness.
With this push, manufacturers have begun using big data to study the relationship between supply and demand. Eventually, this will help companies forecast their next market strategies. Already, we’ve seen some paper mill process control departments, that previously operated independently of IT, combine the two into a single, shared-system entity.
Through the integration of smart processes and innovative technology, the pulp and paper industry will learn how to optimize the results of production, marketing, and sales.
Over the next six months, five machines, totaling about 2.5 million tons of recycled containerboard capacity, will start up in North America.
It’s left some members of the pulp and paper industry wondering if the machine downtime strategy of today will be required moving forward. If demand picks up in the second half of 2023, there is a chance that the downtime may lessen. However, if demand doesn’t increase, then the already oversaturated market will be saddled with an additional 2.5 million tons of material.
There is a growing sentiment that the demand is too low as is, let alone with the new capacity incoming.
To make matters even less clear, it’s estimated that nearly half of the additional capacity is with non-integrated companies that don’t run their own corrugated converting facilities. It wouldn’t be surprising if, given the current amount of containerboard already in stock, these extra materials go to export.
Looking towards the future, there are two possibilities that we could see; either a new demand that is on par with a pre-pandemic pace (32.8 billion sq. ft. of boxboard shipments per month, on average), or a new demand that is slightly pronounced above a pre-pandemic pace (33.38 billion sq. ft. of boxboard shipments per month, on average).
As it stands, it’s anybody’s best guess what the “new demand normal” will become.
How Can Imperial Dade Help You?
Our mission is to bring quantifiable value to each customer’s operations, providing the best possible solutions through products and services. Our goal is to be more than just a distributor.
We care about the quality of our product and the concerns of our customers, which has led us to take a thoughtful, customer-first approach towards all matters. Our selection of high-quality products reflects the quality of the services that we provide and the standards we hold ourselves to; it reflects our value as a business partner.
At Imperial Dade, we have the resources and willpower to meet our customer’s needs, providing a source of reliability amidst an unpredictable market.
Canada is still experiencing unprecedented challenges in the pulp and paper market. While some segments are beginning to rebound, there is still a rocky road ahead for the industry as a whole.
Regardless, we’ll continue to leverage the long-standing relationships we have in manufacturing, transportation, and production, as well as forge new relationships with reliable partners, to help ensure that our customer’s orders are fulfilled in a timely manner and with first-rate products.
The pulp and paper landscape is changing every day. As it develops, we’ll keep consumers informed with the most relevant and up-to-date information available.