Sack kraft paper prices up moving into Q2 as buyers and sellers interpret Q1 differently

As Q2 unfolds, the European sack kraft paper market is heating up. What could this mean for price increases moving forward?

The European sack kraft paper market continued to warm into the spring as optimism improved, especially among producers, and price increases for both bleached and unbleached sack kraft paper were applied as Q2 got underway.

The UK saw increases of £40/tonne on unbleached paper and £40/tonne on bleached paper, the first of what some contacts said was a two-step increase approach, with a similar amount to be applied for July. On the continent, prices for unbleached paper rose by Euro 50/tonne and bleached paper rose by Euro 50-80/tonne.

Converters and producers alike suggested that this is the first of multiple increases this year, and by the time of publication, at least one more increase on both grades had been announced for June, with others expected to follow, according to market sources.

Multiple price contacts said that the market was more improved in southern European countries than it was in countries in northern Europe. Market participants also generally agreed that the situation overseas was also in a significantly stronger state than the last quarter of last year.

“Overseas, we are seeing a quite significant improvement,” said one producer who exports globally.

The Finnish transport strikes did not have as much of an impact on sack kraft paper as they did on other grades of paper and board but multiple converters complained of paper stuck in Finland which they were “unable to get [their] hands on.”

Customers are a bit afraid of Finland because these companies were unable to deliver,

“Customers are a bit afraid of Finland because these companies were unable to deliver,” a bleached paper producer said. “We will try to help out, as the situation in Finland is not good for anybody,” he added.

The Red Sea shipping crisis, on the other hand, has posed issues for some overseas buyers, which has drummed up demand for European paper. “Customers from overseas [who are unable to receive their orders] are asking for alternatives and some of these requests wind up on our desk,” one unbleached paper producer said.

The shipping disturbances have also greatly increased transport prices for producers who export significant volumes of sack kraft paper abroad. This, and other geopolitical developments such as the pandemic and the war in Ukraine and the resulting sanctions on Russia, have led to an increasingly distinct regionalization of the industry. “Europe now serves European buyers, Asia serves Asian buyers and North and South America serve American buyers. If Russia used to be in Europe, now it is in Asia. Everything is becoming more and more regionalized,” a trader said. 

The plastic replacement movement seems to have lapsed somewhat, with one source saying: “I don’t hear anything about plastic replacement now.” He attributed the downturn in interest to the fact that cost pressure plays much more of a role now than when some of these projects were initially introduced. A producer pointed to additional reasons that the movement may have slowed, as well as some optimism for the future. “I am not sure that the urgency is there for it to happen with desperation. The requirement for [plastic to be switched to paper in order to sell products] is not yet settled [by the European institutions]. [However,] it is inevitable that the switch will happen, and it will be bigger and longer than we perceive,” he said.

Buyer and seller views diverge

The attitudes of buyers and sellers were markedly different, with producers extremely optimistic about the state of the market and buyers more cautious.

“The market is doing very well, it’s excellent,” said one unbleached paper producer. “The market is difficult to read and producers are more optimistic than converters,” a buyer pushed back. “Our order books aren’t desperate and have a good-looking intake. It’s not party time but it does look better than before.”

One of the disconnects between the bullishness of producers and the lukewarm attitude of buyers seemed to be that some producers were fighting hard for volumes even as price increases were being announced.

“Three mills have come to us trying hard to get business,” a converter said. “One of them came over to see us after not hearing from them for four years. Still, producers are adamant that prices will be up again in July,” he added. 

Though the market widely understands that the price adjustments were cost-related, some buyers still chafed at the new levels.

It is possible that the market improvement is somewhat artificial, with destocking driving the situation as opposed to organic demand or cleverly timed ordering ahead of new, higher prices contributing to the bump, multiple sources said. Still, even begrudgingly, converters were able to admit that the market was on the upswing with lead times to reflect it, and that the worst is likely in the rearview mirror.

“The market is improving a little bit,” a buyer said. “At the moment, I don’t really understand it. If you had asked me at the beginning of the year, I would have thought that prices would be stable and there would be no problem getting paper. Now, getting paper in time is tricky, and we have to wait 8-10 weeks,” a converter said, citing a timeframe slightly higher than that mentioned by many of his colleagues.

“Stats so far show that things are not going to be better than they were in 2023,” a converter said. “Still, stats look backwards while we should look forward. [But if I look forward,] I don’t think 2024 is going to be the year [for marked improvement], maybe 2025. There are still very weak end-use segments,” a converter said.

Unbleached warms in Q1

“In the second half of February, it felt like someone turned on the light,” said a producer, reveling in the newfound market improvement and prices ticking upward. “For more than 1.5 years, we have had problems making ends meet. Now, [this price increase] gives us room to breathe. We had lots of resistance from the market but at the end of the day, everyone is accepting it,” he added.

A number of his colleagues shared the positive outlook. “I totally agree, the market has completely turned around,” one of his market colleagues chimed in. We started to see positivity in November and now we have more orders than capacity,” he added. “We were recently at a conference with other players from the industry. Everyone was smiling and happy. We are finally coming out of this,” another producer said.

White waits on building upturn

On the bleached side of the market, a producer said that he thought the uptick is due to almost anything but demand. “The improvement in the market is a mixture of destocking and customers ordering ahead of the price increase implementation,” he said.

“Spring is also when the building industry picks up a bit,” he added. And while this is the case seasonally, this particular season has not been a very strong one for building on the continent. “Europe is doing significantly worse in construction than the rest of the world,” a producer said, citing sustained high interest rates. A number of sources cited poor demand for cement and building materials as part of the reason the market has not yet come roaring back. 

One producer of bleached paper, on the other hand, was quite pleased with the development his company was observing. “We have been able to get to a completely different demand level than in recent months. The situation is much more positive. I won’t say it’s overheating but it is very hot in some areas,” he said.

But as with the unbleached side of the market, there was something of a disconnect between buyer and seller perceptions. “Activity is not to where it should be, but we are quite happy with life,” said one converter.

What to read next
For comments and queries, please email hello.foex@fastmarkets.com, indicating “PIX Pellet Nordic Index” in the subject line of the email.
The European Union Regulation (EUDR) mandates that products must be deforestation-free, produced in compliance with relevant laws, and accompanied by a due diligence statement containing precise geographic coordinates.
A big question mark for Brazilian containerboard market participants right now is the impact the Rio Grande do Sul floods will have on demand in the country. Although hard to estimate, especially amid reduced gross domestic product (GDP) forecasts, we still believe that the floods will have a somewhat limited impact on the demand for […]
Fastmarkets FOEX would like to thank those who took the time to respond to the consultation. Fastmarkets FOEX did not propose any changes to the methodology. The feedback was fully supportive of the current methodology. To summarize, this open consultation does not lead to material changes in the current methodology. A newly dated methodology document […]
A survey of consumers in the UK and Germany shows that the majority of shoppers are happy to purchase a variety of home and personal care products in cartons made from paperboard, including laundry detergent, fabric softener, and hand soap. According to research commissioned by Elopak and conducted by Absolute Research, 65% of respondents said […]
This consultation, which is open until June 12, 2024, seeks to ensure that our methodologies continue to reflect the physical market under indexation, in compliance with the International Organization of Securities Commissions (IOSCO) principles for Price Reporting Agencies (PRAs). This includes all elements of our pricing process, our price specifications and publication frequency. Please find […]