- Sustainable and recyclable (packaging)
- Increasing use of packaging paper due to the rise of e-commerce and increase of environmental rules
- Gradual replacement of graphic paper by digital media in view of the increasing use of digital technologies
- Packaging paper is highly vulnerable to global trade trends (and consequently economic cycle swings)
- 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, the trends of which are increasingly diverging with the growth of digitalisation and e-commerce (packaging).
The effects of soaring energy prices and the general inflationary backdrop have affected companies in the sector. Paper production, like the entire upstream forestry sector, is extremely energy-intensive. The increase in energy prices (oil and gas, electricity) has largely affected the production costs of the various paper products, whether they be graphic or packaging.
Prior to the Covid-19 pandemic, the use of graphic paper had begun to decline as the global economy became increasingly digital. Periods of lockdown, school closures, etc., exacerbated this phenomenon, which is now continuing. 2023 is expected to follow the same pattern of continued decline in graphic paper use.
In contrast, packaging paper is benefiting more from the strong development of e-commerce (which is nonetheless highly vulnerable to economic cycle swings) and the resultant increase in delivery activity worldwide, as well as from paper products for personal hygiene (surgical masks, disinfectant wipes, disposable paper towels and other hygiene-related products) and growing expectations for environmental-friendly packaging. That said, weak global economic growth (1.9% in 2023, Coface) and the upcoming decline in consumption should weigh on the packaging paper segment in 2023.
Sector Economic Insights
High production costs weigh on the energy-intensive paper and cardboard packaging sector
Companies in the two segments we include in the paper sector are being affected by the global economic downturn expected in 2023. The paper sector is energy-intensive and cyclical. Paper sector is vulnerable to the global economic slowdown and especially to the decline in global demand. In 2022, production costs increased, driven by energy prices, a phenomenon that is expected to continue in 2023. We expect high energy costs this year (oil and gas) to have a negative impact on the margins of companies in the sector, depending on regional oil and gas prices. Last year, some paper mills did not pass on the costs of their energy purchases, especially electricity, to their sales prices. Therefore, they will have to increase their selling prices or reduce their margins in 2023. Paperboard packaging, cups and tissues are produced from virgin or recycled pulp, which is itself made from vegetable fibre or wastepaper. At the same time, paper producers are increasingly looking to improve their energy consumption and have for many years been turning to the use of renewable biomass (about 50% of the energy used in the paper sector). This should help offset the increased costs for some companies in the sector.
Global paper supply is highly dependent on shipping prices
Paper supply is highly dependent on shipping prices. Much of the world's pulp is supplied by ship from South America and Asia. The end of 2022 saw a sharp drop in freight costs. Since last spring, sea freight prices have been cut by a factor of four. In January 2023, the Harpex index, which measures the price of transporting a container around the world, was close to 1,100 points, compared with more than 4,600 in the spring of 2022. Pulp producers will benefit greatly from these lower price tariffs, although prices still remain high and the sector is highly vulnerable to supply chain disruptions.
Despite challenges and important regional disparities, the paper packaging segment should benefit somewhat from the development of e-commerce and the structural need for protective packaging
Following the Covid-19 lockdowns, particularly in the spring 2020 when half the world’s population remained indoors, wrapping paper companies benefited greatly from the e-commerce boom due to shop closures. Since then, the changes in consumer habits which began at that time have largely continued. The outlook should be balanced, however, as trade will suffer from negative macroeconomic trends in 2023.
We expect sales to remain strong for packaging paper companies for several reasons. On the one hand, the overall forecast is for an increase in the share of online sales worldwide in 2023. This is due in part to changing consumer habits and the rise of new "quick commerce" mobile applications that allow groceries to be delivered in less than 15 minutes, in addition to restaurants offering take-away food via leading international delivery brands such as Uber Eats and Deliveroo, which has greatly increased the use of wrapping paper.
The packaging industry has benefited greatly from this boom in online sales. In particular, sales for corrugated packaging rose markedly during the crisis as it is essential not only for transporting food, medicines and medical equipment, but also for wrapping the large number of parcel deliveries to individuals. Hence, protective packaging (crystal paper, cardboard protectors, padded pockets, etc.) and traditional cardboard packaging are surfing the wave of the e-commerce boom and the number of parcels sent worldwide. According to estimates for 2022, packaging paper accounted for more than two-thirds of the paper consumed and the figure is still growing. The packaging industry therefore remains very vulnerable to global trade and household consumption. 2023 is at risk due to negative forecasts on macroeconomic trends.
Graphic paper remains the segment most at risk in 2023, the mechanical impact of digitalisation worldwide
The use of graphic paper has been on a downward slope worldwide in recent years as digital tools (e-readers, smartphones, newspapers, etc.) replace paper. This trend has been particularly pronounced in Europe, Asia and the United States, for example, while it is increasing but less intense in Latin America or Africa. For example, 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)) decreased by 18%.
A sector subject to environmental issues
The paper industry has long been criticised for its many negative effects on the environment (deforestation, high greenhouse gas emissions, soil pollution). However, companies in the sector have taken many initiatives to address these criticisms. The development of the production and use of recycled paper is a good example. In Europe, for example, paper and cardboard have a recycling rate of 85%, compared to 40% for plastic packaging, which suggests that there are significant opportunities in this segment. The increased use of paperboard as an alternative to plastic (straws, tableware) will therefore continue to benefit packaging paper in the years to come. However, the world's paper companies are largely concerned by one of the goals raised at COP26, namely, to halt deforestation by 2030. This will affect paper companies’ wood supply.
Last update : July 2023