Corrugated board packaging market: Higher than expected growth
The dynamic end of 2020 set the stage for an equally dynamic corrugated board packaging market in 2021. The "new reality" factors caused by the COVID-19 pandemic largely influenced its growth rate last year (6.2% at year-end) and continue to determine the dynamics of this year. Yury Alpeev, Director for Strategic Marketing of Gotek Group, Chairman of the Expert Council of NCPack describes the market trends at the end of the Q1 and the forecasts for the year.
"The results of Q1 2021 are more positive than we previously predicted: in the comparable period, the market grew by 11.4%. While beginning the year our forecast projected a 6-7% year-over-year growth, at this point we are looking at 11% growth as an optimistic scenario.
What will either scenario depend on?
Using the phrase "new reality," we do believe that much of the past " pre-pandemic" life will undergo significant changes. Moreover, the pandemic will act as a catalyst for a number of development trends that took shape long before it began.
One of these trends can be considered the growth of the e-commerce segment. We can say that a sufficiently large number of consumers have formed the habit of buying online, as evidenced by the continued growth of this segment at a double-digit rate (for example, in January-February, the turnover of e-commerce grew by 44% over the same period last year). In general, according to updated data from the Russian Statistic Agency, the retail trade turnover at the end of the first quarter increased by 4.8%, mainly due to growth in sales of food products (+8.6%). Non-food products barely clung to the positive zone (+0.9%).
The opposite was observed in the structure of manufacturing industries production during the first quarter: nonfoods production grew faster (+7%) than foodstuffs production (+1%). Combined, these factors created a multiplicative effect for the development of the corrugated cardboard packaging market.
As for the rest of the year, we believe that the gradual removal of Covid restrictions will have a significant impact on the change in spending patterns over this period. The recovery in the service sector and the reduction in consumption of basic necessities will lead to a slowdown in market dynamics in the second half of the year. According to experts' forecasts, the online shopping segment will maintain a double-digit growth rate, while the majority of offline purchases will be made close to home in small format stores, and the demand for individually packaged products will remain at the current high level for hygiene reasons. Interest in new products, particularly in the food sector, will remain just as high, and many companies will maintain or increase the frequency of new product launches. Accordingly, along with an increase in the use of primary packaging, the downward trend in the circulation of all types of packaging materials will continue against a backdrop of growth in overall production volumes.
The growth of corrugated cardboard packaging consumption has a negative side. Negative situation
with collection of waste paper, appeared in 2020 as a result of pandemic restrictions, remained at
the beginning of 2021 and led to a noticeable shortage of supply and growth of the cost of raw
materials MS-5B (+46% in March to December 2020) in average to 22 220 rubles per ton. A consequence
of the destabilization in the system "collection of waste paper - manufacture of recycled
containerboard" is the growth of prices for testliner: in Q1 2021 the price grew to 40 969 rubles
per ton (+41% against December of the last year). High dynamics of the corrugated cardboard
packaging market increases the demand for raw materials and creates additional pressure on the cost
of containerboard. At the same time, the conditions that contribute to the earlier forecasted
scenario of the price decrease in the II-III quarters of 2021 are already not being realized.
On the basis of assessment of recycled containerboard balance for corrugated cardboard production we
can say that the level of stocks formed in May-June in the warehouses of corrugators is not
sufficient to ensure price stabilization in this segment. High demand for corrugated cardboard
products and deficit of waste paper are two differently directed factors provoking price growth
along the whole supply chain.
Despite the shortage of waste paper, the balance of supply and demand for containerboard was achieved by changing the structure of consumption of cellulose and recycled types. This was possible because the cellulose/recycled containerboard price ratio turned out to be less than 20% in the period. However, without the corresponding prerequisites in the form of reduction of exports, increase of imports and slowdown of the corrugated packaging market dynamics, it is not enough to reverse the price trend downwards.
Favourable prices for recycled containerboard abroad, which in April were yet lower than prices in the domestic market, do not give us a reason to consider supplies of recycled containerboard from the near abroad as a way to stabilize the market due to the lack of free volumes for import to Russia due to high EU domestic demand in the first half of 2021.
Thus, taking into account the growth rate of the corrugated packaging market in the first quarter, we expect an increase in production in the range of 7.6% - 11% by the year end. This "run-up" is largely determined by the unstable economic situation, as well as the unobvious prospect of restrictive measures and "social distancing", which inevitably affects changes in customer behavior patterns. Despite the fact that we expect the price of waste paper to stabilize (+1% in the first half of the year, followed by minor seasonal fluctuations), it is obvious that the growth of prices for recycled containerboard (+34% in June against March), and then for cellulose containerboard (+38% in June against March) will continue until the end of the first half of this year. But we see a number of factors that, in our opinion, will lead to stabilization of the cost of containerboard in the second half of the year.
As for corrugated cardboard packaging manufacturers, we see the need for a compensatory price increase for corrugated packaging by at least 25-30% to eliminate the risk of companies losing liquidity, regardless of the level of integration. In the third quarter such pricing tactics will remain, and with the stable prices for raw materials the adjustment of prices for finished products will follow".