Long live containerboard!

Global demand for containerboard is expected to grow by 2.7%/yr in the long term. Growth is likely to be slow in Japan, North America, and Western Europe but is expected to be well above the global average in most parts of Asia, Russia and Eastern Europe.

The key assumptions underlying the demand scenario (according to World Paper Markets up to 2020, by Jaakko Poyry Consulting) are: (1) the transition of manufacturing industries from high to low cost regions will continue, and (2) the relative cost position of plastics vis-a-vis fiber-based packaging does not change radically in the long term despite the gloomy short/medium term outlook for crude oil supply.

The basic assumption made is that the trend to light-weighting will continue at the same rate as in the recent past. The U.S. market is an exception. Despite revised box rules in North America, the assumed light-weighting trend does not have any support from history.

END USES DIFFER

Corrugated board is used for the manufacture of boxes, cases, displays, trays etc. for various packaging needs. End-use patterns vary widely by region and country. The main end uses are food, beverages and tobacco (typically 30-55% of consumption), electronics and electrical items (5-20%), and chemicals/pharmaceuticals (5-10%). Food, beverages, and tobacco dominate consumption in North America, Europe and Japan. Electronics and electrical items are an almost equally important end use in China.

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Export packaging continues to be the main driver of corrugated board packaging in emerging Asian markets. Manufacturing of toys, electronics, textiles/footwear, and many other consumer products--formerly produced in Western industrialized countries and Japan--constitute a strong market base for increased corrugated board demand in Asia. In the longer term, growth will be increasingly driven by domestic packaging needs.

The growth of corrugated board demand in the West and Japan will depend on the packaging needs of the food and beverage sector. These industries are typically very stable in terms of demand changes. They are also less likely to relocate to low-cost countries.

KEY DRIVERS FOR LONG-TERM GROWTH

The growth of the world economy, industrial production, and merchandise trade are the main demand drivers for containerboard and corrugated board packaging. Other significant drivers include the globalization and consolidation of end-use industries and retail trade, and the growth of electronic shopping. The globalization of manufacturing industries has shifted packaging board demand from industrialized Western countries and Japan to emerging low-cost countries in Asia and Eastern Europe. The U.S. and UK packaging industries have been the main losers in this respect, while China's packaging industry has been the main beneficiary.

Some of the newer applications, such as microflutes, will support the use of containerboard and corrugated board in the competition against folding cartons. The key drivers are the general tendency to reduce packaging costs and the growing emphasis on the weight of transport packaging.

Source reduction and recyclability will have a favorable impact on containerboard demand growth. The high recovery and recycling rate of wood fiber-based packaging materials will benefit the industry.

Plastics and returnable/reusable transit packs (RTP) will compete with corrugated packaging. The competitiveness of fiber-based packaging will depend on innovation, product development, cost and the industry's general ability to respond to changing market requirements.

Increased use of corrugated board in consumer packages and display applications has increased printability requirements and thus boosted the demand for white top linerboard. This trend will continue, implying increased use of white top liner at the expense of unbleached grades.

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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