- Sustainable and recyclable
- Increasing use of packaging paper due to the rise of e-commerce
- Strong demand from Asia
- Demand for cardboard and packaging paper closely linked to the economic situation
- Graphic paper gradually being replaced by digital media because of increasing use of digital technologies
- Sharp drop in demand for graphic paper during the health crisis linked to the COVID-19 pandemic
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 global market for the paper sector is expected to shrink from USD 896.6 billion in 2019 to USD 868.8 billion in 2020, i.e. a decrease of 3.1%, according to Business Wire. While the sector had already been facing difficulties, this decline is largely due to the global economic crisis caused by the health crisis and the measures taken to fight COVID-19. The market is expected to recover in the coming years, thanks in particular to the growth of some sub-sectors, and reach USD 1,030 billion in 2023.
The effects of the COVID-19 pandemic on this sector varied greatly across sub-sectors
Graphic paper seems to have been hardest hit by the COVID-19 health crisis. It was already in great difficulty, as use of graphic paper had started to decline in recent years, in line with the gradual digitalisation of the world economy. The crisis exacerbated this trend, mainly because the closure of companies and schools significantly reduced the need for printing paper. Conversely, other sub-sectors have benefited from the current economic situation. Packaging paper, in particular, has benefited from strong growth in e-commerce and hence in delivery activities worldwide, and from growth in paper products for personal hygiene. Demand for the latter type of products is closely linked to growing awareness about safety and hygiene, with the pandemic fuelling a surge in demand for surgical masks, disinfectant wipes, disposable paper towels and other related hygiene products. Specialty medical papers (for paper electrodes, microfluidic chips and paper-based biosensors, for instance) have likewise experienced strong growth in recent months.
Finally, it is worth noting that the sector is heavily dependent on pulp prices, which fell in 2019 after increasing in 2017 and 2018. While pulp prices edged slightly higher over the first half of 2020, logistical challenges due to the coronavirus and weak global demand put downward pressure on prices, according to the latest available estimates in the second half of 2020. Consequently, Coface expects the recovery in global pulp prices to remain contained in the first half of 2021. Movements in pulp prices have contrasting effects on market players depending on whether they are producers of pulp or processed paper.
Sector Economic Insights
Packaging paper is benefiting from the rise in e-commerce, which has been further fuelled by the COVID-19 crisis
Packaging paper is benefiting from increased demand for e-commerce following the consequences of the health crisis linked to COVID-19. The impact of COVID-19 was quickly felt on the overall purchasing habits of consumers throughout the world. The lockdowns imposed by the vast majority of countries in 2020 spurred very strong growth in e-commerce, as reflected in the success of world leaders in the sector such as America’s Amazon and China’s Alibaba. Growth was observed in grocery and hygiene products, but also in food deliveries through online platforms, for example.
The increase in online sales has 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 very large number of parcel deliveries to individuals.
Packaging paper was also used extensively during the crisis by restaurants offering take-away services, particularly via platforms such as Uber Eats or Deliveroo. This type of catering employs a considerable amount of packaging paper (paper bags, trays, etc.), and quarantine and social distancing measures greatly increased take-away sales, particularly in restaurants. Boxes, straws and bags, as well as food wrapping paper in general, are likely to become new growth drivers for the paper industry.
Protective packaging (glassine paper, cardboard protection, padded pouches, etc.) and traditional cardboard packaging also greatly benefited from the growth of e-commerce and the increased number of parcels sent worldwide.
Intensification of activities in the packaging paper market: a structural trendin line withalongsidethat goes hand in hand withthedevelopmentriseof e-commerce
E-commerce has grown at an average annual rate of 18% since 2000. However,Furthermore, e-commerce and uses about 7 seven times more corrugated cardboard per dollar of goods compared to than than traditional logistics.
