- Paper is durable and recyclable
- Increasing use of packaging paper due to the development of e-commerce
- Strong demand from Asia
- Demand for cardboard and wrapping paper is very much linked to the economic situation
- Gradual replacement of graphic paper by digital media because of the increasing use of digital technologies
- Sharp drop in demand for graphic paper during the health crisis linked to the COVID-19 pandemic
As part of its sector risk assessment methodology, Coface includes two segments in its analysis of the paper sector: graphic paper and packaging paper. The global market for the paper sector is expected to decline from USD 896.6 billion in 2019 to USD 868.8 billion in 2020 i.e. a decrease of 3.1%, according to Business Wire. While the sector was already facing some difficulties, this decline is largely due to the global economic crisis caused by the health crisis and the various measures taken to fight COVID-19. The market should then recover in the coming years, thanks in particular to the growth of some of its sub-sectors, and reach USD 1030 billion in 2023.
The effects of the COVID-19 pandemic on this sector differ greatly depending on the sub-sector under consideration.
Graphic paper seems to be the segment of the paper sector most negatively impacted by the COVID-19 health crisis. This sub-sector was already in great difficulty, as its use had started to decline in recent years, in line with the progressive digitalization of the world economy. The crisis has aggravated this trend, mainly because the closure of companies and schools significantly reduced the need for printing paper. Conversely, other sub-sectors have benefited from the current economic situation. This is notably the case for packaging paper, which has benefited from the strong growth in e-commerce that entailed an increase in delivery activities worldwide, but also from paper products for personal hygiene. Indeed, the demand for the latter type of products is closely linked to the growing awareness on safety and hygiene. In fact, the pandemic has led to a sharp increase in demand for surgical masks, disinfectant wipes, disposable paper towels and other related hygiene products. The same applies to specialized medical papers (for paper electrodes, microfluidic chips and paper-based biosensors, etc.) that have experienced strong growth in recent months.
Finally, it is worth noting that the sector is heavily dependent on pulp prices, which, after increasing in 2017 and 2018, fell in 2019. While pulp prices did increase slightly over the first half of 2020, logistical challenges due to the coronavirus and weak global demand have put downward pressure on prices, according to the latest available estimates in the second half of 2020. Consequently, Coface expects the recovery in global pulp prices to remain contained in the first half of 2021. These variations in pulp prices have an opposite effect on the various market players, based on their role as producers of pulp or transformed paper.
Sector Economic Insights
The rise in e-commerce, intensified by the crisis linked to COVID-19, benefits packaging paper
Packaging paper is benefiting from the increased demand for e-commerce following the consequences of the health crisis linked to COVID-19. The impact of COVID-19 was quickly felt on the overall purchasing habits of consumers throughout the world. The different containment periods imposed in a large majority of countries in 2020 led to very strong growth in e-commerce, as confirmed by the success of world leaders in the sector such as the American company Amazon or the Chinese company Alibaba. This growth has been observed in grocery and hygiene products, as well as in the delivery of food on online platforms.
This increase in online sales has greatly benefited the packaging industry. More specifically, sales of corrugated cardboard packaging increased during the crisis because it is essential for the transport of food, medicines and medical equipment, but also for the very large number of parcel deliveries to individuals.
Furthermore, packaging paper has been used extensively during the crisis by restaurants offering take-away, particularly via platforms such as "Uber Eats" or "Deliveroo". This type of catering uses a considerable amount of packaging paper (paper bags, trays, etc.) and quarantine and social distancing measures have greatly increased take-away sales, particularly in restaurants. Boxes, straws and paper bags, as well as food wrapping paper in general, are likely to become new growth drivers for the paper industry.
Therefore, protective packaging (crystal paper, cardboard protection, padded pouches, etc.) and traditional cardboard packaging have greatly benefited from the increase in e-commerce and the number of parcels sent around the world.
Intensification of activities in the packaging paper market: a structural trend alongside the development of e-commerce
E-commerce has grown at an average annual rate of 18% since 2000. Furthermore, e-commerce uses about 7 times more corrugated cardboard per dollar of goods compared to traditional logistics.
