- Sustainable and recyclable
- Strong demand from Asia
- Increasing use of packaging paper due to the rise of e-commerce
- Demand for cardboard and packaging paper closely linked to the economic situation
- Graphic paper gradually being replaced by digital media owing to increasing use of digital tools
The paper sector is divided into two main sub-segments – graphic paper and packaging – that are on contrasting paths. The use of graphic paper is declining as the use of digital technology increases, while consumption of cardboard and packaging paper is increasing, driven by e-commerce on the one hand and the sustainability and recyclability of paper (compared to other materials such as plastic) on the other hand. Recognition of environmental issues is also reflected in sharp growth in the use and production of recycled paper and in the need to innovate in production methods. In 2018, paper was the most recycled product in Europe and accounted for 71.6% of paper consumption according to the Confederation of European Paper Industries (CEPI). This trend may benefit the sector in the long term as paper can be used as an alternative material in various fields such as packaging and construction. Paper sector actors are highly innovative and are constantly seeking new possible uses for their products, which will allow the sector to diversify and lessen its dependence on graphic paper (which is on the decline) and packaging paper (closely linked to economic conditions).
The sector is heavily dependent on pulp prices, which after increasing in 2017 and 2018, fell in 2019 due to the economic slowdown in China. China alone imports 35% of the world’s wood pulp exports. Movements in pulp prices will have very different effects on different sector participants depending on whether they are pulp or paper producers, as paper producers use pulp as an input.
A tough 2020 is in store for the sector. Graphic paper consumption is expected to continue to decline, following the trend observed in recent years. Consumption of cardboard and packaging paper, which is more procyclical, is expected to slow with the cooling pace of activity.
Sector Economic Insights
The transition to digital and e-commerce is transforming the sector
The use of graphic paper is on a downward trend as paper media are replaced by digital tools such as smartphones, readers and online newspapers. 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%, or 4% per year. The decrease was common to all three UNECE regions, although North America experienced the largest drop (-21%). As a result of this declining demand, paper mills are switching their machines to the production of packaging paper, leading to a decline in graphic paper production capacity in favour of packaging paper. This trend is expected to continue in the coming years.
Packaging paper consumption is rising, driven by the development of e-commerce and the increasing use of paper as an alternative material to other packaging, such as plastic, which are considered more polluting. Consumption of cardboard and packaging paper increased by 11% between 2013 and 2018 in UNECE countries.
This trend, comprising a shift from graphic paper to digital and increased production of packaging paper, is common to all regions of the world.
Economic growth in Asia-Pacific (especially China) has increased paper consumption and production in the region. In 2017, Asia was responsible for 46.4% of the world’s paper and cardboard production. It is therefore obliged to import pulp as an input for its paper and cardboard mills, although it already accounts for 22% of the world’s pulp production. In 2018, China accounted for 38% of world pulp imports, which came mainly from Latin America and North America.
Paper sector hard hit by the economic slowdown
Global wood pulp prices are falling, mainly because of the global economic slowdown and diminishing Chinese demand. Lower wood pulp prices will have different effects on different participants. They will benefit paper producers (which use pulp as an input) but will lower pulp producers’ margins. Major global pulp exporters such as Brazil, Chile, the European Union, the United States and Canada are therefore expected to be negatively impacted by the fall in prices. In addition, the slowdown in economic activity in China (5.8% in 2020 after 6.1% in 2019 and 6.6% in 2018) will hurt all major pulp exporters, as China imports 35% of world exports.
In the United States, paper production fell by 3.3% in the third quarter (Q3) year-on-year. China decided not to impose additional tariffs on US products, following the phase one of the trade deal, signed between US and China on December 13, 2019. More than 30% of US paper and pulp exports went to China in 2017, so those tariffs would have had an impact on US producers, especially as prices fell throughout 2019 and Coface expects this trend to continue this year. US paper consumption is expected to slow in 2020 because of the decline in graphic paper consumption and the economic slowdown (1.3% in 2020 after 2.2% in 2019 and 2.9% in 2018). In Canada, paper production is decreasing sharply and fell by 10.6% in Q3 2019, after shrinking by 1.6% a year earlier, partly due to China’s cooler economic growth.
In Europe, paper consumption decreased in 2018 (-1.2%). The decline was attributable both to the fall in graphic paper consumption (-4%) and to the slight downturn in packaging paper consumption (-0.1%) following the economic slowdown in 2018. Coface expects growth in Europe to slightly decline in 2020 (1.3% after 1.4% in 2019), so paper consumption should continue to decline this year. Paper production decreased slightly in 2018 (-0.1%), as the increase in packaging paper production (1.4%) was not sufficient to offset the decline in graphic paper production (-3%). Overall, paper production (mainly graphic paper and packaging paper) is expected to continue to decline in 2020, in line with the trend seen in 2019. This is due to the continued downturn in graphic paper production as well as in packaging paper production estimated for 2019 relative to 2018, owing to reduced overall paper consumption.
In the Commonwealth of Independent States (CIS), paper and cardboard production slackened in 2019 (+1.2% after +3.8% in 2018). The slowdown was largely due to Russia, which in 2018 accounted for 84% of the region’s production. Accordingly, the region was hit by the economic deceleration in Russia in 2019 (+1.1% after +2.3% in 2018). Coface expects growth to rebound slightly in Russia in 2020 (+1.7%), which should lead to an acceleration in paper production. Paper and cardboard consumption in the CIS decelerated in 2019 (+0.6% after 2.6% in 2018) following the economic slowdown, which also affected the countries in the region (1.8% after 2.7% in 2018). However, activity should pick up in 2020 (+2.3%) and drive CIS paper consumption growth upwards.
In Latin America, Brazil’s paper and pulp production decreased by 2.5% year-on-year from January to July 2019. Pulp exports fell by 1% year-on-year between January and August 2019. In Chile, the world’s fourth-largest wood pulp exporter, pulp and paper production declined by 2.7% in Q2 2019, down from +0.9% in Q1 2019. Between January and August 2019, exports of pulp and paper fell by 17% compared to the previous year (in value terms). China’s pressure on pulp prices, following its economic slowdown, has lowered export prices, crimping pulp manufacturers’ revenues.
Last update : February 2020