Economic studies
Paper

Paper

Forest
Latin America
Northern America
Central & Eastern Europe
Western Europe
Asia-Pacific
Mid-East & Turkey
Change sector

Strengths

  • Sustainable and recyclable
  • Strong demand from Asia

Weaknesses

  • Demand for cardboard and packaging paper very closely linked to the economic situation
  • Substitution of paper owing to increasing use of digital media

Risk Analysis

Highlights
CONSUMPTION OF GRAPHIC PAPER (THOUSAND METRIC TONS)

CONSUMPTION OF GRAPHIC PAPER
(THOUSAND METRIC TONS)

The production of paper and cardboard is divided into two categories: on the one hand, graphic paper (printing paper, newsprint, etc.) and on the other hand, cardboard as well as packaging paper. Paper and cardboard production declined by 0.4% in 2018 in the countries of the United Nations Economic Commission for Europe (UNECE), according to the Committee on Forests and the Forest Industry (COFFI) for the UNECE, which includes Europe, North America and the Commonwealth of Independent States (CIS). Overall, graphic paper production is decreasing due to the downward trend in consumption in favour of digital technologies, while cardboard and packaging paper production is increasing on higher demand reflecting greater access for people worldwide to computers and the internet, the rise of e-commerce and robust economic growth in recent years in most regions.

These aformentionned contrasting directions for paper and cardboard production are expected to continue in 2019. Paper and cardboard consumption in UNECE countries decreased by almost 1% in 2017 and by 0.5% in 2018; this decrease is expected to continue in 2019 as paper is gradually replaced by digital technology.

The sector is undergoing significant structural changes as digital technologies become firmly established, leading to decreased consumption and production of coated and plain paper in UNECE countries. In addition, consideration of environmental issues in production and consumption standards is reflected in strong growth in the share of recycled paper and in the need to innovate in production methods. In 2017, paper was the most recycled product overall: it was more than 70% recycled in Europe according to the Confederation of European Paper Industries (CEPI). This trend should benefit the sector in the long term because paper can be used as an alternative material to others, such as plastic: cardboard packaging is considered more environmentally friendly and lighter. It is also the focus of much innovation. Cardboard packaging is also benefitting from the strength of e-commerce and growing demand for "convenient" food packaging.

Demand

Paper consumption is on a downward trajectory overall, due to increasing use of digital technologies. The use of graphic paper fell by 15% in UNECE countries between 2013 and 2017 and by 4.8% between 2016 and 2017, with estimates indicating similar trends in 2018; the contraction in consumption is expected to continue in 2019. Economic growth prospects are weaker for 2018 and 2019 in Europe (1,7% in 2019 after 2.1% in 2018), so demand for packaging materials is expected to slow somewhat.

In North America, demand for graphic paper has been declining for many years and the trend continued, with demand shrinking by 0.8% in the second quarter of 2018 year-on-year in the United States. Meanwhile, demand for packaging materials has been on an upward trend over the same period.

For the CIS countries, paper and cardboard consumption remained stable in 2017 and 2018, declining by just 0.6% per year. Although consumption of graphic paper is expected to decrease as the use of digital technologies increases, consumption of cardboard and packaging paper is expected to benefit from stable growth in economic activity across the region: Coface forecasts 2.1% for the CIS in 2019, after 2.1% in 2018.

In China, paper and cardboard consumption increased by 4.6% in 2017 and is expected to be supported by robust growth in 2019 (6.2% after 6.6% in 2018). Consumption of graphic paper in India is the exception in the sector: as digitisation has not made much headway in India, the use of graphic paper is expected to increase in the short term. However, it will likely decline in the longer term with the development of digital technology. The growth of the Indian middle class and robust economic activity (forecast at 7.7% in 2019 after 7,3% in 2018) should buoy demand for cardboard and packaging paper.

Demand in South America seems to be moving in the same direction as in other regions of the world: while demand for cardboard is increasing with the recovery in economic activity, demand for graphic paper is decreasing.

Supply

In Europe, paper production remained unchanged in 2018 and is expected to decline in 2019, partly due to lower economic growth. This contraction in paper production comes after several years of growth, mainly due to the increase in cardboard and packaging paper production as a result of the conversion of graphic paper machines. Closures and conversions of paper machines led to an overall decrease of 1.6% in the production of all graphic paper components (newsprint, coated and uncoated paper) in 2017. The process of closing and converting paper machines (mainly into cardboard machines) in response to the downturn in demand for paper and the upturn in demand for cardboard, driven in particular by the rise of e-commerce, is expected to continue in 2019, leading to a decline in paper production capacity, to the benefit of the cardboard sub-sector.

Graphic paper production in North America fell sharply in 2017, dropping by 6.5% following the conversion of machines to packaging, a higher-margin sector. This suggests that the decline in paper production will continue in 2019, due to lower paper demand, the development of e-commerce and continued robust GDP growth forecast for 2019 in North America, with Coface forecasting economic growth of 2.4% in 2019, after 2.7% in 2018 for the region as a whole.

Overall, the lower performing pulp, paper and cardboard mills are closing while the production of lower cost pulp, tissues and packaging is increasing.

The outlook for graphic paper companies in the UNECE region in 2019 is gloomy: the higher prices caused by reduced supply may not be enough to offset the decline in demand and may even accelerate it by making digital media more attractive.

 

Last update : February 2019

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