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When conflict escalates globally, the shockwaves eventually hit your supply chain. Right now, the rapidly unfolding events in the Middle East are sending energy prices soaring. Europe is currently experiencing a significant energy price shock and a surge in inflation due to the escalating conflict.
To understand the full impact on the European paper market, read our article: “Energy price shock hits European paper market amid Middle East conflict” to learn more.
If you manage procurement for a European food and beverage brand, this conflict threatens to impact one of your most critical budget lines: paper packaging.
With gas and oil supplies facing severe bottlenecks, the cost to produce cardboard boxes, folding boxboards and testliner is climbing. To protect your product margins, you need to understand exactly how this energy shock translates to packaging production and the potential impact on your costs.
Here is a breakdown of the current market dynamics, the potential impact on your procurement strategy and how you can navigate the crisis with confidence.
The recent closure of key chokepoints, particularly the Strait of Hormuz, has effectively stalled a massive portion of global maritime traffic. Approximately 20% of the world’s oil and liquefied natural gas (LNG) passes through the Strait of Hormuz, a crucial shipping corridor located along Iran’s southern coast.
The data for European buyers shows a clear trend:
Price increases for paper packaging were relatively modest, as most segments were already grappling with significant oversupply. However, because Europe relies heavily on seaborne LNG imports, the Middle East energy crisis can still have a considerable impact on packaging costs. When energy prices rise, the cost to manufacture paper packaging often follows.
Manufacturing paper and board is a highly energy-intensive process. In Europe, approximately half of the energy used to power these mills comes from natural gas. However, the impact is not evenly distributed across all materials.
Producing recycled fiber-based materials requires significantly more natural gas compared to virgin pulp production, which benefits from greater energy efficiencies. Our data reveals that the packaging segments most reliant on natural gas are coated recycled board (92% dependence) and testliner (68% dependence).
We estimated the potential impacts of rising energy prices. Due to significant variability, this is a simplified overview of the minimum and maximum exposure for each grade: For every €10 per MWh increase in gas prices, production costs can increase by up to €20 per tonne for highly exposed grades like white-lined chipboard, compared to a €5 per tonne increase for folding boxboard.
Furthermore, geography matters. Mills located in countries that rely heavily on gas for electricity generation—such as Italy (where gas accounts for about 40% of energy production), the Netherlands, and the UK—are at a much higher risk of immediate cost inflation.
You cannot stop global energy price shocks, but you can control how your supply chain responds to them. Our unified platform brings your packaging inputs, ingredient forecasts and energy market data into a single view. Instead of guessing how a geopolitical event will impact your bottom line, you can track the cost drivers for your specific paper grades and regions.
Stay ahead of the market and secure your supply chain with confidence.
Ready to boost your procurement efficiency? Explore our food and beverage package and download the Forecasting with Confidence Playbook for smarter F&B procurement today.