The pulp and paper industry is expected to grow at a pace of +5% p.a. over the current decade while world paper production is expected to reach 490 million tons, pushing up global sales to USD1190bn (+8%) in 2021. In spite of the decline in the graphic paper segment, the whole paper and paperboard market continues to inch up, thanks to the packaging and tissue segments. Innovation is set to be a critical success factor, particularly in light of recent concerns over plastic packaging waste that could harbor both opportunities and challenges for fiber-based consumer packaging. In the wake of digitalization and skyrocketing e-commerce activities in recent months, the demand for packaging has ramped up. Regional production in Japan, China, the EU and the US has risen accordingly to meet the surge in global demand. Furthermore, stakeholders are engaged in enhancing the efficiency of manufacturing processes to address the ascending pressures of sustainability concerns across the industry. To this end, the EU wants to set ambitious goals for cutting CO2 emissions as well as for better value growth for this industry by 2050.
Unlike Western Europe’s, North America’s papermakers enjoy an already high degree of concentration, especially in the tissue segment. Asia is less concerned with this matter as the market remains fragmented, with many local players, notably in the containerboard segment. Growth prospects in pulp and paper vary significantly among segments and regions. The tissue segment is expected to rise significantly across emerging countries, driven largely by demographic shifts and consumer trends such as the demand for convenience and sustainability. In this regard, the same is applicable to hardwood and softwood pulps. Meanwhile, packaging papers are forecast to grow evenly across regions, unlike the shrinking graphic paper segment. Different levels of performances among paper manufacturers continue to pique the interest of investors in an industry that has already undergone substantial restructuring and M&As for there are several other trends shifting the sector. These include consumer preferences, as illustrated through lightweight packaging and recyclable products, in addition to ongoing circumstances that are shaping a growing demand for thermal packaging for food delivery. Amid a recovering economy, this year’s outlook remains positive for the industry. The level of profitability across the market pulp subsector is set to improve in 2021 as hardwood pulp prices recover when producers work through excess inventory and softwood pulp prices are trending upward due to increased demand. In the meantime, we do not expect new capacities to come online before next year. Lastly, paper market growth could be helped by China looking for further market pulp should the country proceed with its ban on imports of recovered paper in coming months.
Amid the Covid-19 crisis, the paper sector as a whole appears to be less fragile than expected. Restrictions imposed by governments to contain the pandemic have favored at-home consumption, leading to an upsurge across the packaging paper segment. The graphic paper subsector, however, is set to shrink further as the current circumstances escalate the pace of digitalization. Home office and online classes are going to compound this weakness, along with massive reduction in printing at offices, for conferences and other business purposes, and at schools and universities. Companies positioned along the supply chain of printing and writing papers should not post attractive financial performances anytime soon and have to be carefully monitored in the months ahead.
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