Cartonboard gets lighter, moves up the value chain.

Lighter, better quality cartonboard is reaching world markets as this stalwart grade copes with new competition from microflute corrugated and other materials. World cartonboard demand will grow by 2.4%/yr over the long term, reaching 56 million metric tons by the year 2020. Growth in mature markets will remain negligible, while markets in Eastern Europe and Asia continue to expand.

The following scenarios are based on "World Paper Markets up to 2020," by Jaakko Poyry Consulting. Growth prospects for cartonboard are best in Asia, Latin America and Eastern Europe. Growth in Western Europe will be less than 1%/yr, while the North American market will remain flat. High-quality grades will grow while low-quality boards decline.

Folding carton shipments in North America and Western Europe generally follow consumer spending and changes in disposable incomes, but volume growth has been modest. Factors inhibiting growth include:

* Trend toward reduced packaging

* Use of lower-density boxboards

* Competition from alternative packaging

* Manufacturing moves to low-cost countries.

The food industry dominates folding carton consumption in North America and Europe, accounting for 55-56% of total demand. In North America, frozen food and ready-made meals are the fastest-growing food industry segments for folding carton packaging. The growing variety of ethnic foods is, in particular, boosting demand. Decreasing segments include tobacco (reduced smoking) and software (downloading of software from the Internet).

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In Western Europe, changing lifestyles and the growing number of single-person households are leading to increased consumption of convenience and frozen foods. The aging population structure leads to increased consumption of pharmaceuticals and cosmetics. However, the use of packaging materials has been reduced at the expense of folding cartons.

In Asia, folding cartons are mainly used for packaging electronics, cosmetics and hygiene products, pharmaceuticals, and cigarettes. The main demand drivers include general economic growth and improved packaging standards, combined with capacity expansions that have increased local supply.

White lined chipboard (WLC) accounts for 45% of world cartonboard capacity. Solid bleached sulphate (SBS) and coated unbleached kraft (CUK) are typical in North America, while folding boxboard (FBB) is more typical in Western Europe. The global industry remains fragmented, but the top five producers' share of global capacity increased from 18% in 1997 to 23-24% in 2005. Consolidation has been fastest in North America.

The largest cartonboard machines are found in North America and the Nordic countries. Almost 90% of all new board machines commissioned during the past 10 years have been installed in China or the Asia-Pacific region. Global production of cartonboard is forecast to grow from 40 million metric tons in 2004 to 56 million tons in 2020. The growth will primarily take place in China and the rest of Asia, accounting for two-thirds of the world's incremental production during 2004-2020.

Note: This article is part of a series by Jaakko Poyry Consulting, Tarrytown, New York, USA, a provider of consulting services.

JAAKKO POYRY CONSULTING

Contact Ms. Soile Kilpi by email at [e-mail], or by phone at [phone].

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