Outlook for Containerboard Markets in 2021/2022

Brandon Bennett, Chairman of WCO

  Klaus Spielmann, President of WCO

Dear WCO Member,

First of all, we wish you a happy and successful New Year 2021.

We are happy to present the seventh edition of the “WCO Outlook for Containerboard Markets”. 

The COVID-19 pandemic, the worst epidemic since the Spanish flu, marked the past year worldwide and created simultaneous disruptions to supply and demand in our globally interconnected world. However, we have reasons to be optimistic about the coming years. The first COVID-19 vaccines have been authorized for use and dissemination has begun in several countries, marking a major turning point in the pandemic and bringing fresh optimism for a next normal in the New Year.

Forecasts indicate that the GDP of “advanced economies” will, on average, grow by +3,9% in 2021, while the GDP of  “emerging markets” will grow by +6,0%. China’s GDP will, on average, grow, by +8,0%, which is important because China is a growth engine to which many other emerging markets sell their commodities.

Please note that our predictions are based on the current existing knowledge and facts, and certain other. Political, economic or social events could have an impact on our predictions.

Yours sincerely,

Brandon Bennett                                                       Klaus Spielmann

Chairman                                                                  President

1- General economic indicators

EXECUTIVE SUMMARY

In many ways, the year 2020 will be remembered as one of the worst ones since World War II. Thus, the decline in global GDP reached -4,5%, all countries being touched by the COVID-19 outbreak effects but in varying magnitude depending on the starting date of the pandemic, the health strategy, the pre-crisis strength and the structure of the economies. Now, the question that arises for the years 2021 and 2022 is when and how quickly the exit from the health crisis will begin, first, and then economic turmoil.

A future full of uncertainty…

While elements of optimism have appeared in recent weeks for a containment of the pandemic with the provision of COVID-19 vaccines, on the other hand, many indicators call for caution regarding a rapid and broad rebound in economic activity. The first is the near-shutdown of certain sectors of the economy (e.g. tourism, aircraft manufacturing, etc.) which will take months, if not years, to regain their pre-crisis level. The consequence is a fairly rapid increase in unemployment – especially of low-skilled people – in many countries which will continue to affect household consumption. To this must be added the indebtedness of both States and companies and its negative effects on investment, the limitation of international trade (which could last beyond the year that begins, for reasons more political than health), the geopolitical tensions which pre-existed already to the pandemic (Middle East, Africa, etc.), national political changes opening up uncertain prospects… To put it in a nutshell, many factors call for caution and suggests that the expected technical rebound of the global economy could be limited to around +4%.

… but with positive structural changes for the corrugated industry.

This rebound should naturally translate into growth in industrial production in most countries in 2021 and 2022, for the great benefit of the corrugated cardboard industry which is particularly correlated to it. 

However, the year that has just ended with the successive lockdowns implemented in many countries has also seen the appearance or expansion of new consumer behavior with increased recourse to e-commerce, profoundly and lastingly modifying the product distribution and production chains. These changes, sometimes coupled with more restrictive laws on the use of certain packaging materials (e.g. in Europe) have opened up new horizons for the corrugated board industry, likely to strongly support the structural growth of the demand this year and the following ones.

2- Outlook for containerboard demand & capacities

EXECUTIVE SUMMARY

Suffering from the COVID-19 pandemic consequences, the global containerboard demand decreased in 2020 by -0,9%(e), because of weaker growth in a majority of geographic areas except in North America. This negative figure followed the drop already noticed in 2019 (-0,7%) confirming that the global containerboard market was already slowing down before the pandemic.

For the year 2021, a rebound is awaited – subject to the containment of the pandemic – which could reach +3,2% on a global level. In 2022 a similar rate is predicted but that remains very hypothetical in the current health context. 

These expected positive figures will result from the recovery of the Asian demand – nearly half of the world containerboard market – even if this one will remain limited compared to the historical rates. In North America a stable growth is anticipated for the next two years (+2% in 2021 and +2,1% 2022), after a (surprisingly) satisfying year 2020 (+2,2% versus +0,3% in 2019). European containerboard demand is expected to regain some momentum which remains subject to solving the huge economic difficulties faced by many countries. The contribution of Latin America to global growth is anticipated to recover in 2021 and 2022, after two years in decline. In Africa and “Other Countries” a recovery is also awaited for the next two years.

The world containerboard capacities grew in 2020 by 5,4 million tons and a larger increase is expected in 2021 (7,9 million tons) based on public announcements. In 2022 a slightly lower growth is anticipated (5,6 million tons) also based on official publications. 

