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Domestic demand for containerboard in Brazil remained weak in July, according to market participants; however, prices stabilized, and sources indicated that the market has probably reached a bottom, citing expectations that sales will improve in the second half of the year.
Historically, the best three months for containerboard sales in Brazil are August, September and October, when most demand for year-end sales takes place and corrugated board shipments register the best results for the year.
Prices stood mostly unchanged in July as many players stopped machines to calm down the market and reduce inventories in the chain.
“This is having some effect despite the fact that prices for most suppliers have gone too low; it is not acceptable that we see prices reaching pre-pandemic levels considering all the inflation of costs in the period,” a source stated, referring to recycled paper.
In the virgin-based market, however, Fastmarkets’ price survey found that kraftliner prices in July were down 4% year on year but up sharply by 74.8% compared with July 2020, early in the pandemic.
Sources reported that there is still pressure on this grade, noting that the price differential with recycled paper became too big.
“Producers are integrating as much as they can in order to hold prices while they expect the international market to come back and begin to get some tonnages back,” a second source said.
According to that source, even large companies like Klabin have openly informed the market that they have closed capacities and stopped a kraftliner paper machine (PM) to relieve the pressure and are integrating much more paper.
In the export market, a third market participant indicated that kraftliner sales are still slowly growing back to more positive figures, after moving from an average of more than 40,000 tonnes per month in the first half of 2022 to less than 20,000 tonnes in November last year.
According to data from the country’s Foreign Trade Secretariat (Secex), Brazil exported 32,579 tonnes of kraftliner in June, while 35,005 tonnes were shipped abroad in May.
“There is a slight sentiment of improvement on kraftliner exports; we hear about quotes coming from Peru, Ecuador and countries that disappeared for a few months. Prices are very low for exports, however,” the third source said.
In the recycled market, prices for old corrugated containers slumped 29.4% year on year. According to sources, such low prices discourage collection by recyclers.
“We are creating again a big problem with recovered paper supply for the future, [because] recyclers are not interested in getting paper. Buyers should not pressure prices to this point as it dismantles the entire chain. If we see a minimal recovery on demand soon, there will be a spike in prices and no supply,” a fourth contact said.
Recycled medium price was unchanged in July but down 18.6% versus a year ago, while testliner was 15.4% lower in the annual comparison.
“We see prices of low-quality material reaching even lower levels, but most producers are holding as they can at unchanged prices expecting demand to come back now in the next three months. Some sectors are really bad, such as automotive parts, but others such as electronics are showing some improvements also supported by the currency exchange rate, as Brazilian exports are getting more competitive,” a fifth market participant said.
Only sack kraft prices have remained unchanged in the past year. Because there was less growth on volumes for this market, sources said it was easier to keep values stable even with weaker demand.
A source in this market segment said that buyers had calmed down since prices stopped climbing.
“We see sack kraft demand quite stable compared to a year ago, but we have more players active in the Brazilian market, such as CMPC that acquired a mill here and even Mondi that is bringing paper from its Colombian unit,” that source said. “The situation is more stable now for buyers that do not expect any more price raises month after month.”
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Learn how to monitor packaging prices using cost and price indices and understand the underlying cost drivers, from material cost to labor, energy and more. Examples include cartonboard, liquid container and paper bag.