Before the crisishit, the paper sector had already been benefiting from the rise of e-commercehad already been benefiting the paper sectorfor several years,andwith e-commerceit hasbecomingean important drivering force in theof demand for corrugated cardboard and the materialsoffrom which it is made.In 2019, the sectorpredictedestimatedthat total paper packaging consumption driven by e-commerce demand would increase by 64% between 2019 and 2025.TodayCurrently, withGiventhe impact ofthe crisis on e-commerceon the crisis,it can be estimatedwe thinkthatthiseisincrease could be even higher.
However, while this strong increase is a boon for packaging papermanufacturersproducers, itisalsocreatesprovidesa strong incentive for online retailers to look for alternatives to corrugatedcardboard, such as (alternative fibres,andbiosourcedcoatings, etc.).Indeed, rRetailers are under pressure to reduce the intensity of their cardboard usagee,bothfor environmental reasonson the one hand,but also because the increase in paper pulp prices in 2017 and 2018hasdrewawntheattention towardshighlightedthis cost category. However, this incentive to use more sustainable resources still seems marginal,and packaging paper remains the most used material with the rise of e-commerce.
Graphic paper is still the most at-risk segment, although challenges remain for the sector as a whole
The decline in demand for graphic paper has been exacerbated by the consequences of the COVID-19 pandemic. The use of graphic paper was already on a downward slope in recent years, as digital tools such as readers, smartphones and online newspapers have been replacing 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%. The COVID-19 crisis greatly aggravated this situation. In many countries, bookstores were closed during lockdown, which had a strong impact on the sector. Meanwhile, the closure of schools, universities and many businesses led to a very significant decline in printing. The shift to virtual teaching, meetings and conferences greatly reduced demand for paper in all regions worldwide. Even with some printing for commercial or educational purposes being done at home, the drop in the use of graphic paper will be much greater than in a traditional recession. Accordingly, demand for writing and printing paper, as well as related products such as notebooks and pads, has fallen. The printed advertising (flyers, etc.) and newsprint sectors have also collapsed because of the effects of the COVID-19 crisis. This situation is bound to accentuate further the downward pressure on pulp prices and the decrease in production capacity utilisation rates. In this context, and considering the growing use of digital technology, which has been further intensified by the crisis, Coface expects the sector's activity to continue declining in 2021.
The use of packaging paper is sensitive to changes in economic conditions. Cardboard, kraft paper and other packaging papers are used to package products from other sectors. As a result, demand for packaging paper is intrinsically dependent on other markets (retail, e-commerce, logistics, etc.). The paper industry is thus highly sensitive to changes in economic conditions because it depends directly on the situation of other sectors. When highly procyclical sectors, such as physical or online retail, are depressed, demand for packaging paper necessarily decreases. This will be the case for the coming period because while packaging paper may have benefited from the growth of e-commerce, the global economic crisis, if it continues, is likely to have a significant impact on packaging plants in many countries. For instance, the paper sector in China, the world's number-one paper producer, could be adversely affected by the economic situation of the main pulp exporters such as the United States, for which Coface expects a GDP contraction of -4.8% in 2020, or Brazil, whose GDP is expected to shrink by 5.5% in 2020. Furthermore, beyond the strictly economic conditions, the packaging paper industry is also vulnerable to regulatory and institutional changes. For instance, some countries are seeking to restrict tree cutting and/or promote responsible forestry for paper production due to environmental considerations. The activity of some sector participants may therefore be temporarily hampered by the need to reorganise or adjust practices and operations.
The intensity of the momentum driving the packaging paper industry's activities remains highly contrasted from one region of the world to another. For instance, in regions where e-commerce is less developed, demand for packaging paper is weaker, since e-commerce is one of the main demand drivers for this sub-sector. This is true in Latin America, which accounts for only 2% of world e-commerce, and in Africa and the Middle East, which account for only 1% of the market, despite vigorous growth in the sector in these two regions in recent years. Considering this trend, Coface anticipates that the packaging paper sub-sector will continue to drive growth in the paper industry in the medium and long-term.
Last update : February 2021