Chasm looming between packaging demand, supply for Indonesia’s containerboard industry

Key takeaways:

• Indonesian containerboard prices have been rising since 2025 due to factors like China’s pulp policy, festive holidays, and geopolitical conflicts like the Iran war.
• The Iran war has disrupted oil supplies and constricted the Strait of Hormuz, impacting freight logistics and the supply of raw materials like OCC and paper production chemicals.
• Despite rising paper prices, packaging demand in Indonesia is weak, with hyperinflation and a weakening rupiah reducing consumer purchasing power.
• While producers in Malaysia are raising prices and Vietnamese mills export due to low domestic demand, the Indonesian market anticipates further price hikes for June.
• The market remains volatile, with the long-term effects of the war expected to disrupt the supply chain for months, even if a resolution is found soon.

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Indonesia’s containerboard industry has been a rollercoaster over the past year, with different global contributors stirring the price pot since 2025. For one, China’s dry recycled pulp policy in October saw a push for Indonesian paper rolls, draining the domestic market of supply and sending prices on an uptrend.

Prices stayed buoyant on the muscle of festive and commercial holidays, which according to sources were mainly Lebaran (Indonesia’s biggest religious holiday marking the end of Ramadan), Chinese New Year, Valentine’s Day and New Year’s. These events pulled packaging demand upward and kept prices aloft.

Demand was meant to take an organic tumble downward after Lebaran in March, but the Iran war put paid to the traditional seasonal lull. With the Strait of Hormuz constricted and oil supplies dwindling, this resurrected the woes that ruptured ocean freight logistics during the Red Sea crisis that escalated in November 2024 after Houthi rebels commandeered the region and effectively blockaded the Suez Canal, a pivotal maritime passageway. This has had a significant effect on the raw material supply of old corrugated containers (OCC), arguably a main ingredient in containerboard production, which has shaken prices.

Likewise, the Strait of Hormuz is one of the world’s most important waterways for oil, and the drop in supply has disrupted supplies of oil derivatives and distillates, including the chemicals that are key to paper production and printing in packaging.

All these factors have caused an overall price disturbance, with containerboard prices effectively bumping upward month on month since the war in Iran broke out. Market expectations for June are no different, with many participants saying they anticipate paper prices to rise again.

Prices in other Southeast Asian countries have also risen or remain stable. Already this week, a Malaysian producer said that mills had announced “paper price increases of RM30 (about $7.50) per metric tonne for June.”

Meanwhile, a Vietnamese producer said that “paper mills cannot increase prices because of low demand,” adding that the mills continued to “export to Southeast Asia.”

At the same time, packaging demand in Indonesia has been considered lackluster, a striking counterfoil to growing paper prices. An Indonesian source spoke about hyperinflation given the drastic increases in everyday goods and the steadily weakening rupiah against the US dollar, which has raised the cost of imports. “We import a lot of soybeans for tempeh and tofu, our oil is imported, we also import meat, sugar and a lot of rice as well from Thailand and Vietnam, so these basics have gone up in prices.”

Regarding the weakening rupiah, Fastmarkets associate economist Rianto Wirar added that “this will definitely affect purchasing power, because Indonesia is heavily import-reliant. For example, a staple we import is wheat for bread, since it is difficult to find Indonesian land suitable for growing wheat.”

Given the flimsy state of current packaging demand juxtaposed against the heavy costs of containerboard production in the wake of a war with no clear end, the market continues to expect prices to rise, although, as Wirar said, “the question is — for how long?”

News about the Iran war remains mercurial, with Iranian state television announcing on Wednesday that it had an unofficial agreement to restore commercial shipping via the Strait of Hormuz, only for US President Donald Trump to veto this publicly within hours, dismissing the reports. Despite the formal ceasefire that began in April, attacks have been made on both sides. And, according to Wirar, “even if the war ended tomorrow, the domino effect will likely stay and some Southeast Asian countries might need months to fix it.”

For this week in Indonesia, at least, the containerboard market is waiting for prices to be finalized and announced in the next few days. A second Indonesian source said, “We’ll know about next month’s prices next week,” adding that “box prices are increasing.”

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