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Despite a more optimistic mood in April with the resumption of stronger exports related to agriculture, sources in the Mexican market said that sales in May were disappointing and that they did not see industrial demand reactivating as expected.
According to market participants, a lot of paper is still being offered in Mexico from the US, while demand is not catching up, pressuring prices further down.
US export pricing dropped by $25 per tonne in May for delivery to customers in Mexico, which is the largest market in the world for US kraft linerboard exports. These prices are down 16% in an annual comparison.
Fastmarkets’ price survey also found maximum prices for domestic paper dropping 200 pesos ($11.21) per tonne in May, with both recycled linerboard and medium at around 14% lower than a year earlier.
Prices are moving down slowly, but demand is taking too long to reactivate.
“We see the domestic [market] with unquiet stability, meaning that we are probably close to an inflection point, as there is no paper demand for all the players that increased their capacities combined with the offers from the US,” a source said.
Another contact stated that he already sees a “price war” mounting up in Mexico, since the market is still paying more compared with other markets, and participants want to ensure they sell tonnages there while prices are still good.
“If you compare Mexico to other regions, prices were quite resilient. We have markets in South America where prices dropped by 50%, so the pressure now is on Mexico,” the contact said.
Sources agreed that everyone was expecting demand to show stronger signs in May, which would have enabled prices to stabilize at higher levels, but political instability continued to frighten investors while inflation harmed consumers’ purchasing power.
“Exports of [manufactured goods] are important for Mexico and they are still feeble, while demand for agriculture only started to become better in the last few weeks. At the same time, we don’t have any local incentives for consumption, inflation is still high and people are spending less,” a third source said.
A market participant said that inventory levels in the country are more stabilized at the moment, since producers have been careful and reduced production levels since the market softened.
“We hope that at least this factor of [not too full] inventories helps to stabilize prices at some point in the near term. But with the price drop in imports now, we will for sure have more pressure in June for discounts,” the market participant said.
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 about subscribing to our products and services.
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