A European Perspective: Current Issues and Future Prospects for Paper Packaging

First of all, the impact of the COVID-19 pandemic, now the war in Ukraine, rising inflation and energy costs, and also facing the pressure of replacing plastics, in such a superimposed turmoil, what will the future growth of paper packaging look like?

Paper demand for corrugated and folding carton packaging has been on the rise in Europe ,at least during the past two years.

However, if you look at the recent data, you might think that  problems that have arisen are forgivable. In the first three months of 2022, the demand for corrugated paper across Europe began to decline, and all growth in the second half of 2021 has actually shown a downward trend. In 2021, UK corrugated demand was +7%, compared to -8% now (similar figures across Europe).

So, what caused this?

One of the factors is that the destocking of cartons and cardboard has been completed. Packers, brands, and end-users are all over-ordering in 2021 because of the constant shortage of product (remember all the news about supply chain issues, packaging shortages, and truck driver shortages?) and fears of a similar problem again . They've been using those stocks for the first three or four months of 2022. Especially, packaging companies that supply FMCG producers have been experiencing higher-than-normal inventory levels because of high demand for their products from their customers.

In the second half of 2021, consumption of corrugated and cardboard began to slow as people stopped working from home and ordering products online.

Also, after June 2021, people can spend money on dining out and vacations again, so people have shifted their money to activities, experiences and relaxation rather than ordering tangible products online. Anyone who wanted to rent a house on the coast for a holiday last year will remember that they were hard to find - currently talking about the whole of Europe, including the UK.

In the first half of 2021, the increase of paper packaging products is about +10%, but in the second half of the year, it is expected to decrease to +2% - a good growth rate for paper packaging, and more moderate .

This year, 2022, the trend of spending excess income on vacation continues. People can go abroad now, all of the Europe - as you can see - airports and ports are busy, people are leaving in a hurry, not even in peak tourist season. It seems that people would rather visit the real Amazon than shop online Amazon! In fact, by 2022, Amazon's sales figures decrease  15% from last year -- an important measure of people's mentality.

On top of that, you also need to consider the factor in rising energy costs across Europe, coupled with inflation, which has forced people to tighten their belts, and people are not spending at all like they did in the early days of the pandemic. In fact, at NOA, it is believed that the impact of reducing consumer spending has not been fully reflected across all industries, including paper packaging.

Before people get too pessimistic, keep in mind that 2021 will be a special year for growth in the paper packaging industry and most industries. Things have calmed down, but that doesn't mean there's been a setback. Corrugated demand is still up 2-3% compared to 2020, which is a nice steady increase.

Due to  organic growth and overall growth in packaging used to promote, distribute products, and the trend is still on the rise; the use of shelf packaging has proliferated, especially in budget stores like Lidl and Aldi, which are spending more and more in supermarkets across the country bigger.

There is a third factor: the concept of green plastic replacement. The innovations in paper packaging are remarkable – such as cardboard sleeves for multi-pack soup bags or baked bean cans, paper tomato trays, and a recent innovation from Smurfit Kappa: paper-based detergent boxes.

Cartons have a longer lag time than corrugated cardboard, which is a much faster response to market forces. In the carton industry, it may not be fast or sensitive, but it is predicted to follow the same path as corrugated board. Currently, through 2022, the market for foldable cartons is as active as it was two years ago.

This is caused by many factors. First, there is a greater proportion of entry into the food and beverage market; second, there is more inventory in the supply chain, which is not yet smooth; and third, there is not much spare capacity to keep high demand. At present, cartons are growing at a rate of +4-5%, and the concept of green replacement has had a very positive impact on the demand for cartons.

So what's going on globally? The Far East has experienced high demand but has cooled recently, especially because of the impact of the Covid-19 outbreak on China. In 2020-2022, the US grew slightly better than Europe, with Africa and South America tending to imitate Europe.

Where are people now?

In the short term, the impact of the Ukrainian war on the market could lead to a massive damage to the original circulation system, as producers seek alternative sources of energy and minerals rather than relying on Russia. Ukrainian and Russian wheat starch is used in corrugating processes, so this will impact existing production as alternatives are sought in the US and Africa. Russia is a major supplier of lumber to Scandinavian-based paper mills for the production of pallets and pulp for papermaking. Again, other alternative sources need to be protected, and again the US is a possible option.

Then, what's next?

In the remaining of 2022, the current -8% situation for corrugated paper is forecast to improve as consumption will improve on its own as the overstock problem eases. By the end of the year, shares could be -2% to -4%, or at best breakeven. But it's important to remember that this still represents overall growth for 2019 and 2020.

Looking ahead, in 2023, the war in Ukraine will trigger a supply adjustment. However, by 2024, the market should stabilize, with paper packaging expected to grow between 2% and 2.5% in the next few years. This is due to the popularity of natural growth and the concept of green plastic replacement.

True, the Ukrainian conflict is hitting green momentum — Icelandic stores, for example, conceding a commitment to make domestic brands plastic-free by 2023 — but environmental pressures are still there and growing.

There is another factor to consider. The supply chain has shown enormous importance and one will see the offshore supply of goods gradually moving away from a single country to other western countries like the US, as well as India and Africa and, of course, including Europe.