The Current State of the Corrugated Packaging Market

During the course of this calendar year we have had no less than six board price increases imposed on us by our board suppliers. In every instance these increases have been occasioned by increases in the cost of paper. At the end of October Euwid reported that linerboard prices have risen by circa 55% in the last 12 months and there have been two increases since.

However, there are signs that the paper market is slowly returning to a more balanced state. I have tried to summarise current state of the market below.

Paper

Demand has slowed and supply has increased. In recent months significant new capacity in recycled linerboard has come on stream: Palm Paper commissioned a new 750,000 tonne (per annum) mill in south-west Germany; Prinzhorn Group has fired up a new 500,000 tonne mill near Berlin and ProGroup has also started production at its new 750,000 tonne mill in north-east Germany.

Furthermore, four European newsprint mills have either already been or are in the process of being converted into linerboard mills: Stora Enso has successfully converted their 1.08 million tonne Oulu mill in Finland to produce high quality kraftliner for packaging; VPK, our partner at Corrboard, is currently converting a 450,000 tonne newsprint mill near Rouen to produce recycled linerboard and the new operation should be up and running in the second half of 2022; Eren Holdings has acquired UPM’s newsprint mill in Shotton in North Wales and plans to convert it into a 650,000 tonne recycled linerboard mill, which should be operational in 2023. This will increase the number of linerboard mills in the UK from three to four, so it represents a significant increase in the UK’s linerboard production capacity. To put this in some sort of context, the Confederation of Paper Industries estimates that the UK’s current paper production capacity is circa 4 million tonnes, so this new mill should provide additional capacity of around 16%.

So, by early 2023, an additional 3 million tonnes of recycled linerboard capacity and 1.08 million tonnes of kraftliner capacity and will be operational across Europe. That is a significant increase.

Corrugated sheet

The main players in the corrugated sheet market have increased their prices by 62% this year. Due to the surge in e-commerce, all the sheet feeders have experienced growth in varying degrees – the market growth is trending at around 5-6% but some have grown by 35%. Capacity allocation, whereby a set amount of volume is assigned to each box manufacturer, has been widespread and a lot of boxmakers have been unable to secure all the volumes they require. However, in recent weeks demand has dropped off and the lead times of 3 months which prevailed this time last year are a bad and distant memory.

In a recent study, Mintel stated that the UK e-commerce market grew by over 47% (£40 billion) last year, has flatlined this year and is forecast to grow by another 36% (£37 billion) in the next three years. This will require additional capacity in the sheet feeding market, which will be met in part by the following planned developments:

  • A new sheet feeding operation which Schumacher is planning to build in Birmingham
  • A new sheet feeder which Eren is planning to build next to its converted mill in Shotton
  • A new sheet feeder which VPK is planning to build next to its converted mill in Rouen

Boxmakers have also been scrambling to increase capacity and this has greatly extended lead times on new equipment designed for e-commerce packaging. Bobst, the market leader in packaging machinery, is currently quoting delivery in early 2024.

Fencor

In the last 18 months we have:

  • Installed 10 new machines
  • Taken on an additional 60,000 square feet of factory and warehouse space
  • Increased our workforce from 135 to 191 (41%)
  • Been granted planning permission to extend Manor’s factory by an additional 18,600 square feet (40%); construction work will start on 4th January 2022.

This has secured sufficient capacity to allow us to meet your requirements over the next three years and our focus is now squarely on improving our service to you.

We have also secured priority allocation with Corrboard, which allows us to increase our volume allocation with 2 weeks’ notice. This is a unique privilege which is only available to Corrboard’s UK shareholders, which will ensure that we will be able to guarantee security of supply or our principal raw material. Corrboard has recently added a third shift to its operation, which has created additional capacity and improved lead times significantly.

With my best wishes for a merry Christmas and a happy, healthy and prosperous New Year,

DAVID ORR

Group Managing Director