European Pulp and Paper Industry Market Outlook

The European pulp and paper industry is at a pivotal point, encountering a mix of unprecedented challenges and promising opportunities. For professionals in this sector, grasping these dynamics is essential for maintaining a competitive edge. A comprehensive understanding of the market can provide actionable insights to successfully steer companies through the future.

CURRENT CHALLENGES IN EUROPE

Like many other regions, the European pulp and paper industry is currently facing several challenges in a rapidly evolving market. These challenges include:

• Managing Grade Turbulence: The European pulp and paper industry is navigating through a period of grade turbulence. While demand for printing and writing paper is declining, the containerboard sector is experiencing robust growth. This shift requires companies to swiftly adapt to evolving market trends. Focused grade management can enable businesses to enhance production efficiency and reduce losses.
• Sustainable Fiber Availability: With the growing focus on sustainability, the availability of sustainable fiber is becoming increasingly volatile. The competitive use of wood for various applications, from construction to bioenergy, is adding pressure on pulp and paper manufacturers.
• Cost Optimization: Energy costs and CO₂ emissions are critical factors in the pulp and paper industry’s operational efficiency. The European Union’s stringent regulations on carbon emissions are pushing companies to find innovative ways to reduce their carbon footprint. Investing in energy-efficient technologies and renewable energy sources can help companies optimize costs and comply with regulations.
• Retail and Brand Owners’ Focus on Packaging LCA: Retailers and brand owners are increasingly scrutinizing the Life Cycle Assessment (LCA) packaging structure. High CO₂ emissions are becoming a significant concern, and companies that fail to address this will face pressure from their clients. Proactively reducing emissions and enhancing the sustainability of packaging can give businesses a competitive edge.

OVERVIEW OF THE CURRENT MARKET

Upon analyzing the current state of the European pulp and paper market, it is evident that, while overall capacity has remained steady in recent years, there have been significant shifts in the product mix.

Containerboard, cartonboard, and packaging paper have displayed a notable Compound Annual Growth Rate (CAGR) increase between 2010 and 2023. Conversely, printing and writing paper, as well as newsprint, have witnessed declines over this period (Figure 1).

Figure 1

Looking ahead, several capacity increases have been announced for the 2024-2027 period. Turkey in particular is set to add the most significant containerboard capacity in the coming years.

However, many previously announced projects have either been delayed, canceled, or not yet started due to overcapacity and uncertain demand forecasts. Unlike Europe, the US containerboard market, with its more consolidated supply side, has not implemented similar investment plans. As Europe continues to invest, its machine base will become increasingly competitive compared to the US.

These delays and cancellations highlight the market uncertainty companies are experiencing. It’s now more important than ever for companies to carefully evaluate market conditions and demand forecasts before committing to new projects.

In Figure 2, we can see how much executed and announced capacity Europe vs. North America has been planning. The difference is staggering, leading many to wonder about the reasons.

FURTHER EXPLORING OVERCAPACITY

The European pulp and paper industry has been grappling with the issue of overcapacity, leading to the closure of machine lines and a significant impact on stakeholders. One example is Stora Enso’s closure of both production lines at its De Hoop site (Netherlands) and one of four production lines at its Ostrołęka site (Poland). This is an attempt to improve market balance and reduce corrugated case material production capacity as a response to overcapacity in the European containerboard market.

Overcapacity occurs when the production capacity of an industry exceeds the demand for its products. For the European pulp and paper industry, the closure of machine lines was an attempt to address this overcapacity; however, it seems that these measures were not enough to counter the downward trajectory of demand that is expected to continue into 2024.

The Confederation of European Paper Industries (Cepi) released its 2023 Preliminary Statistics report, which lends some insight into why Europe has experienced this overcapacity trend. According to this report, paper and board consumption and production in Europe experienced a downward trajectory, influenced by unfavorable macroeconomic conditions, characterized by high inflation, interest rates, and weakened private consumption, and a prolonged destocking trend. Cepi member countries saw a significant 12.8 percent decrease in 2023 paper and board production compared to the previous year, primarily attributed to the substantial impact of high energy and manufacturing costs.

Another factor noted was the 6.9 percent decline in the use of paper for recycling by companies in 2023 in the geographic region covered by Cepi members. This decrease correlates with a reduction in packaging paper and board production, as European production heavily relies on recycled feedstock. The closure of specific graphic paper mills that used paper for recycling also contributed to this trend.

To mitigate the impact of overcapacity, companies can focus on diversifying their product offerings to tap into new markets and increase demand. By expanding their product portfolio and targeting other markets, companies can avoid the consequences of placing all their eggs in one basket.

Another strategy is to improve operational efficiency through process optimization and cost reduction measures. Companies can optimize their production capacity and reduce costs by streamlining production processes, implementing lean manufacturing practices, and investing in technology.

THE IMPORTANCE OF SUSTAINABILITY

Looking ahead, CO₂ emissions will likely determine who will survive in the EU graphic paper market. Companies that prioritize reducing emissions and enhancing their sustainability impact will have a competitive advantage. Implementing energy-efficient technologies and adopting sustainable practices is essential for long-term success.

Mills with high CO₂ emissions, high costs, and particularly non-viable assets will face some of the greatest challenges. Upgrading energy-generating assets may not be justified if other process equipment remains uncompetitive.

The European Union Deforestation Regulation (EUDR), aimed to promote a green economy, will impact imports to the EU. This will particularly affect forest commodities at risk of contributing to deforestation.

The pulp, paper, pellet, and solid wood industries collectively contribute billions of dollars annually to the EU economy. Noncompliance with EUDR could jeopardize significant portions of these revenues. Such changes would significantly impact not only individual companies but also broader economic landscapes.

This raises some important questions:

• Which forest commodities are most at risk?
• What are the top pulp and paper grades imported into Europe?
• What countries are the top importers into Europe?
• How will the EUDR affect producers who own plantation operations for pulp fiber?