PAPER

The global paper and paperboard market has leveled off lately at around 420 million tons. And yet it rose by a (very) little +1% year-on-year in spite of the decline in graphic papers in the wake of digitization. Newsprint, printing and writing papers have been on a structural downtrend for five years. Conversely, however, other paper products are filling the gap left by the dwindling graphic paper market. Packaging including carton board and containerboard is growing across the world, along with tissue papers and pulp for hygiene products. On top of the awareness about the harmful effects of using plastics for packaging, rising demand for paper packaging in pharmaceuticals and other hospitality services is expected to drive the market growth ahead.

The negative impact of digital communications on graphic paper has led several producers in Europe to convert machines away from graphic paper into packaging, creating oversupply in Europe and leading producers to raise efforts to sell abroad just at a time when rising capacity in Asia, especially in China, looms. Global market-pulp demand is likely to drop in the current year amid the fallout from the Covid-19 pandemic. Coupled with large supply, prices are not however expected to fall further as they are already quite depressed due to demand plummeting for printing and writing papers (25% of end use) and subsiding for tissue post-pantry stocking. More broadly, graphic paper production went down -23% last April and this trend should go on because of Covid-19’ adverse effect on office employment and because U.S. advertising is expected to fall by -15% in value between 2019 and 2020.

However, the global pulp sector had been performing well prior to the Covid-19 outbreak, with near-balanced inventories. It had gone through an inventory cycle in which consumers destocked in Q3 2018 and then restocked a year later. The pandemic resulted in an expansion of consumer inventories in response to the sales rise for at-home tissue products, which use a lot of virgin fiber.

The past years saw much turbulence undermine virgin pulp. The situation in recycled fibers remains very unstable as China followed by other Asian countries has increasingly restricted the import of recovered fiber, affecting how companies deal with their fiber-supply strategies. Low-cost remains a critical factor for papermakers’ success in the sense that they have easy access to low-cost raw materials, primarily fiber. Operating costs for paper and board production are another area where companies need to get a tighter grip. All in all, sales and operating margin growth across the pulp and paper sector is expected to drop in value by -5% and -15%, respectively, between 2019 and 2020, while its net margin should remain in positive territory albeit plummeting from 5% to 1.5% over the current year.