Cartonboard market shows no signs of relief from demand or input costs
War, energy price surges and logistical challenges dash hopes of any easing in the European cartonboard market
The European cartonboard market roared into 2022 with the same outstanding demand and the same supply constraints that were seen at the end of 2021. Still, some optimistic players thought in January that it was conceivable that the market could relax slightly by the end of this year.
However, just two months into the new year, the Russian invasion of Ukraine and the subsequent energy price surges and logistical issues associated with the war dashed any hopes of an easing of the market.
Price increases in the range of €50-180 per tonne for folding boxboard (FBB) and €140-155 per tonne for white-lined chipboard (WLC) were announced by all major producers during Q1, sometimes exclusive of energy surcharges, and players on all sides of the market anticipated more to come.
Folding boxboard contract times have been shortened
The new year greeted buyers with significantly shorter FBB contracts than in years past due to the volatile market situation. “Even some of the big Scandinavian producers stop at three-month validities,” recounted one large converter who was used to year-long or half-year contracts at the very least. One producer confirmed this, saying, “contracts last three months at a time. Everything has become too unpredictable.”
Another producer observed that the shortening of contracts was a true sea change on the market. “Twelve months used to be a must,” he said.
Mills were said to all be running at full capacity and customers who were counting on FBB volumes because they had recently switched from plastic to a board-based alternative were frantically calling sellers. “This is not nice, this is not fun,” a producer on the receiving end of those calls said. Some producers mused that the inability to source board could result in end-users slowing down their plans to replace plastic packaging with board-based alternatives.
Brand owners are placing multiple orders in a hectic market
A number of players also said that end-users were placing orders with multiple converters, which was making things even harder to manage. “Brand owners are creating hassle, requesting the same orders from multiple converters [in the hope that one of them will be able to fill it]. These big companies have always been lousy at planning. All of the sudden, we will see a nosedive in demand,” one producer complained. The only other thing that contacts cited which might limit demand was the rising inflation rates which could dampen consumer buying.
Brand owners are creating hassle, requesting the same orders from multiple converters.
All eyes are on Russia
Though the full effect of the war in Ukraine will not be known on the FBB market for months, there were some players who suggested that given the pullout of many western European FBB producers from Russia and Belarus, coupled with the inability to deliver to a war zone in Ukraine could lead to a loosening on the market if the previously exported board volumes stay in Europe.
Estimates of European volumes of FBB that are exported to Russia, Belarus and Ukraine ranged from 8-15%. “Producers pulling out of Russia could change things and loosen the market a little,” one end-user mused.
Still, other players were less convinced that the volumes that will come out of Russia, Belarus and Ukraine will stay in Europe. “Producers might be prioritizing their global customers,” one converter said, referring to American and Middle Eastern buyers. “We have been asking producers about volumes coming out of Russia and there is nothing available,” he added.
Baden mill shut sets scene for a troubling year
The closure of the Baden board mill in Germany at the tail end of last year, which removed an estimated 150,000 tonnes per year of WLC from the market, set the scene for 2022 and ensured that problems would be posed for players on the WLC side.
A market source said that the now-defunct mill had accepted orders for January and February though they were not able to fulfill them, which left players scrambling and calling around for volumes, although in large part, producers were not able to help their customers out with any additional board.
Increases are pressuring paper buyers
As the energy surcharges implemented by some producers last year carried over into the new year, some expressed doubts that they would ever be scrapped. “Producers say the surcharges are temporary, but they will last,” posited one converter in January.
And last, they likely will, after the impact of the Russian invasion of Ukraine on energy costs. “The new input costs are eating into our first increase,” one buyer whose company had already announced a second increase for the year said. “If [energy] spot prices become reality, we will need another €150-200 per tonne,” said a producer who had already announced an average increase of €140 per tonne for April.
“I am afraid we might kill a bunch of our customers. There is a high risk of bankruptcies. But we cannot take the costs,” he said, adding that it was too early to contemplate stopping production at mills like some producers of other paper grades have done.
I am afraid we might kill a bunch of our customers. There is a high risk of bankruptcies.
“When you are fully sold out, but you don’t earn money, something is wrong,” said one major producer who hiked prices with effective dates in January and again in March, defending the increases. Still, the buying side of the market was not pleased. “To come with such a thing in January with fixed budgets is crazy,” one buyer said.
“Customers have long memories. By 2025, there will be enough capacity on the virgin fiber side of the market. [Producers] are overdoing it and it is not good for relationships. My plan is to switch to more virgin board in the future,” he added, citing the quality and sustainability of the grade in addition to the additional capacity that will be on the market. “The producers have the power right now, but they are abusing it,” another chimed in.
My plan is to switch to more virgin board in the future.
War in Ukraine is limiting truck driver employment pool
While energy is likely the easiest area in which to observe the impact of the war in Ukraine, the effects may ripple out even further. Ukrainian truck drivers make up a significant share of the European market and because men aged 18-60 are being required to stay inside the country to fight, they are having to leave their jobs. While a source said that this was being felt in eastern Europe already, the effect had not yet trickled over into western Europe.
At the moment, stock levels are said to be at “historic lows” and one FBB producer said that “recycled [board] projects get a ‘no’ from everyone in the FBB market,” suggesting that the existing banner demand for the grade will not go anywhere for the foreseeable future.