It was the outbreak of the epidemic at first, but now it is the war in Ukraine, which has led to rising inflation and fuel costs. At the same time, people are facing the pressure to get rid of plastic. In such turmoil, what is the development prospect of paper packaging? Recently, Neal Osmond, the managing director of NOA, an analyst in the paper packaging industry, made his prediction.
At least in the past two years, the demand for paper packaging (corrugated boxes and folding color boxes) has been rising throughout Europe. But if you look at recent data, you may think that the problem is understandable. In the first three months of 2022, the demand for corrugated packaging in Europe dropped, and the growth trend in 2021 has basically disappeared. In 2021, corrugated box production in the UK increased by 7%, but now it has decreased by 8%. The data are similar across Europe. So what is causing this decline?
One factor is the de stocking of finished cartons and color boxes, as well as cardboard. Due to the serious product shortage in 2021 and the fear that this will happen again this year, many packaging enterprises, brand owners and end users have made the decision of over ordering. In the first three or four months of 2022, they have been consuming the inventory ordered in advance. In particular, packaging companies that supply fast-moving consumer goods manufacturers always have higher inventory than normal because their customers have high demand for products,
The consumption of corrugated boxes and color boxes began to slow down in the second half of 2021, because we no longer work at home and do not need to order products online. In addition, after June 2021, people can spend money on dining out and vacations again, so they will shift their spending to activities, experiences and getting rid of the epidemic troubles, rather than ordering tangible products online.
In the first half of 2021, the growth of paper packaging products was about +10%, but slowed down to +2% in the second half of 2021. The growth rate of paper packaging was still gratifying, but relatively flat. However, by 2022, the trend that more residents will spend more spare money on holidays continues. Because now, many people can travel abroad. Throughout Europe, as we can see, airports and ports are at their peak. People are scrambling to go abroad for holidays, and we haven’t even reached the real peak tourism season. The current situation is that people would rather go to the real Amazon than shop on Amazon! In fact, Amazon’s sales fell by 15% in 2022 compared with last year, which is an important indicator of people’s mentality.
In addition to all the above factors, we also need to consider the rising energy costs and inflation throughout Europe, which makes us tighten our belts. In fact, we believe that the impact of reduced consumer spending has not been fully reflected in all industries, including paper packaging. However, 2021 will be an extraordinary year for the growth of most enterprises in the paper packaging industry. At present, it seems to be cooling down, but this does not mean that the paper packaging industry is in a backward state. Compared with 2020, the demand for corrugated packaging still increased by 2%-3%, which has been a very stable growth rate.
This trend is still on the rise due to natural growth and the overall increase in packaging used to promote and distribute products. There has been a boom in the use of shelf packaging, especially in low-cost stores such as lidl and Aldi, which account for an increasing share of supermarket spending across the country.
There is also a third factor: the green wave. The innovation of paper packaging is very eye-catching – cardboard covers for multi packaged soup or canned baked beans, paper trays for tomatoes, and a recent innovation by smurficapa – paper children’s detergent boxes.
The lag time of color boxes is longer than that of corrugated boxes, and the response to market forces is much faster. In the color box industry, just like the supertanker, its action may not be so fast or sensitive, but it is predicted that it will follow the same path as the corrugated box. At present, by 2022, the folding box market will be as active as two years ago.
This is due to many factors. First of all, the proportion of color box packaging in the food and beverage market is very high; Secondly, in the supply chain, enterprises have made more inventory, which has not yet been fully digested; Third, there is not much idle capacity for the cardboard needed to manufacture color boxes, which keeps its demand at a high level. At present, the color box market is growing at a rate of +4%-5%, and the green wave has had a very positive impact on the demand for color boxes.
So what about the global market? The demand in the Far East is very large, but it has cooled recently, especially because of the impact of the epidemic on China. It is estimated that a large number of residents are still unable to work due to home isolation. Other parts of the Far East may experience the same situation. In terms of growth in 2020/22, the United States performed slightly better than Europe, while Africa and South America were similar to Europe.
In the short term, the impact of the Ukrainian war on the market may cause serious damage to the global packaging market, because manufacturers are seeking alternative sources of energy and minerals instead of relying on Russia. Wheat starch from Ukraine and Russia is used for corrugated production, so this will have an impact on its production. They will also seek alternative products from the United States and Africa. In addition, Russia is the main timber supplier of Scandinavian paper mills, whose timber is used to produce pallets and pulp. Similarly, alternative sources need to be ensured, and the United States is once again a possible option.
What happens next? For the rest of 2022, we expect that corrugated boxes will not be reduced by 8% as before, but will be improved. As the problem of excess inventory is alleviated, carton consumption will recover by itself. By the end of this year, we may reach the level of -2% to -4%, or even reach balance of payments. But it is important to remember that this is still similar to the overall development in 2019/20.
Looking ahead, the necessary supply adjustment caused by the war against Ukraine will still be felt in 2023. However, by 2024, the market should have stabilized. It is expected that the growth of paper packaging in the next few years will be stable but moderate between 2%-2.5%. This will be attributed to natural growth and the green wave. There is another factor to consider, that is, the great significance given by the supply chain. Relying on China’s commodity supply has had an impact on the western world. NOA predicts that the offshore supply of goods in Europe and the United States will gradually shift from China to other western countries, such as the United States, India, Africa and, of course, Europe.
Post time: Jun-16-2022