Containerboard is the major commodity packaging grade produced by the global paper and board industry, accounting for over 40% of all tonnage produced annually.
Given the importance of containerboard as a box raw material and ultimately as the transport medium for so many industrial and consumer products, its important to understand the regional differences found in containerboard product and the role fiber and energy mix plays in cost. We’re able to analyze this by using Fastmarkets’ Analytical Cornerstone cost benchmarking tool.
China is the largest producing region making up a third of global capacity, followed by Europe (including Russia), North America and Other Asia with around one-fifth of global capacity each. Latin America, Oceania and Africa combined play a minor role at less than 10%.
Fiber mixes vary by region
Containerboard product mix differs by region, with the capacity weighted average share of linerboard versus medium coming in at roughly 60/40 and around 70% of the total capacity being based on recycled fiber.
North America stands out as the only major producing region with a higher share of virgin/mixed furnish products – most virgin products include some recycled fiber for cost and quality benefit, thus are named mixed – while the other regions’ production is mostly based on recycled fiber.
Some fibers require more energy to process
Looking first at the specific energy per tonne, we can see that operations in China and Other Asia consume on average less energy per tonne compared to Europe and the Americas. While some of the difference can be attributed to older and less-efficient production equipment, it is also related to the higher share of integrated virgin pulp production in the latter regions.
Although integrated chemical pulping is more complex, energy consuming and the fiber yield is lower compared to recycled fiber pulping, the technology involved does provide these mills with an excellent source of bioenergy in the form of black liquor that is burned to produce steam and electricity for containerboard production and, in some cases, allows surplus energy to be sold.
If we look at the fuel mix by region, we can see that Asia, especially China, relies heavily on coal to produce containerboard, while the use of natural gas is more predominant in Europe and the Americas.
Typically, the industrial fuel mix is always affected by many factors, including local availability, price and taxation of fuels, while equipment and its capex also plays its part. For example, multi-fuel boilers for biomass and waste are relatively expensive investments compared to simple coal or gas boilers.
Eco-friendly fuel options can be more pricy
When discussing energy and fuel usage, it is fruitful to link this to emissions as different fuels emit varying levels of fossil carbon emissions when combusted. Figure 4 shows how the regional energy usage from Figure 3 translates to a fossil carbon dioxide (CO2) footprint for each producing region.
The outcome here is that the regions with more biofuel usage (i.e., black liquor, bark, other biomass) have lower fossil CO2 emissions per tonne, while their extensive coal usage pushes China and other Asia to noticeably higher levels than Europe and North America.
(To read more about European producer energy costs, read this viewpoint by Ville Henttonen.)
Producers face more pressure to reduce carbon emissions now that it’s becoming more important to customers and governing entities. They can achieve this by switching to different fuels or reducing specific energy consumption.
A less fossil CO2 intensive fuel such as gas typically has a higher price per energy unit. The implementation of various emission trading systems (ETS), such as that in the EU, is intended to balance out the difference via a carbon pricing mechanism.
Volatile fiber markets have the largest price impact
For analyzing containerboard cost competitiveness, fiber cost is the most significant item, accounting for around 60% of global cash costs by our most recent fourth quarter 2021 estimate. Energy accounted for roughly 18%.
Fiber and energy prices also tend to be quite volatile as fiber, especially market pulp and recycled fibers, and industrial heating fuels follow global market trends, making them important items to monitor. While the percentage share of these items hasn’t dramatically changed compared to the fourth quarter of 2020, the absolute cash cost figure has increased significantly by over 30%.
These containerboard production costs are passed through the supply chain, and ultimately influence a box buyer’s price.
Price fluctuations can vary by regions due to fiber and energy mix
However, it is crucial to point out that when comparing equivalent virgin kraftliner and recycled testliner products, over the same one-year period, the increase in costs has been less than half in virgin-based products compared to recycled-fiber-based products, with the main contributing factors being the smaller increases in fiber and energy costs at virgin-based mills.
For virgin mills, typically locally supplied wood doesn’t experience big price fluctuations – although in some regions exchange rates do play a more pronounced role – and, as previously discussed, the lower reliance on fossil fuels mitigates the energy part. And if the mill can sell electricity to the grid, it might even benefit from higher electricity prices.
You can learn more about mill cost competitiveness and risk scenarios from our latest study, here.
