Folding boxboard capacity in Europe is set to grow by over a million tonnes per year
How could the FBB capacity expansions impact the European market?
With well over a million tonnes/yr of new folding boxboard (FBB) capacity planned by European producers coming to market in a few years, paper and board (P&B) industry players are split over whether this is a healthy and needed addition to enable the industry to grow, or whether producers’ eyes are bigger than their stomachs, with the capacity likely to cause a glut in Europe.
The number of new capacity announcements has come at a rapid pace over the past two years. Last year, Metsä Board said it would increase output at its Husum mill by 200,000 tonnes/yr with a rebuild of BM 1, which is currently ramping up to its new capacity. Before the rebuild, the machine produced 400,000 tonnes/yr and the full, new capacity of some 600,000 tonnes/yr is projected to be reached in 2025.
In January, Metsä Board announced that it had begun an environmental impact assessment for a new FBB mill in Kaskinen, Finland, which would have a capacity of some 800,000 tonnes/yr. An investment decision is expected at the earliest in 2024. In May, AFRY announced that it had been chosen by Metsä Board as the engineering partner for the pre-engineering phase.
In October of last year, Stora Enso announced that it would convert the idle PM 6 at its Oulu, Finland, mill to produce 750,000 tonnes/yr of FBB and coated unbleached kraft (CUK) paper by 2025. Stora Enso has said that it will invest some Euro 1 billion ($1.1 billion) in the conversion and has chosen Voith to carry out the works.
The demand for both virgin and recycled consumer board is expected to grow by more than 11 million tonnes globally, approaching 57 million tonnes by 2030.
“The investment in Oulu allows us to build on the plastic substitution trend,” the company said in its Q1 2023 financial results.
These new projects would result in close to 2,000,000 tonnes/yr of additional capacity, depending on the FBB/CUK mix at Oulu and assuming that Kaskinen goes ahead as planned. This enormous amount of new FBB, which will soon make its way onto the market, has industry players split on what its effect will be.
Phasing out older machines?
One of the perspectives that surfaced during interviews with market players on a number of occasions was that the new and rebuilt machines are likely to be replacing older ones, so that at the end of the day, the net capacity change would be somewhat lower. “I wouldn’t be surprised if the new capacity is replacing other machines,” a producer said. “The new capacities could result in the closure of smaller mills,” another producer weighed in.
Stora Enso, in its Q1 2023 results, also suggested that such a shuffle would be possible. “Products from other consumer board sites can be moved to Oulu, streamlining the product portfolio and improving productivity in all sites,” the company said.
And while on the topic of closing mills, sources pointed out that the new Scandinavian capacity has the potential to pose problems for smaller producers outside the region.
“The cost base in Scandinavia has an advantage over continental European producers. [Continental European producers] will hardly be able to compete at the end of the day and sustainability and carbon emissions will become bigger and bigger questions. There are machines [in central Europe] that should have closed [years ago] but are still around,” one producer said. “Smaller players might not survive,” another added.
New volumes bring opportunity
There were those who were optimistic about the potential for the additional capacities to be used. “The market always balances [out] at the end of the day,” a converter said. “[The producers] have probably done their research. They will find their channels,” another added.
“I think [the capacity increase is] a good development. The market needs it. However, logistics, freight and storage need to be under control. The capacity needs to be managed properly. It’s not enough to say that we have [additional] capacity. The whole process needs to be more focused,” a third chimed in.
The sky is not the limit
Others voiced more cautious opinions, citing the overcapacity of other P&B grades as cautionary tales. “Everyone thinks that the sky is the limit, but we have to be very careful not to wind up in the same dilemma as newsprint,” said a producer. “It’s too much new capacity, unless, for example, the EU says all plastic-based dairy products have to be fiber-based,” a converter added.
Input from the European Commission, which will help to guide the plastic replacement shift, was also a hot topic. “The legislation coming from Brussels will have a huge impact,” a producer said. “There is the potential for [the new volumes] to result in overcapacity. Everything relies on [the outcome] of plastic replacement,” another said.
The plastic replacement shift is progressing well, according to contacts, who have reported on a number of occasions that ever since board availability has improved, conversations relating to the potential shift have picked up again in earnest. “We still see strong demand toward plastic replacement. The pipeline is astronomical,” said one converter.
Still, others suggested that the shift away from plastic is not guaranteed. “The plastic replacement spirit is there, but not at any cost,” a trader said.
FBB destined for export markets?
There is also the possibility that not all of the new FBB capacity is slated to stay in Europe. “The capacity increases will result in more board for the US,” one converter said. However, the macroeconomic situation will also likely have an impact on the success of exports as a solution to managing the new volumes. “The [current] exchange rate does not support exports to the US,” a producer said.
One producer cautioned that there may not be sufficient wood supply to support the planned volumes. “There will probably be demand for the additional capacities. But are there adequate raw materials? There is a fight over wood going on already. I am not confident that there is raw material [to produce these additional volumes],” he said.