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The proposed merger deal between large packaging paper producers WestRock and Smurfit Kappa Group (SKG) is set to bring major changes to markets in Latin America, combining assets that include recycled- and virgin-grade containerboard, as well as several conversion plants for corrugated board across the region.
Fastmarkets has learned from sources in the region that the merger between the two producers has positive aspects, combining synergies into more competitive industrial assets, while it will probably change the dynamics of containerboard purchases in several countries.
“We can expect to see more paper integration between companies, with WestRock directing its volumes to Smurfit Kappa operations across the region, which are many, while smaller paper buyers in these other countries in Latin America may look for paper from other players as they will face competition from a stronger local supplier now. We will probably see a ‘musical chairs’ situation in the region, with buyers and sellers shifting positions,” a source said.
According to Rafael Barisauskas, Fastmarkets´ economist for Latin America, a major change is set to take place in the Mexican market, since the combination of the two companies should create a new country leader.
“This position was not occupied by any of them before. With the merger, they will have around 25.7% of Mexico’s capacity share in the containerboard market, followed by Bio-Pappel with 17.8%, while in other industrial packaging market paper they will get 23.2% of capacity participation,” Barisauskas said.
At least two sources in Mexico said that they do not expect any anti-trust authorities to prevent the deal, since there are still other important participants in the country that continue to support competition.
We will probably see a company more empowered to improve services, invest in new technologies and equipment.
But other participants are also making new moves. Major packaging producer Bio-Pappel, for example, announced a new investment cycle in early September, with three new corrugated board plants in Mexico in the coming two years, and boosting its own integration with a further 300,000 tonnes per year.
In Brazil, the market leadership should continue with Brazilian producer Klabin, which has 26.2% of containerboard capacity share, followed by WestRock/SKG with 15.6%.
“In other industrial packaging segments, the impact will be minimal as the companies that plan to merge do not hold operations of other grades. Klabin will remain a leader with 41.1% of capacity,” Barisauskas pointed out.
Klabin has also a large investment plant called the Figueira project and expects to add a 240,000 tpy corrugated box plant in Piracicaba city, in the state of São Paulo, during the second quarter of 2024.
This article was taken from PPI Latin America, our newsletter for pulp, paper and packaging market news and prices for Latin America. Speak to our team to learn more about our news and market analysis, prices, forecast and more.
Learn how to monitor packaging prices using cost and price indices and understand the underlying cost drivers, from material cost to labor, energy and more. Examples include cartonboard, liquid container and paper bag.