Food remains key for containerboard consumption in Latin America
Containerboard growth rates in the region are largely due to the food and agricultural sectors
The Latin American containerboard market is set to remain strongly dependent on domestic food consumption and agricultural exports to keep growing, Fastmarkets’ economist for the region, Rafael Barisauskas, said during a presentation on November 9.
The economist spoke during Fastmarkets’ International Containerboard Conference (ICC), held in Chicago November 7-9, which gathered more than 200 delegates from across the globe.
Potential for global recession
Among attendees, sentiment related to containerboard demand in 2023 was generally negative, with sources indicating that – after two very positive years of growing consumption during the pandemic – a global economic recession could decrease demand going forward.
Latin America is no exception to this forecast. Barisauskas noted that the region registered lower gross domestic product growth than the world average during the pandemic, and it is expected to grow less compared with the rest of the world this year. But GDP is not the single most important factor to consider when looking into containerboard demand in the region, he said.
“The sectors that are driving these GDP growth rates in the region are mostly the commodity and food exporting segments, which do consume containerboard but are not major sources of jobs in the region’s economy. The services, general industry and even retail sectors that are indeed important for job generation are not experiencing such a positive performance,” Barisauskas said.
For the economist, another important limiting factor for containerboard demand in the region is inflation.
“The problem is the eroding purchase power of consumers during inflationary times. Latin Americans have been experiencing this erosion pretty much since 2014. The pandemic hit the region, and demand stimulus plus global inflation started to fuel up the domestic inflation again - peaking at up to double-digit figures in Brazil, for example, since 2021,” he said.
Argentina is also facing a dramatic inflationary environment, with rates above 50% per year.
“The problem is that this historic high inflation plus the current scenario is putting a heavy toll on the poor, who can barely afford their basic expenses. The middle class was also hit heavily, reducing consumption to adjust to its new reality,” Barisauskas said.
Breaking down containerboard consumption in Latin America, Barisauskas stressed that 66% comes from the food industry, mostly animal protein, processed food and fruits and vegetables (as per below).
“Only about 15% of the demand comes from the consumer goods side, such as furniture, electronics, etc. And e-commerce, the all-time magic thing that would drive consumption, only accounts for 5% at the most,” he noted.
According to Barisauskas, the major driver for containerboard demand in the region will continue to be agricultural exports.
“We continue to see the number of people in the world rising, with another half-billion expected by 2030, according to the UN figures, and people need to eat. Latin America is a great food producer and should keep this important role as a food provider,” he said.
Mexico, however, has a different market position than its Latin American peers and, given increasing manufactured goods exports, benefits from its geographical positioning close to the United States.
In a discussion panel about the region, Luis Gonzalez, chief supply chain officer of Mexican corrugator Cartomicro, said that the outlook for Mexico is very good. He pointed to the growing trend of near-shoring, which is attracting industrial investments from companies that want to shorten geographical distances in their supply chains and get closer to important markets such as the US.
“The near-shoring effect is really happening, and we noted foreign investments in Mexico rising by 50% this year. Of course, most of new industrial plants will be installed in the timeframe of three to five years, and the country must work on infrastructure, labor and energy issues to keep attracting them, but we are very optimistic,” Gonzalez said, citing the automotive sector as one of the first to show new manufactories.
Another panelist, Jorge Luzuriaga, Latin American managing director of trading company GA-K Overseas, also said the region should be optimistic about containerboard demand in the long run.
“The picture may look negative if we think only about the next quarter, but I believe that we will also see many opportunities for the region, as investments are moving away from tensions taking place in Asia and parts of Europe,” he said.
Luzuriaga also believes that a lot of intertrade opportunities remain to be developed in Latin America, while agriculture exports will play an important role for many economies.
“Peru is becoming the number one in the world for berry production, while Chile will also have a great harvest of cherries this year,” he said.