Hope despite the headwinds

The move toward nearshoring could benefit Latin America’s paperboard sectors, according to a presentation by Vincent Leon, a principal with Afry Management Consulting of Stockholm, this October at the Recycling Today Media Group’s Paper & Plastics Recycling Conference session Demand Growth in Latin America. However, macroeconomic factors are likely to create headwinds.

Macroeconomic factors

Leon said gross domestic product (GDP) growth in Mexico and Latin America in 2024 is forecast to be 2.1 percent, while South America’s is expected to be 1.2 percent and the Caribbean’s 2.8 percent.

“When we think of the macroeconomic factors that impact GDP development, basically, we’re looking at a combination of a lot of negative and uncertain factors starting with the global headwinds—the slowdown of the U.S. [and] European economies, as well as the Chinese economy, that can impact the Latin American countries as well,” Leon said.

The situation is further affected by political uncertainty and tight financial conditions that slow consumer spending and make capital more expensive.

One positive trend Leon cited was the possible effects of nearshoring, or bringing supply chains closer for U.S. companies. He said containerboard producers in Mexico and Central America likely would benefit the most from this trend starting in 2024 and 2025, an assessment panelists Jonathan De Leon, fiber procurement and logistics manager for Mexico City-based Bio Pappel, and Adriana Williams, senior vice president of Latin America at Newport CH International, which is headquartered in Irvine, California, agreed with.

“Nearshoring is going to be a very good opportunity for the Mexican market for this Central American market,” Williams, who is based in Miami, said.

She added that the packaging market will benefit as these manufacturers will need boxes to package their goods for shipment to the U.S. or Canada, creating more old corrugated containers, or OCC, to supply containerboard makers in North and Latin America.

De Leon, who is based in Phoenix, added that Mexico and Latin America could benefit as companies move out of China to these locations. “We already started to see it in areas like Tijuana [and] Juarez,” he said.

Bio Pappel continues to “strategically place plants, knowing that this is to come,” De Leon said. “We have a mega box plant in Tijuana. We make all the boxes for Samsung,” which makes TVs nearby.

Bio Pappel opened two box plants in the last six months in the area and is building a third in Dallas, he added.

Paper demand and production

Latin America has roughly 32 million tons of paper production across Mexico, Brazil, Argentina, Columbia and Chile, Leon said. Mexico and Brazil each account for about one-third of the total installed regional capacity at 11 million tons and 10.1 million tons, respectively.

He said 40 percent of this capacity, or 13.6 million tons, is used to produce containerboard, including liner and medium. The second-largest market is tissue and hygiene products at 6.9 million tons, followed by graphic paper, which includes newsprint, office paper or other publication papers, at 5.7 million tons. The fourth-largest market is carton board at 3.6 million tons.

Recovered paper makes up most of the furnish for Latin American paper mills, Leon said, totaling nearly 82 percent for containerboard production, 63 percent for tissue and 55 percent for carton board.

The containerboard market is forecast to grow at a rate of 2.2 percent annually from 2025 through 2035, Leon said, driven by consumer spending and the development of e-commerce. “Between 2022 and 2035, we expect about 7 million tons of new demand,” he added. “So that’s the equivalent of 10 to 12 new machines—about one per year, basically.”

Carton board demand is projected to grow at an annual rate of about 2 percent from 2025 through 2035, also driven by consumer spending. “We are looking at 0.8 million tons of additional capacity, so that’s about two machines,” Leon said.

Tissue demand is forecast to increase by 3 percent per year from 2025 through 2035, while graphic paper demand, on the other hand, is forecast to decline by 1.2 percent per year from 2025 through 2035 as paper is replaced by digital formats in the office paper, newsprint and advertising paper segments, he said. That decline will pressure the availability of premium recovered paper grades, such as coated book stock, sorted office paper and sorted white ledger.

Leon said 3.3 million tons of additional papermaking capacity are expected to come online in Latin America by 2026, mostly in Mexico and Brazil. More than half that capacity will use recovered fiber.

Recovered paper demand growth

Apparent paper recovery in Latin America is 45 percent, according to Leon’s presentation, putting it well below that of Japan (84 percent), western Europe (78 percent) and North America (64 percent).

Regarding the flow of recovered paper from the U.S. into Latin America, Mexico is the leading destination. In 2021 and 2022, U.S. recovered paper exports to Mexico totaled 3.3 million tons and 3.2 million tons, respectively, up from the historical average of 2 million tons per year, according to Leon’s presentation.

Panelist Rusty Getter, director of the commodities team at Austin, Texas-based Balcones Recycling, said next year will be a repeat of this year when it comes to recovered paper markets in Mexico.

“We do see some positive trends, certainly in the bulk grades of OCC and mixed paper. But it’s been slower to take hold in Mexico in the last several weeks than you would typically see,” he said.

Williams said it is difficult to predict what will happen in 2024. “But what we see with all our customers is that most of the mills are still full of inventory, … so the movements are very, very slow.”

By year’s end, much of that inventory will be sold, she said, and mills will be buying recovered paper by early 2024.

“This is what I expect, but … we can change anytime,” Williams added.

The author is editorial director of the Recycling Today Media Group and can be reached at dtoto@gie.net.