Latin American containerboard market under pressure with price drops and weak demand

Prices in both Brazil and Mexico see downward trend despite market-related downtime due to weak appetite for packaging

A combination of weak demand for packaging in Latin America has resulted in further price drops and more tensions in negotiations in February for both Brazil and Mexico. Some contacts have shared that suppliers were taking downtime to trim excessive inventory, while others suggested that the outlook for March could be more positive.

What’s happening in Brazil?

The combination of a shorter month and the five-day Carnival holiday in Brazil kept containerboard negotiations in the country tense in February, sources told Fastmarkets.

Demand was said to be very weak, with several paper producers and corrugated board suppliers taking market-related downtime to avoid a dramatic price drop. “Everyone stopped production. If a company had two paper machines, it stopped one. If it had one PM, it stopped the entire mill for some days of maintenance,” a contact said.

A second source stated that this strategy is partially helping packaging paper producers to keep prices stable or at least show limited drops, but it is not igniting demand. “I could offer testliner for any price this month, and I wouldn’t sell anyways. Many suppliers say they have stable prices, but they actually do not sell anything. We will have to wait and see in March if there is a pick-up, to see where real prices will stand,” the second source said.

With demand said to be frozen in February, prices for old corrugated containers (OCC) continued on their downward trend and reached 620-680 Reais ($119-130) per tonne, down 21.2% in the annual comparison.

I see OCC prices reaching around $100 [per tonne]. There are large producers that stopped recycled containerboard mills and there is a lot of supply.

Given lower raw-material prices, recycled containerboard producers adjusted their prices slightly in February, with medium trading at 3,000-3,300 Reais per tonne and testliner at 3,400-3,800 per month, down by 4.5% and by 2.7% respectively compared with a year ago.

“Everyone is very cautious now because it was very hard to improve margins during the pandemic, and companies do not want to destroy value now. But the competition in the corrugated paper market is very strong, as large integrated producers are working hard to sell finished products and integrate as much as they can to reduce inventories and use all the paper that is not going for exports,” another contact said.

The same source added: “Let’s see how long some will be able to go without sales before lowering prices; the first step is to cut production, and large producers can do that easily, but other players may give up sooner.”

But some contacts expected more positive news for packaging demand in March, noting that the government will start distributing 150 Reais per month to poor families with children; that will come in addition to an existing aid program that delivers 600 Reais per month to poor families in the country.

“I already have some requests for March arriving. It is an early sign, but some clients have ordered larger volumes than in the first two months of the year,” another contact said.

In the kraftliner market, market participants stated that the situation remains complex. A lot of “edge” paper — off-grade products, also known as “paper ends,” that usually comes in smaller widths and is not available in large quantities at once — traded at an average discount of 10% compared with regular kraftliner purchases.

Several sources reported that 22,000-27,000 tonnes of “edge stock” kraftliner was offered to the market by a large producer, making it very difficult for regular sales of kraftliner, or even testliner, to take place.

“I only bought this paper with a discount. I didn’t need to purchase other grades because there were tonnages with larger widths, up to 2.5 meters, being offered. But I can’t consider this regular kraftliner; for those purchases under large contracts, everything was still stable,” a contact said.

Because Fastmarkets’ price survey only considers standard products in transactions of at least 100 tonnes, kraftliner prices in Brazil remained unchanged in February at 4,900-5,200 Reais per tonne, still 4.1% higher than a year ago.

“We are not sure if this is the first sign that kraftliner prices can drop in the domestic market in March. Demand for exports remains weak, and there is an issue with beef exports to China now, so that can create more difficulties for virgin paper suppliers,” another contact said.

What’s happening in Mexico?

Domestic prices for containerboard in Mexico dropped again in February amid ongoing feeble demand for packaging in the country, sources told Fastmarkets.

Several contacts, however, stated that prices have probably reached their bottom or are very close to that. Market participants pointed to slight signs indicating purchases will resume in March, while several market-related downtimes are helping to trim excessive inventories across the board.

Everyone took downtime to help hold prices or avoid stronger drops. Everyone is trying to get rid of the excess inventory.

A second contact reported keeping his purchases at minimum levels in February. “We are using the entire first quarter to correct inventories and work on some equipment upgrades in the meantime. Everyone owns expensive inventory and is working to solve this problem. The positive news is that I already see some corrugators stating they were able to cut all excessive volumes,” that source said.

Fastmarkets’ monthly price survey in Mexico detected a drop of 300 pesos ($16) per tonne for local containerboard, with linerboard traded for 13,500-14,500 pesos per tonne, down 3.4% year on year. Medium was negotiated for 12,500-13,500 per tonne, 3.7% lower than a year ago.

“After the last price drop from local suppliers, I don’t see further pressure to cut prices again from my customers. They said they were able to rebalance their stocks,” a third market participant said.

Prices for imported kraft linerboard from the United States also dropped by $10 per tonne in February to $710-740 per tonne, down by 7.1% year on year.

“Mexico is eating inventory quicker [than other export markets], and inventory is normalizing,” a US kraft linerboard supplier told Fastmarkets’ PPI Pulp & Paper Week on February 10. Some traction is expected for this market in the second quarter due to “improved demand in Mexico and Latin America,” that source added.

Imports of kraftliner into Mexico slumped by 10.74% year on year to 779,538 tonnes in January-November, according to Mexican customs data. The US supplied more than 97% of this volume.

This article was first published in PPI Latin America, the industry’s most trusted pulp and paper market news and prices for Latin America. Speak to our team to find out more.

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