For all the reasons mentioned previously, in 2020, the containerboard demand did not keep pace with increasing capacities, resulting in a lower utilization rate (nearly 83,4 percent) compared to 2019 (86,4 percent). In 2021 and 2022, the growth of the demand could be similar to the global capacity increase. It is therefore likely that the global utilization rate remains relatively stable.

THE OUTLOOK PER MAIN REGIONS

NORTH AMERICA

After the historic contraction caused by the Covid-19 pandemic, the US economy is on the road back to recovery. Largely mechanical, the rebound noticed in the second half 2020 was stronger than expected leading to an upward revision of the initial GDP forecast for 2021 & 2022. But the recovery process will be very gradual owing to a slow recovery in employment, lower investments than in the recent years, a favorable budgetary policy that may be slowly implemented, or an uncertain trend of household consumption. Thus, GDP may not return to its pre-crisis level until 2023 despite a GDP forecast growth of +4% in 2021 (including a basis effect) and +3,1% in 2022.

Canada’s 2021 economic outlook is similar to that of other developed countries. After the largest economic contraction since 1945 (a dip of GDP estimated at -5,7%), the economy should grow sufficiently to offset part of the losses of 2020. Strong consumption and a rebound of exports could give the Canadian economy a boost. Bringing forward government investment projects should also provide a tailwind to Canadian economic growth. Conversely, the postponement of business investments and a slowdown in the housing market will limit the extent of the GDP recovery estimated around +4,7% in 2021, followed by +3,9% in 2022.

Containerboard Demand

After stability in 2019, the containerboard demand increased again in 2020 despite the pandemic crisis. For the coming years, the market could register similar variation, the expected growth rates reaching +2,0% in 2021 and +2,1% in 2022.

Capacities 

Because of some mill closures and reduced investments, capacities increased in 2020 by +0,7%. However, according to  public announcements from companies, new large investments and conversions could be implemented in the coming years; thus, the capacity growth could reach +2,6% in 2021 and +2,8% in 2022. 

Utilization rate

According to the elements mentioned above about capacities and demand, and also in regards of the export tendencies (linked to the particular situation in China for instance), the capacity utilization rate could remain similar to the one in 2020.

EUROPE

Based on the above mentioned General Economic Indicators scenario, it is projected that the Euro area GDP contracted by -7,3% in 2020 and should rebound by +3,9% in 2021, followed by 4,2% growth in 2022. If this somewhat positive scenario comes true, by the end of the projection horizon (end-of-2023), the level of real GDP would stand 2,5% above its 2019 pre-crisis level. Similarly, the consumer goods inflation is expected to increase from 0,2% in 2020 to 1% in 2021 and +1,1% in 2022. However, like everywhere in the World, the recovery in Europe remains subject to uncertainty regarding the evolution of the pandemic, the efficiency and rapidity of the medical solutions and the healing speed of national economies comprising the Euro area.

   Total Europe

Containerboard Demand

In 2020, the demand has been less affected by the pandemic than expected. While containerboard demand noticed a decrease of -3,6% in Q2, Q3 returned into black with a limited growth of +0,9%. With the boost during the first quarter (nearly +5%), year to date results show a limited decrease of the containerboard demand (-0,7%). 

For the year 2021 a rebound is expected (+2,8%). The recovery, however, is banking on another wave of the pandemic not stalling the economy. This percentage could be followed by a little more limited growth in 2022 (+2%) closer to the long term trend.

Capacities

According to press releases in the paper magazines, the capacities in total Europe increased by +2,8% in 2020 and will continue to grow for all containerboard grades by +5,6% in 2021 and +3,3% in 2022.

Utilization rate

The utilization rate is expected to decrease with new capacity coming in the next few years.

   Western Europe

In 2020, containerboard demand (all grades) dropped (-1%) after already a limited decrease in 2019 (-0,1%). For the year just starting, the expected growth is marked by a fairly clear recovery of +2,1% (basis effect), which will not be repeated in 2022 (+1,3%). At the same time, the capacities – all grades included – could vary between +5,8% in 2021 and +3,4% in 2022, if all the publicly announced projects are realized.

   Eastern Europe

Containerboard demand (all grades) in Eastern Europe was stable in 2020 (-0,1%). A recovery is expected for 2021 with +4,2%, followed in 2022 by a little more moderate growth of +3,4%. At the same time, capacities could increase by +5,2% this year and +3,1% in 2022.

