1. The economy and inflation
Like the rest of the world, Latin American countries are faced with high and continuously rising inflation rates.
The Brazilian government is fighting one of the steepest inflation hikes in the last decade, while Colombia has seen inflation of nearly 9% over the past 12 months.
Inflation has sent fuel and energy prices soaring, affecting the entire supply chain and drastically reducing people’s purchasing power.
Brazil saw its unemployment rate soaring to more than 14% by the end of 2021. New research data recently revealed that about 33 million Brazilians face food insecurity in 2022, about 12 million more than in 2019 before the pandemic.
2. Packaging supply and demand
Boxboard consumption grew by 8.1% in 2020 and another 9.4% in 2021, according to the Brazilian Tree Industry Association (IBÁ). Even after the lockdowns, boxboard demand is still driven by:
- The new habit of eating in for the middle-class consumers
- Substitution for plastic packaging
- Food and online supermarket purchases
After tight supply in 2021, containerboard availability is set to increase in Latin America. Volumes from Klabin’s Puma II and WestRock’s Três Barras projects in Brazil, which started up in mid-2021, are reaching the market.
In just the first quarter of 2022, Brazil exported 60,000 tonnes of kraftliner to Latin America, compared with 176,000 tonnes in the entire year of 2021.
While the current scenario is getting easier for buyers, there are still downslide risks for supply, such as the war between Ukraine and Russia, energy costs and others.
3. Sustainability and plastic substitution
Consumer preference, as well as an increasing number of new legislation banning single-use plastics, are driving market demand and interest for plastic substitution.
Key paper packaging producers in Latin America have accelerated their innovations and set goals to offer new fiber-based materials, with a focus on the food service industry.
Companies are working to develop technology for barriers to grease, humidity and water, as well as on offering new alternatives in boxboard and flexible packaging.
4. Pulp price increase
Pulp prices have been on the up, with many Latin American pulp producers introducing price increases in 2022.
The price hikes are supply-driven, supported by continuous shocks to pulp supply around the globe as well as the ongoing logistical constraints.
This means that there is a healthy level of demand from the international market, as hardwood pulp inventories are low across the globe.
5. Growing tissue capacity
Total tissue capacity in Latin America has been growing in the past few years following several capacity additions across the region.
In 2021, the Latin American tissue market brought 153,000 tonnes of new capacity. Many major pulp producers have made their move to add tissue capacity in Brazil, including Suzano, Bracell and CMPC Softys.
A significant risk for the market is the mix of rapidly increasing capacity and low operating rates. If projects start up too quickly, supply will likely outpace demand and flood the market.
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