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Latin American containerboard buyers that faced severe problems acquiring paper due to tight supply in 2021 can expect a more stable supply scenario in 2022, according to Fastmarkets economists.
The most recent Fastmarkets forecast for the continent shows that volumes from the new Klabin and WestRock projects in Brazil, which started up in mid-2021, are reaching the market. At the same time, several projects for recycled containerboard in the United States are projected to begin operations later this year, which will bring North American producers back to full strength in the export markets.
“The big picture is that in 2021 we’ve seen insane containerboard demand growth in the US while no capacity was coming, creating an incredible tightness in the market [that was] also affecting Latin American buyers that were traditional buyers of US paper,” Derek Mahlburg, Fastmarkets’ director for North American Packaging and Paper.
He continues, “but as we move to 2022 and 2023, the bulk of new projects in the US will come on line; and even if demand continues at a healthy pace, available capacity will be more than enough.”
In South America, where Brazil plays a predominant role in the containerboard market, Fastmarkets’ economist for Latin America Rafael Barisauskas predicted a similar loosening in supply.
In just the first quarter of 2022, Brazil exported 60,000 tonnes of kraftliner to Latin America, compared with 176,000 tonnes in the entire year of 2021.
“If Brazil keeps the same export pace throughout the year, the country can reach 240,000 tonnes of exports,” Barisauskas said.
The economist pointed out that slower demand growth versus capacity in 2021-22 may lead to a less tight supply/demand balance.
“In developing Latin American countries, the structural high inflation is already hurting consumption. There is no guarantee of higher consumer demand for low-income segments, while exports are the main driver for higher domestic prices,” Barisauskas said.
In this environment, operating rates in Latin American containerboard mills should move from an average of 85% in 2021 to 84% in 2022.
…operating rates at this level suggest a comfortable balance, with little room for price volatility…
“In general, operating rates at this level suggest a comfortable balance, with little room for price volatility like we have seen in the past two years,” Barisauskas said.
Mahlberg noted that it is “pretty clear” that the situation noted in the containerboard market in the past two years is changing, with the scenario getting “easier” for buyers now.
“But we cannot forget that there are still downside risks for supply, such as the recent war in Ukraine that took out Russia from the containerboard market. European mills are also facing a lot of problems with energy costs and are less competitive, opening further room for US exports there as well, not only in the traditional markets such as Latin America,” he said.
In 2021, US containerboard exports to Mexico were strong and improved by 25.3% year on year to reach 1.3 million tonnes; a similar volume is expected for 2022, Mahlburg said.
Last year, the economist noted, the export volume from the US was good because Mexico could receive products by rail and roads while the international logistics remained congested.
Logistical issues played a “big part” in determining export volumes last year, Mahlburg said, adding that: “Mexico is at least relatively convenient” for US producers.
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.