ASIA-JAPAN

As a “natural” reaction to its collapse in the first half of the year, Japan’s real GDP rebounded sharply in the second part of 2020 to limit its fall to -5,3% on an annualized basis. This is thanks to private consumption and a drop of imports. For the year ahead, the economy should remain on the path to recovery despite persistent difficulties: the weak momentum of household consumption, the sluggish exports, the very gradual improvement of the manufacturing production. Thus, GDP growth could reach +2,6% in 2021 (with a strong basis effect) and +2% in 2022, under the assumption of the maintenance of the Tokyo Olympic and Paralympic Games from July to September 2021, expected as a favorable element for growth.

Containerboard Demand

The Japanese containerboard industry, the second largest in Asia, registered a drop last year (nearly -2%) after a dive in 2019 of -1,5%. According to the economic forecast, the containerboard demand is predicted to remain a bit under its long-term tendency, about +1% for 2021 and +0,5% in 2022.

Capacities & utilization rate

In 2020 the Japanese capacity (nearly 10 million tons) was quite stable. For the coming years, only a slight growth is expected mainly linked to minor adjustments of the refurbished capacities and technical progress.

Utilization rate

Based on economic expectations and containerboard demand, the utilization rate could remain relatively constant over the next two years.

ASIA – CHINA AND OTHER EMERGING COUNTRIES

One year after the appearance of the virus, it is clear that the emerging countries suffered a decrease of their GDP worse than that of the 1997 crisis (-1,7% in 2020). However, they seem to be now on the recovery path but in dispersed order, just as they were when the pandemic started. For instance, India, Indonesia and Thailand are still in high health uncertainty, while China or Vietnam have more or less mastered their epidemic path. In this context, the borders will not be completely reopened, which complicates exports flows as well the restart of investments, and manufacturing production, and household. Therefore, the pace of the recovery in 2021 could be overall around +7,9% (resulting from a large basis effect) but with disparities: for instance, +8,2% of GDP growth is awaited in China, +8,8% in India while the percentage could be “limited” to +4% in Thailand or +6% in Indonesia.

The probable persistence of the epidemic in 2021 added to the difficulties already mentioned, could limit a bit the GDP growth potential in 2022 in this region to around + 5,5% overall, of which + 8% in India, + 6,8% in Vietnam or +5,8% in China, but “only” +3,6% in Thailand or +4,8% in Indonesia.

Containerboard Demand

After a drop in 2019, the Chinese containerboard demand slightly decreased last year. A similar trend was also noticed in some other Asian medium sized containerboard markets (e.g. India, Indonesia, Malaysia or Vietnam) except in Indonesia or Taiwan where the demand apparently grew in 2020.

For the two years under examination, the expectations for this geographic area (excluding Japan) are positive with a large growth of +4,2% in 2021 and +4,8% in 2022, mainly driven by the development awaited in China (+4,4% and +5%), which represents nearly two thirds of the market in this area. Nonetheless, these forecasts depend on the revival of international trade flows, which in turn depends on the approach of the new US administration.

Capacities

Since more than a decade, the capacities of this Asian area (excluding Japan) grew in average by more than three million tons every year. In the next two years, their expansion should suffer from the economic constraints and the environmental pressures (e.g. in China with the closure of less efficient capacities due to the lack of raw materials. Nevertheless – and according to our estimations – the growth could reach a lower level close to 3.3 million tons in 2021 and 2.5 million tons the year after, with the emergence of new large capacities in neighboring countries of China like Laos, Indonesia or Vietnam.

Utilization rate

As the capacities development could be lower than the demand expansion, the utilization rate, which was below 85% in the past years, could grow slightly this year, provided that no significant closures of capacities will occur which could enlarge this movement.

LATIN AMERICA

In 2020, Latin America’s GDP likely contracted by nearly -8%, the worst among the major regions of the world. This figure resulted from the Covid crisis but also from the economic slowdown already at work in 2019. However, Latin America’s economy is poised to recover in 2021 as foreign demand and domestic activity revive. But significant risks lie ahead, most notably subdued household incomes, concerns over enormous fiscal gaps, uncertainty regarding the pandemic resolution  and social disturbances in some countries.

So, the scenario for 2021 for this region of the world could be a v-shape recovery (GDP +3,7%) which would not offset the drop of 2020, followed in 2022 by a come-back to long term trend (+2,4%). However, this overall forecast remains subject to the specific variations of the main countries of the region (e.g. Brazil which weighs nearly half of the region’s GDP, or Argentina, Mexico, etc.), depending on their social and economic situations or their position in international trade.