Before the crisis, the rise of e-commerce had already been benefiting the paper sector for several years, and it has become an important driving force in the demand for corrugated cardboard and the materials of which it is made. In 2019, the sector estimated that total paper packaging consumption driven by e-commerce demand would increase by 64% between 2019 and 2025. Currently, with the impact of the crisis on e-commerce, we think that this increase could be even higher.
However, while this strong increase is a boon for packaging paper producers, it is also a strong incentive for online retailers to look for alternatives to corrugated cardboard (alternative fibres, biosource coating, etc.). Indeed, retailers are under pressure to reduce the intensity of their cardboard usage, for environmental reasons on the one hand, but also because the increase in paper pulp prices in 2017 and 2018 drew the attention towards this cost category. However, this incentive to use more sustainable resources still seems marginal, and packaging paper remains the most used material with the rise of e-commerce.
Graphic paper remains the segment most at risk, although challenges remain for the sector as a whole
The decline in demand for graphic paper has been exacerbated by the consequences of the COVID-19 pandemic. Indeed, while the use of graphic paper was already on a downward slope in recent years, digital tools (digital readers, smartphones, newspapers, etc.) are replacing paper media. Between 2013 and 2018, graphic paper consumption in the countries of the United Nations Economic Commission for Europe (UNECE, which includes Europe, North America and the Commonwealth of Independent States (CIS)) fell by 18%. This situation has been greatly aggravated by the COVID-19 crisis. In many countries, bookstores were closed during periods of lockdown, which had a strong impact on the sector. Moreover, the closure of schools, universities and many businesses led to a very significant decline in printing. The shift to online courses, meetings and conferences via the Internet greatly reduced the demand for paper in all regions worldwide. Even with some printing for commercial or educational purposes being done at home, the drop in the use of graphic paper will be much greater than in a traditional recession. Therefore, the demand for writing and printing papers, as well as related products (notebooks, pads, etc.), has fallen. In addition to these types of paper, the printed advertising (flyers, etc.) and newsprint sectors have also collapsed because of the effects of the COVID-19 crisis. Consequently, this situation is bound to accentuate further the downward pressure on pulp prices and the decrease in production capacity utilization rates. In this context, and considering the growing importance of the development of digital usage, which has been intensified by the crisis, Coface expects the sector's activity to continue declining in 2021.
The use of packaging paper is sensitive to changes in the economic situation. Cardboard, Kraft and other packaging papers are used to package products from other sectors. Therefore, the demand for packaging paper is intrinsically dependent on other markets (retail, e-commerce, logistics, etc.). Thus, the paper industry is highly sensitive to variations in the economic situation because it depends directly on the situation of other sectors. When these highly pro-cyclical sectors - such as physical or online retail - are depressed, the demand for packaging paper necessarily decreases. This will be the case for the coming period because the global economic crisis, if it continues, is likely to have a significant impact on packaging plants in many countries, even though packaging paper has benefited from the growth of e-commerce. For instance, the paper sector in China (the country being the world's main paper producer) is likely to suffer from the economic situation of the main pulp exporters like the United States, for which Coface expects a GDP contraction of -4.8% in 2020, or Brazil, with a contraction in GDP estimated at -5.5% in 2020. Furthermore, beyond the economic situation stricto sensu, the packaging paper industry is also vulnerable to regulatory and institutional changes. Indeed, some countries are seeking to constrain the cutting of trees and/or promote responsible forestry for paper production due to environmental considerations. The activity of some actors in the sector may be temporarily hampered by the need to reorganise or adjust their practices and operations accordingly.
The intensity of the dynamism of the packaging paper industry's activities remains much contrasted from one region of the world to another. For instance, in the regions where e-commerce is less developed, the demand for packaging paper is less important, since e-commerce is one of the main demand drivers for this sub-sector. This is the case in Latin America, which accounts for only 2% of world e-commerce, or in Africa and the Middle East, which account for only 1% of the market, despite the vigorous growth of the sector in these two regions in recent years. Considering this trend, Coface anticipates that the packaging paper sub-sector should continue to drive growth in the paper industry in the medium- and long-term.
Last update : December 2020