Impress October 2024

The Growth Paradox: A Double-Edged Sword

Growing, Growing, Growing – It’s a mantra ingrained in our minds from the moment we embark on life’s journey. Economic growth, personal development—everything revolves around the concept of growth. But is it time to let go of this obsession?

In recent years, many major producers of packaging paper have chosen to expand their capacities, a trend observed across the global industry. Most of these investment decisions were made between 2017 and 2020, and until 2022, increasing capacity seemed like a wise choice. Margins on nearly all paper and board qualities were robust during and before the pandemic, with liner margins often exceeding EUR 100 per ton. However, as we step into 2024, we find ourselves grappling with overcapacity and market displacement in nearly every sector, except for virgin kraft and certain specialty grades.

The Cost of Expansion
Building a paper mill is a capital-intensive activity, particularly given current regulations and requirements. An investment of EUR 250 million for a 400Kto testliner plant is not far-fetched. The capex (capital expenditures) for such an investment fall within the current climate, and the return on investment, is projected at EUR 40-45 million per year. The first EUR 100 per ton has already been allocated.

Currently, the cost of raw materials for producing testliner and fluting averages between EUR 150-170 per ton (including recovered paper, chemicals, and other materials). Energy costs range from EUR 70-100 per ton, while labor costs are estimated at EUR 50-75 per ton. The conclusion? Profit margins are submerging..

Consequently, the paper industry is opting for “downtime” rather than resorting to dumping paper into export markets when that option is available. Changes will be necessary to reduce costs and improve market conditions and pricing. Recovered paper prices are falling, yet resistance is being met. European cardboard prices are approaching export levels, and supply remains scarce. The outlook for market conditions appears bleak, as the issue of overcapacity is not isolated to Europe.

EUROPE: Pricing Pressures: The Current Landscape of Bulk Grades

The decline in “brown” qualities continues. Cardboard prices in Germany are dropping by EUR 10-15 per ton, and we see the same trend in surrounding countries. Market prices for cardboard are currently between EUR 130-145 per ton delivered to the factory. As mentioned in the introduction, securing sales at economic prices is a significant challenge for the industry. Improvements are not expected in the immediate future, and further declines are possible. However, resistance is anticipated from exports, especially with upcoming strikes in Canadian and American seaports. Stronger demand from Asia may also be expected.

Mixed paper is not as hard-hit as cardboard. Prices in Germany are around EUR 140-160 per ton delivered to the factory. Factories are no longer downgrading cardboard to mixed paper. It is now becoming a reality that mixed paper is being rejected in favor of cardboard, leading to price depreciation. This strange development had already been predicted. The trend of making cardboard streams “lighter” is becoming the new hobby for many 😊.

Deinking qualities remain in good demand. The declining quantities of waste are outpacing the decreasing demand for graphic paper. The demand for deinking, newspapers, and magazines—if they still exist—will continue to hold steady in the near future. Deinking is trading at stable prices, and a slight increase in magazine and newspaper prices seems to be taking hold. In Northern Europe, the price for old newspapers (OI) ranges between EUR 225-245 per ton delivered to the factory. Prices for magazines, newspapers, and other “clean” deinking types are typically slightly higher.

Kraft grades are also in the firing line, just like cardboard. The demand for recycled kraftliner and other kraft paper types is suffering under the persistent economic struggles of the containerboard industry. Fruit kraft is priced between EUR 210-245 per ton delivered to the factory, K1 is around EUR 190-225 per ton, and tobacco board changes hands at around EUR 220-240 per ton.

Higher Grades

There is little news regarding the better grades of recovered paper. SOP prices are stable, multidruck/multigrade  is under some pressure but seems to be withstanding it, and the demand and supply for wood-free grades appear to be balanced. However, slight decreases are expected for unprinted grades. Prices for 3.16 and 3.18 have decreased by EUR 10-15 per ton in September and seem to be reevaluated. The lack of imports of unprinted grades from America could shift the situation in the coming months. With the current price level, imports are unfeasible, and any strikes could delay the fulfillment of demand.

Asia’s Market Pulse: A Mixed Bag of Opportunities and Challenges

Bulk Grades

A sign of life from India was noticeable in mid-September. Prices for cardboard 95/5 rose throughout the month to nearly USD 200 per ton CNF Mundra/Nhava Sheva. Skilled suppliers and traders were quick to finalize contracts. Indian buyers ultimately responded defensively to quick order picking, resulting in a lack of follow-up orders at the same price level. The price has currently fallen back to around USD 185-190 per ton.

Other markets such as Malaysia, Vietnam, and Indonesia are offering similar prices (considering varying freight costs), and the “real” demand seems to be lacking. Producers in Southeast Asia—export-dependent markets—are also struggling with sales issues and competing with other exporting markets for the small “free” buyers in the Gulf states, Pakistan, and Africa. Further declines in cardboard prices in Asia are expected.

Higher Grades

There is little news on the front regarding the demand and price of the better grades. Usual quantities are being sold, and prices seem to have found stability.

Other News

We are pleased to introduce Niels Scholtens, who recently joined the team. And ofcourse we take a moment to celebrate our team member his special day: the 20th of October Alwin Potgieter celebrates his birthday.