Containerboard Demand

Within this general negative economic frame, the containerboard demand declined in 2020 (-2,4%) with the only exception of the Brazilian market in growth last year (nearly +1,6%). Over the next two years, the overall demand in this geographic area is likely to recover (+3,3 in 2021% and +2,6% in 2022).

The major part of the market growth could come from Mexico (nearly 30% of the Latin American market) with +5% and +3,5% for 2021 and 2022 and some other medium sized markets (e.g. Chile, Colombia, Ecuador). On the other hand, the Brazilian market (40% of this market) could remain on its positive trend with another increase in 2021 (+3%) followed by a slightly more limited expansion in 2022 of about only +2,5%.

Capacities

Capacities increased in Latin America by +3,8% in 2020. Forecasted growth rates – based on publicly announced projects – are about +6,8% for 2021 and +3,2% in 2022. At the end, all these increases would represent 1.8 million tons since 2019 (+14%), the Latin American market becoming then a net exporter. 

Utilization rate

In 2020, the capacity utilization rate was close to 85%. Due to the perspectives expected in terms of demand and capacities for the coming years, it should not improve significantly.

AFRICA

In 2020, like all other continents, Africa was evenly concerned by the COVID-19 pandemic and the recession which followed. Thus, the GDP went from a growth of +3,2% in 2019 to a decrease of -3% last year. However, the variation was quite different according to the countries, depending on their exposure to the energy and raw material prices evolution. If only few countries succeeded to remain in growth (e.g. Egypt, Ethiopia, Ivory Coast…), most of the others faced economic disruptions, sometimes accentuated by a drop of their revenues coming from oil or gas (e.g. Algeria and Nigeria).

For the two coming years, a recovery is awaited with a GDP growth of +3,1% in 2021 and +4% in 2022. However, the outlook remains fragile, clouded by uncertainty regarding the oil price trajectory, rising inflation, elevated unemployment, security challenges and social tensions.

Containerboard Demand

 Containerboard Demand In 2020, reflecting the difficulties of some countries and the drop of the GDP in mostly all countries, containerboard demand decreased (-3,1%) after a limited growth in 2019 (+1,5%), which attested to the recession already in process in this region. This negative trend last year resulted from the poorest demand in several industrializing countries or exporters, such as Morocco, Algeria, Nigeria or Ivory Coast, and of the two major markets in this area (each representing nearly 30% of the African market), South Africa and Egypt. For the next two years, in accordance with the general economic outlooks, containerboard demand could recover with +3,9% in 2021 and +2,8% in 2022.   Capacities According to the different public announcements – e.g. a new paper machine construction and some refurbishing – the capacity variation should be significant in 2021 (+3,6%) and mainly driven by the technical progress in 2022 (+0,5%).

Capacities

According to the different public announcements – e.g. a new paper machine construction and some refurbishing – the capacity variation should be significant in 2021 (+3,6%) and mainly driven by the technical progress in 2022 (+0,5%).

Utilization rate

In 2020, the capacity utilization rate remained close to 83%. According to the expectation for the coming years, and the uncertainty regarding the access to some utilities – e.g. energy – in some countries this rate should not vary significantly.

OCEANIA AND “OTHER COUNTRIES”

The two countries, that mainly compose this geographical area – Australia, the 12th world economy, and New Zealand – have registered in 2020 a huge drop of their economies, contrary to 2019, with nearly -4,2% of GDP decrease for both. Indeed, like other economies of advanced countries, they suffered from the COVID19 impacts despite the active economic policies from national authorities, but also from lower commodity prices (e.g. Australia) and poor demand from the Asian countries already noticed in 2019.

In 2021 and 2022, growth is expected to strongly recover in Australia (nearly to 3% each year) and in New Zealand (+5,5% in 2021 and +3% 2022) due to policy accommodations and stronger global growth, which should boost export volumes. Furthermore, the activity is set to continue to benefit from sustained household demand as well as a (slow) restarting of investments.

Containerboard Demand

In that area, the containerboard demand in 2020 (-1,4%) did not follow completely the economic growth in Australia and New Zealand. It came after an increase in the preceding year (+1,6%). For the coming years, despite the effort to stimulate the economy in Australia and to sustain it in New Zealand, the containerboard demand could only increase by a comparable rate of +2,3% in 2021 and +,7% in 2022.

Capacities & Utilization rate

As no major changes have been publicly announced in the coming years, a slight increase of the utilization rate is expected in the near future.