What’s next in Brazil, Mexico, Colombia and Argentina after the Smurfit Kappa and Westrock merger?

We take a deeper dive into the impact of the merger on local paper packaging markets in Latin America

The announcement of Smurfit Kappa and Westrock’s proposed mega-merger shook the paper packaging industry. The joining of the two packaging giants, if the deal goes through, could bring to the market one of the biggest packaging companies in the world.

In Latin America, Smurfit Kappa currently operates packaging businesses in Brazil, Mexico, Argentina and Colombia, while WestRock has operations in Brazil and Mexico.

How will this potential mega-merger change the packaging capacity share in the region? And what are the impacts of the merger on Brazil, Mexico, Argentina and Colombia specifically?

A new leader in the containerboard market

In the containerboard market, the new company will account for 16.7% of the region’s capacity, overtaking Brazilian Klabin with 11.4% of capacity share.

WestRock had around 10.2% of capacity share before the merger while Smurfit Kappa owned 6.5% of capacity share. While WestRock has both virgin grades production, such as kraftliner and semi-chemical, and recycled grades, such as testliner and recycled medium, Smurfit Kappa has mostly recycled grades assets. Outside of the top-six producers, other companies still account for most of the market at 63.8% of capacity.

For the other industrial packaging paper markets, including cartonboard, boxboard, kraft and wrapping papers and other packaging paper grades, the two companies have little business, but rank as the third-largest producer in the region with around 7.8% of capacity share, behind Klabin with 19.7% and CMPC with 16.3%.

Before the merger, however, WestRock and Smurfit Kappa had only 3% and 4.8% of capacity share, respectively. Excluding the top-six producers, other companies account for 45.8% of the capacity share.

Brazil and Mexico lead the capacity allocation of packaging papers in Latin America, which totaled around 19.1 million tonnes by 2022, according to our latest estimates.

For the sub-grade analysis, the figures change little for Latin America. Brazil and Mexico continue to lead the capacity share, followed by Argentina, Chile and Colombia.

Overall picture for containerboard and other industrial packaging paper in the four countries

Use our interactive charts to take a look at the overall picture for the four countries in terms of capacity share by company by sub-grade. The charts collate the top five companies in each country. Hover over the charts to see the percentage capacity share and use the control bar at the top to zoom in on each country.

Brazil: Klabin maintains leadership

The merger between WestRock and Smurfit Kappa will mostly affect the containerboard market in Brazil, because the two companies do not produce other paper product grades.

Before the merger, WestRock ranked second for capacity share in Brazil at 11.4%, followed by Smurfit Kappa at 4.2%, both behind Klabin at 26.6% of the capacity share. This will change little after the deal, with the mega-merger accounting for 15.6% of the country’s containerboard capacity, still behind Klabin.

Other industrial packaging paper markets will not be affected by the deal, because WestRock and Smurfit Kappa do not produce other packaging product. Klabin accounts for 40.5% of capacity in those markets, including kraft paper and boxboard grades, with the second-biggest producer Suzano accounting for only 8.9% of capacity share.

Klabin’s business model aims to focus on centralizing production in its home country of Brazil in order to explore local advantages and sell to the big domestic market at very competitive conditions. To do so, the company heavily invests in technology to improve the productivity of its forests and has built global-scale mills with more than enough capacity to supply the local market in order to reduce the marginal cost of production.

Therefore, the company needs to export surplus production to offshore markets at competitive prices to keep marginal production costs low and competitiveness high in Brazil and abroad.

Mexico: Mega-merger to set a new market leader

The merger between WestRock and Smurfit Kappa will affect the whole packaging market in Mexico, as the two companies produce all sorts of packaging paper in the country but neither was the leading producer before the deal.

Prior to the merger, WestRock ranked second for capacity share in Mexico at 17.2%, while Smurfit Kappa had around 8.1%, trailing behind Bio-Pappel at 17.5%. Following the deal, the mega-merger will account for 25.3% of the country’s containerboard capacity, overtaking Bio-Pappel in the corrugated market.

The other industrial packaging paper markets also changed the division of capacity share following the merger, with the mega-merger accounting for 25.3%. Prior to the deal, WestRock and Smurfit Kappa were not market leaders, ranking fourth and sixth at 13.7% and 11.5% respectively, behind the tight leadership fought by Celfimex and Cartones Ponderosa at 22.9% and 20.9% of capacity share, respectively. The amount of capacity share between the new company and Celfimex and Cartones Ponderosa is still tight, but it changes the picture in the Mexican market.

The possibility of integrating some of the merger’s Mexican operations with the upstream supply chain owned by WestRock in the US will be key to set up the tone of competition in the Mexican market. WestRock behaves like a multi-national company that adopts the branching strategies predicted by GVC theories, integrating its supply globally from the pulp production to converting activity.

Argentina: Local producers still rule the market

The merger between WestRock and Smurfit Kappa will initially not affect the Argentinian market, as only Smurfit Kappa has operations there. However, the global structure and the integration of this mega-company can affect regional strategies in Argentina in the future.

The Argentinian containerboard capacity share is led by Arcor, who owns around 18.9% of the country’s containerboard capacity. The second, third and fourth top producers, Grupo NOA, Papel Prensa and Smurfit Kappa, tightly divide positions with 10.5%, 10% and 9.7% of the containerboard capacity, respectively.

As Smurfit Kappa produces no other paper than containerboard in the country, the capacity shares for other industrial packaging papers remain unchanged.

Colombia: Smurfit should consolidate its leadership

The Colombian packaging market was already led by Smurfit Kappa before the merger, with the company accounting for 29.7% of containerboard capacity and 46.4% of other industrial packaging paper, almost half of the market capacity.

While WestRock owns no assets in Colombia, the merger should once again consolidate the new company’s leadership in the Colombian market through synergies between the upstream and downstream operations of the two companies around the globe, reinforcing Smurfit Kappa’s leadership in the local market. Other local players may face a stronger competition going forward, as the integration between Smurfit Kappa and WestRock on a global level should provide the new company bigger scale gains and more competitive raw materials.

Access further insights into the Latin American markets

Fastmarkets’ forecasts are designed to help you get a deeper understanding of the future of your market. Each forecast comes with expert commentary on the impact of macroeconomic forces on supply and demand, the impact of supply and demand on price and inventory levels, as well as regularly updated price projections and many more market insights.

Learn more about the Latin American pulp, paper and packaging markets with our regional short-term forecast, the Latin American Paper Products Monitor, and our 5- and 15-year long-term forecasts. Get in touch with our team or sign up for a demo today.

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