In today’s paper market, there several disruptive trends. First, paper use is in decline. This is not for all paper types and not all uses but, overall, the trend is negative. Second, the demand for corrugated cardboard is increasing—driven by the growth in packaging for online shopping markets. Third, paper mills and the industry in general consumes a lot of energy in their production processes.
Its logical that if demand for a specific type of paper is reducing and the market for a different grade that you can produce on the same machine is increasing, you switch production. If you cannot make the product in demand, then chances are you close the mill (or minimally scale back production).
But if we add a pandemic, which causes demand for paper to drop, some production capacity becomes permanently lost. Across the world, over the past few years, mills have been closing. In fact, there are at least 50 fewer paper mills operating now than there were at the start of 2019. If we increase demand quickly and suddenly, supply cannot keep up with demand.
In Europe, this is the scenario today. In April 2021, Stora Enso (the Helsinki, Finland paper company) announced that it would close its Veitsiluoto and Kvarnsveden Mills in Sweden, claiming that both mills were operating at a loss. The net effect will be to reduce the company’s sales by an estimated €600M and reduce the company’s paper making capacity by 35% (1.4M tons). At the time of the announcement, job losses at the factories were expected to be high.
The company also cited overcapacity in Europe as another reason for the closures. The closing mills produce uncoated paper for office use, magazine papers, and newsprint—all products seeing falling demand as their content consumption moves away from the printed page and online. Packaging is the only product area seeing increasing demand.
Fast forward to February 2022 and Finland’s’ other paper manufacturer UPM, who produces label and web-offset papers, is in the grip of industrial action. The consequences of which has caused a stoppage of all paper from all the company’s mills leaving the country.
Intergraf, the trade association for the European Graphics Industry (with 20 federations representing 19 countries across the region), called on UPM to settle the dispute quickly. Supply problems, already compounded by high global shipping costs, are biting hard in Europe. Association members are claiming that up to 40% of the paper members needed supply from the middle of February 2022 onwards is unobtainable. The net result is that marketeers who have recently returned to print as a communication medium are returning their marketing spends to the safer and measurable digital homeland.
Ulrich Stetter, Intergraf President, states: “We have real bottlenecks in our paper supplies. We can see that this shortage will increase in the upcoming months. We are losing loyal print buyers, catalog users, due to production costs and shortage of paper. There is a big risk that those print buyers are not coming back. This jeopardizes the rebound of our industry and our suppliers after the pandemic, and both will suffer irretrievable damage.”
As Stetter alludes, there is yet another dimension to this storm in the paper market. Energy prices are rising by unprecedented values, partly caused by high global energy demand and climate change factors. There are also lower exports of fuels from Russia into Northern Europe (Germany), possibly politically motivated as the Nord Stream 2 gas pipeline should be operationally ready in the Summer of 2022. The EU currently imports over 40% of its natural gas from Russia. Natural gas price inflation in the EU in January 2022 is 28.6% compared to January 2021.
The net result of these multiple pressures is that paper prices are rising. The list of paper mills, coaters, merchants, converters, finishers, and distributers announcing price hikes increases daily. Here are just a few recent examples:
- Mitsubishi HiTec Paper will increase the prices for all specialty papers (i.e., thermoscript, jetscript, giroform, supercote, and barricote) by 10% worldwide from March 1, 2022.
- Navigator Company announced February 14 that it will increase its Uncoated Woodfree Paper prices in Europe by 8%-15%, following already implemented price increases during January and early February in the US (6%-9%) and in overseas (namely in the Middle East, North Africa, and Latin America of 7%-10%). New European prices will be effective for all dispatches from March 1, 2022 onwards.
- Greif, Inc. announced a $50 per ton price increase on all uncoated recycled paperboard (URB) grades on January 19, 2022, as well as a minimum 6% increase on tube and core and protective packaging products.
Where does the paper industry go from here? That is a tough question. Trade association lobbying can only have a limited effect on the geopolitics at play in energy markets, and the increasing digitization of paper-based workflows are a natural consequence of such trends.
Positively though, there are some office paper processes that cannot be digitized. Applications in healthcare, logistics, and graphics fall into this category. The educational market also understands that human interaction with paper is proven to increase recall, which should also slow any erosion of paper demand in the market, by a transition to digital technology.
Rightsizing the paper industry and finding the right price/value proposition for the printed page is work in progress but, at least, the move away from commoditization of paper in some market segments may have started.
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