Even as it weathered a sluggish economic recovery, rising energy prices, sagging consumer demand, and continued challenges from electronic mediums, the global paper industry proved its resiliency in 2013. And more of the same is seen in the coming year.
Consider only this: In an era that has seen the epic failures of bookstore behemoths, domino-like newspaper closures, and Internet paywalls, 2013 came to an end with a stunning early December announcement that Newsweek would resume its print publication in 2014 after a abandoning it in 2012.
The paper industry, it seems, has taken a Twainesque position that reports of paper’s demise are greatly exaggerated. Indeed, paper is doing quite well.
Paper comprises one of the most stratified and clearly defined markets in the world. In addition to paper used for printed matter, pulp – the major ingredient – is a primary component in everything from tissue, to paperboard, to newsprint, to containerboard, to various commodities such as coated and non-coated free sheets.
In relative terms, most paper segments enjoyed a strong year in 2013. For buyers, prices remained relatively calm and stable. The Asia-Pacific markets in particular experienced overall double-digit growth, according to Research and Markets. Overall, global paper and board production hit record levels in 2012 despite sagging demand in North America and Europe, according to RISI. Tissue and packaging production, for example, soared, while global graphic paper production lagged, according to the firm. As it is in so many markets, China remains the global leader in production and demand (more than 25 percent in both areas) for paper and board. The U.S., meanwhile, remained the world’s leading pulp-producing nation in 2013.
But storm clouds may be gathering on the horizon, as many observers see a mild U.S. recession in 2014. A major indicator of the coming storm is weakening corporate bond prices, according to the National Paper Trade Association (NPTA) Alliance in its August 2013 Economic Report.
Here’s NPTA’s general 2013 assessment by major indices (the information is provided in the Alliance’s report):
- Paper & Products Production Index – The index rose following two straight years of decline and is expected to continue heading north by year end. U.S. imports of paper and board also are strong. “The annual average Paper Capacity Utilization Rate is at the highest level in 15 months, coming in 2.3 percentage points ahead of last year in July,” the NPTA notes. “The 82.2% Utilization rate is just ahead of the 10-year average, indicating that manufacturers are getting idle machinery back online.”
- Pulp, Paper & Board Mill Production Index – By mid-year, the index posted its first gain since November 2011, while domestic exports of paper and paperboard stabilized, suggesting increased foreign demand and a recovering domestic market.
- Paperboard Container Production Index – Freight movement reached a nearly seven-year high in 2013, spelling good news. In its August 2013 statistics review, the American Forest & Paper Association notes that total boxboard production increased by 2.8 percent compared to the same period the year before. Unbleached Kraft Boxboard production, Total Solid Bleached Boxboard & Liner production, and Recycled Boxboard all posted gains.
- Paper Bags & Treated Paper Products Production Index – NPTA reports that this index may have plateaued.
- Paper Producer Price Index – The index inched up in July and August, pointing to possible inflationary pressures to come, the NPTA notes.
For paper mills, 2013 was marked by relative calm. Prices were down, production costs had gone up less than 1 percent, while raw material costs had fallen by June, according to AlertData.com. As is the case in most paper markets, energy costs remain the primary driver of inflation. Overseas, attention was focused on key Chinese board mills, some of which went offline in October for maintenance, according to RISI.
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The news in printing and packaging industries was a mixed bag in 2013. According to Smithers PIRA, global printing market output reached approximately $880 billion, while global packaging volume increased to $824 billion in 2013. Demand for once-stalwart categories such as newsprint and free sheet continued to sag, while specialty paper demand remained strong.
The growing emphasis on electronic media continued to hurt the newspaper and magazine business in 2013. While newsprint demand from overseas markets helped, some major North American newsprint mills underwent conversion to paper packaging production. The newsprint industry, however, continues to defy much of the doom and gloom.
Other printing segments didn’t fare much better in 2013, according to the American Forest & Paper Association, which notes that total printing-writing paper shipments decreased 4 percent in August compared to August 2012. The association also reports that coated free sheet papers shipments decreased 5 percent and uncoated free sheet paper shipments decreased 3 percent compared to August 2012.
Meanwhile, the North American packaging industry posted solid gains in 2013, continuing to grow steadily since the huge dip it suffered in 2009, according to Smithers PIRA. Box and containerboard markets, meanwhile, remained strong, according to Paper Age, since posting their first price increase in two years in 2012.
Barring unforeseen calamities in 2014 such as climactic disasters, the coming year promises to remain relatively favorable for buyers, according to many observers. In the mills and packaging segments, for example, buyers will find inflation conditions somewhat more favorable than normal, according to AlertData.com.
In general, global paper markets will continue slow and stable growth through 2017, according to Research and Markets. Meanwhile, the North American packaging industry is projected to grow to $186 billion by 2017, bolstered by “impressive” demand surges from Mexico, strong rebounds in the paperboard segments (most notably corrugated packaging), and the growth in so-called “retail-ready packaging,” according to Smithers PIRA.
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The firm predicts that the global printing market will grow 2 percent per year through 2018, “driven by transitional economies and added-value opportunities associated with digital print,” while the world packaging market will grow about 4 percent per year over the same period of time, with sales to reach over $1 trillion by 2018.
Meanwhile, the NPTA Alliance is predicting a decline return in the Paper & Products Production Index, urging producers to “stay competitive on pricing.” The Alliance expects the Pulp, Paper & Board Mill Production Index to continue posting modest gains in 2014 and possibly stagnate by 2015. The Paperboard Container Production Index could hit a negative bump in the latter half of 2014; the Paper Bags & Treated Paper Products Production Index also could hit a similar bump from expected declines in retail sales. Finally, the Paper Producer Price Index is expected to remain fairly strong throughout 2014, as soaring energy costs keep prices high, according to the NPTA Alliance.
Some areas to keep a watchful eye on include:
- Bleached hardwood kraft pulp, where increased online capacity and sagging demand growth will “put production lines at risk around the world,” according to RISI. Downward price pressures could lead to adjustments in 2014, the firm noted in a late-November news release.
- Increased interest in biofuels (primarily wood-based feedstocks) from non-paper-producing industries, which could impinge supplies of and lead to price increases for woodfibers, according to RISI.
- Radical transformation of global cut-size markets, which could have long-range implications for the copy paper market. According to RISI, while it remains a strong market even in the face of electronic media, the copy paper segment will undergo significant strategic changes in order to preserve profitability.
- Continued environmental pressures to produce sustainable paper and packaging materials could have an impact on prices in the coming years, according to Smithers PIRA.
One development that producers and buyers alike are keeping a watchful eye on is a plan by the U.S. Postal Service to implement a 5.9 percent postal rate increase for 2014 across the board. Groups such as the American Forest & Paper Association have vociferously opposed such a move as ill-timed and unnecessary and could seriously hurt the industry, which relies on about a third of its output, or $6 billion of printing and writing paper, on materials delivered through the mail.
That said, the global paper industry is a highly resilient one marked by continued innovations. These include remarkable strides in sustainable packaging technologies (keeping it competitive with plastics) and growing applications for nonwoven textiles in healthcare and other markets.
John Hall is a freelance writer who reports on commodities markets and procurement and supply management topics for My Purchasing Center. His website is jhallmedia.com.