Examining containerboard dynamics

Innovation, collaboration and transformation are keys to success for companies navigating today’s containerboard and recovered fiber markets, according to speakers at the 2019 Paper & Plastics Recycling Conference, hosted by Recycling Today Events Oct. 23-25 in Chicago.

Daniel Nordigården, a senior expert at McKinsey & Co. Inc., who works out of Detroit; David Feber, a partner at McKinsey & Co. who also is based in Detroit; and Kelly McNamara, a senior market analyst at Numera Analytics, Montreal, offered insights on how capacity expansions for containerboard will influence demand for recovered fiber.

McKinsey & Co., a global management consulting firm, works with large consumer goods companies and retailers within the packaging space. According to the firm’s research, packaging design trends and changing consumer preferences, including increased demand for sustainable products, will have implications on the packaging supply chain. The projected 10 percent to 15 percent e-commerce growth rate also will shape the market going forward.

“If you think about e-commerce, it’s really amazing the growth of this market over time,” Nordigården said, adding that e-commerce is going to drive demand for old corrugated containers (OCC) and containerboard. “Even though it’s a small need now, for the containerboard industry, this is a huge game-changer.”

Being aware of changes in packaging and “rapidly changing” consumer preferences will help companies identify opportunities to grow, Nordigården said.

E-commerce effects

Consumer preferences and demand for packaging that is convenient, lighter and more sustainable will drive requirements for e-commerce packaging, Nordigården said. According to a McKinsey & Co. survey, consumers are more aware of sustainability today and “feel personally responsible to do something about it.” As a result, 60 percent of the top brands have made commitments to make their packaging recyclable, reusable or compostable by 2025 and to use more recycled content, according to research by McKinsey & Co.

“For a supplier in the containerboard industry, this will have a huge impact on raw material choice and what kind of packaging they’ll be asking for in the future,” Nordigården said.

Photo by Mark Campbell Productions

Feber pointed out that retailers are facing and will continue to face depressed margins over the next 10 years, so “when it comes to sustainability, the industry is going to have to come up with cost-effective sustainable solutions.”

With new packaging designs, companies are merging primary and secondary materials and reducing the use of plastics. Brand owners also are testing new approaches to packaging. For example, Procter & Gamble, Cincinnati; U.K.-based Unilever; The Clorox Co., Oakland, California; Nestlé, Vevey, Switzerland; The Coca-Cola Co., Atlanta; and PepsiCo, Purchase, New York, all have redesigned their packaging to participate in Trenton, New Jersey-based TerraCycle’s Loop pilot, which replaces single-use packaging with reusable packaging. This pilot will have implications on the demand for OCC, Nordigården said.

McKinsey & Co. also has observed more industry collaboration compared with years prior. For example, the NextGen Cup Challenge—launched to identify and commercialize solutions for single-use fiber cups—brought together Seattle-based Starbucks and Chicago-based McDonald’s, which were early investors and founding partners, and The Coca-Cola Co.; Yum! Brands, Louisville, Kentucky; Nestlé; and Wendy’s, Dublin, Ohio, as supporting partners.

“Competitors teamed up to solve an industry challenge, informing a partnership that went from producers, recyclers and food companies,” Nordigården said. “We think we’re going to see more and more of that. No one player in the value chain can solve the problem alone.”

Changes in movement

While Nordigården and Feber offered insights into how the packaging and containerboard industries are changing to accommodate e-commerce growth and consumer demands, McNamara shared her thoughts on where the recovered fiber market is heading in the months and years ahead.

Numera Analytics analyzes the pulp and paperboard sectors and uses macroeconomic data to assess market conditions and provide forecasts.

Manufacturing has been declining, she said, which has resulted in overall reduced demand for containerboard and reduced consumption of OCC in North America. According to Numera, demand for containerboard dropped 3.2 percent for most of 2019 compared with 2018 mainly because of reduced exports and economic uncertainty caused by the U.S.-China trade dispute.

“OCC is still going to head from North America to Asia, just to different countries. Vietnam and Laos will be the direction most OCC will be going in the future.” – Kelly McNamara, senior market analyst, Numera Analytics

“No one knows what’s going to happen,” McNamara said of the trade dispute. “This uncertainty has investors holding off on making investments. As a result, this puts the economy at a slower pace. It’s slowing and will continue to slow. When you reduce investments and you have an overall slowdown, this affects demand for boxes and containerboard.”

In the first half of 2019, consumption of OCC declined 4.2 percent in North America, she said, which resulted in price instability for most of the year.

Reduced exports are a big contributing factor to the depressed OCC market and also have affected containerboard. Overall, U.S. exports of OCC are down 4.8 percent year to date, according to Numera. There’s been a “dramatic reduction” in OCC exports to Latin America, for example, related to economic conditions as well as to weather conditions. And containerboard exports to Turkey are down because of tariffs on this product.

“The export market is truly an essential element to maintaining balance,” in recovered fiber markets, McNamara said. “What’s interesting is how things have shifted. With the import permit problems and inspection problems, we saw this dramatic change in price, and disparity between the domestic price and the export price was huge. We don’t anticipate huge change until there is additional demand from other mills.”

Because several mill projects are slated to come online from 2019 to 2023, Numera predicts that containerboard capacity in North America will increase 1.5 percent, while demand will grow less than 1 percent. The research firm also predicts that because of confirmed expansion projects, demand for recovered fiber—mixed paper and OCC—will increase by 4 million tons over the next five years.

Numera also forecasts that global demand for containerboard will rise 1.5 percent per year through 2023, which is “growing at a reduced rate from a previous forecast” because of trade uncertainty, McNamara said.

However, she said, recovered fiber will continue to move to developing markets in India, Indonesia and Vietnam. “OCC is still going to head from North America to Asia, just to different countries,” McNamara said. “Vietnam and Laos will be the direction most OCC will be going in the future.”

She concluded, “Recovered fiber capacity will improve, but it’s going to take a little time.”

The author is the digital editor for the Recycling Today Media Group and can be contacted at kmaile@gie.net.