- Sustainable and recyclable
- Increasing use of packaging paper due to the rise of e-commerce and declining use of plastics
- Strong demand from Asia
- Graphic paper gradually being replaced by digital media because of increasing use of digital technologies
- Environmental issues (deforestation)
As part of its sector risk assessment methodology, Coface includes two segments in its analysis of the paper sector: graphic paper and packaging paper. Trends in the two segments differed significantly during the crisis. Graphic paper was quite severely impacted, largely because company and school closures significantly reduced the need for printing paper. Prior to the pandemic, its use was already in decline as the global economy became increasingly digital. Conversely, packaging paper benefited from strong growth in e-commerce and hence in delivery activities worldwide, and also from growth in paper products for personal hygiene, such as surgical masks, disinfectant wipes, disposable paper towels and other related hygiene products.
Both segments, however, reverted to a broad trend in 2021, which is expected to continue into 2022. Moreover, they also suffered from shortages. Between January and September 2021, graphic paper production increased by 6.9% year-on-year (YoY) and packaging paper by 9.8% YoY in response to the global economic recovery, particularly in printing, board and packaging. Nevertheless, total production is expected to remain below pre-crisis levels. Prices also exploded in both segments owing to increased prices for paper pulp (up 60% YoY) and cardboard (up 30% YoY). Other factors driving paper prices up included the global increase in processing and distribution costs, plus higher energy, chemicals, starch and container prices (350% YoY increase in September 2021).
WOOD PULP, PRICE INDEX (100 = 1982)
Sector Economic Insights
Widespread price increases in the sector, mainly driven by the surge in pulp prices…
The two segments that make up the paper sector were not left out of the worldwide economic recovery, mainly as a result of global demand. Paper consumption rebounded strongly as soon as the economy picked up, which was reflected in the prices of the materials that make up paper. Packaging boards, cups and tissues are produced from virgin or recycled paper pulp, which is itself made from plant fibres or waste paper, whose price was extremely volatile in 2021 and is expected to remain high in 2022 in all the main pulp-producing countries, including Brazil, China, Germany and Canada.
China saw the sharpest surge: in 2020, a tonne of standard reference grade cost USD 600; by the end of 2021 the price had risen to around USD 1,000. In January 2021, the country decided to stop importing waste paper for recycling and is buying pulp, or recycled pulp, directly, which contributed to the price increase.
…but also by rising energy and shipping costs
The paper sector was affected by the increases in energy and container prices. Some paper mills did not hedge their purchases of energy, particularly electricity (approx. 30% increase in 2021 and a further 12% expected in 2022 according to Engie), leaving them at the mercy of higher prices in the sector, which they are passing on in their own prices. However, it should be noted that more and more paper manufacturers are improving their energy consumption and have been switching to renewable biomass for many years (around 50% of energy used in the paper sector).
In addition, paper supplies are highly dependent on shipping prices. A large proportion of the world’s pulp supplies is shipped from South America and Asia. However, freight costs and the costs of 40-foot (approx. 12-metre) containers have also soared since 2021, driven by the recovery in global demand, particularly in larger economies, after being put on hold for many months, but also by longer ship loading/unloading times in ports owing to measures taken to curb the spread of COVID-19. In October 2020, worldwide, the average cost of leasing a container was around USD 2,240, compared with USD 9,950 at the end of 2021. Pulp and paper manufacturers were quick to warn of potential price explosions for the main component of paper, but also of potential delivery delays due to transportation shortages.
Packaging paper is benefiting from the continued rise in e-commerce, which has intensified since the COVID-19 crisis
During the COVID-19 pandemic, packaging paper benefited greatly from the rise in e-commerce as shops were closed down. According to the United Nations Conference on Trade and Development (UNCTAD), in 2020, the dramatic rise in online sales propelled the share of online sales to 19% of total global retail sales, up from 16% the year before. Since then, consumer have largely kept up the same habits, as illustrated by the rise in U.S. company Amazon's profits in Q2 2021 (48% YoY: this takes into account the explosion in e-commerce, which accounts for 67% of the company's revenues, but also growth in sales of cloud services offered via AWS).
The increase in e-commerce was seen in grocery and hygiene products but also in food delivery via online platforms, for example. Beginning in 2021 and continuing into 2022, consumers have had access to new mobile apps, such as France’s Cajoo or Germany’s Flink, that offer ultra-fast (under 15-minute) grocery delivery services, in addition to existing restaurant take-away services such as Uber Eats and Deliveroo. This has greatly increased the use of packaging paper. Furthermore, this type of catering service uses large amounts of paper packaging (paper bags, trays, etc.). Paper boxes, straws, bags and food wrapping paper in general are set to become new growth drivers for the paper industry.
The increase in online sales has therefore greatly benefited the packaging industry. Specifically, sales of corrugated cardboard packaging increased during the crisis because this type of packaging is essential for the transport of food, medicines and medical equipment, but also for the large number of parcel deliveries to individuals. Thus, protective packaging (glassine paper, cardboard protection, padded pouches, etc.) and traditional cardboard packaging benefited greatly from the increase in e-commerce and the number of parcels sent worldwide. By 2022, packaging paper is expected to account for more than two-thirds of paper consumption.
Graphic paper, the most at-risk segment, is also set to improve in 2022
With the easing of health restrictions, particularly the reopening of schools, the trend for graphic paper will improve in 2022. In the years before the pandemic, the use of graphic paper was already on a downward slope, as digital tools such as e-readers, smartphones and newspapers replaced paper media. Between 2013 and 2018, graphic paper consumption in the countries of the United Nations Economic Commission for Europe (UNECE), which includes Europe, North America and the Commonwealth of Independent States (CIS), fell by 18%. Despite this, in late 2021 and early 2022, graphic paper is expected to be in short supply, making it difficult for the publishing and printing industries to obtain supplies. Demand for graphic paper has increased as the world's economies have recovered. In the meantime, e-commerce has exploded and so has demand for packaging paper and cardboard. For instance, in France in 2000, the press and publishing sector accounted for 45% of paper and board production, compared with 45.9% for packaging. By 2020, “graphic” production had fallen to 17.4% compared with 66.4%. With wood in heavy demand, during the health crisis, Brazilian pulp suppliers, which are among the world's leading producers, seized an opportunity. Graphic paper involves expensive processing, and Brazilian suppliers chose the cheaper option by switching to packaging paper. As a result of the shortage, European paper manufacturers (mainly German, French and Nordic), which are dependent on paper pulp, greatly extended their delivery times to printers, from an average of three weeks to six weeks or even two months.
A sector facing environmental challenges
The paper industry has long been criticised for its many negative effects on the environment (deforestation, high greenhouse gas emissions, soil contamination). Today, however, the sector is increasingly adapting with the emerging use of recycled paper. Moreover, it will be severely challenged by the COP26 goal of stopping deforestation by 2030. Increased use of cardboard as an alternative to plastic (straws, tableware) will continue to benefit packaging paper in the years to come. Paper and cardboard have a recycling rate of 85% in Europe compared with 40% for plastic packaging.
Last update : February 2021