European paper packaging market: mid-year review

In July’s Paper Packaging Monitor Europe, our European packaging economists looked at the factors that shaped the first half of 2024, and looked ahead to the second half. Here we share the highlights of their analysis. If you’d like to access the underlying data, or talk to our team of experts about their predictions for the remainder of 2024, contact us.

Three factors that shaped the first half of 2024 for European paper packaging markets

1. Consumer spending: soft but stable

Consumer spending was soft but stable in the first half of 2024. Slight growth in retail sales volumes suggested minor improvement in consumption growth. However, high inflation and higher living costs have increased the price of goods and services, and consumption mainly focused on necessary items and services. Consequently, funds for additional purchases have and will remain limited. Thus, volumes of goods and services remained stable in the first half of 2024 with no visible boost to volume growth.

Softer growth in the European economy creates concerns about the expected demand recovery in the second half of 2024. The reduction in new orders continued, as did the underperformance in the German and French economies compared with other regions. High input prices and selling price inflation might keep overall inflation higher than the 2% target and further delay the ECB’s rate cut schedule and thus any packaging paper demand recovery.

2. Stable demand for containerboard and cartonboard amid sector challenges

Despite the lower performance in the manufacturing and service sectors, the consumption of board through the goods and services segments has remained relatively stable. Consequently, demand for containerboard and cartonboard did not grow much in the first half of 2024. Consumer spending is expected to remain limited due to higher living costs, so a significant recovery in demand is unlikely to happen in the near term. Demand conditions improved in the containerboard and cartonboard markets in the first half of 2024 after a difficult 2023. Demand and production levels have stabilized at pre-pandemic levels or lower.

We anticipate market conditions will remain stable in the second half of 2024, as consumers remain cautious, and buyers seek bargains.

3. Manufacturing cost inflation drives prices, squeezes margins

Manufacturing cost inflation continued to be high in the first half of 2024, which pushed prices of containerboard up significantly and cartonboard prices up slightly. Cost inflation softened late in the second quarter but is expected to add pressure to selling prices of both containerboard and cartonboard in the third quarter. Despite the price increases, margins in containerboard and cartonboard markets remain low. Further price increases are likely if manufacturing costs continue to rise; the currently low operating rates will not support additional increases.

Scroll down to discover our outlook for the second half of 2024.

Looking ahead to the second half of 2024

The poor performance of the European economy in June and July has shaken the business optimism that increased in the first and early second quarters. Both the manufacturing and service sectors are suffering from declining new orders, which could extend past the summer and reduce our demand forecast. Higher living costs have reduced consumer funds and forced them to carefully consider their spending. Inflation remains persistently high and might keep interest rates high longer than currently anticipated. This could slow growth in consumer spending, demand in the manufacturing sector and eventually demand for corrugated board for a longer time than currently expected. However, contraction in the manufacturing sector has lasted two years, so considerable change in demand levels is not expected.

We continue to expect soft demand growth for the near term, although the risks of weaker demand growth have increased. We amended our forecast for second-quarter corrugated board and containerboard demand, trade and production up slightly and made a few adjustments to containerboard demand and trade for 2025 and 2026. Additionally, higher manufacturing cost inflation is estimated to increase containerboard prices in the third quarter more than previously forecast.

Here are the key findings from our recent European paper packaging forecast.

1. We expect Western European corrugated board shipments to remain stable in the second half of 2024. Destocking reduced shipments in 2023, so we expect strong year-over-year growth. We believe that corrugated board markets are returning to normal seasonality this year, and monthly shipments will grow steadily rather than seeing sudden increases.
2. The slight growth in corrugated board demand is keeping demand for containerboard at a similar level now that the destocking and restocking periods have finished. Due to seasonality, demand conditions are expected to mildly weaken in the third quarter of 2024 and then improve in the fourth quarter. Virgin containerboard demand will grow faster this year, while recycled containerboard demand will expand more in the coming two years.
3. Western European containerboard net exports have remained high, although global containerboard overcapacity and soft demand conditions are creating challenges for exporters. We anticipate a slight slowdown in net export volumes in the second and third quarters before net exports start increasing again in the fourth.
4. The soft recovery in containerboard demand has slowly increased operating rates, which rose slightly more than one percentage point to around 86% in the first and second quarters of 2024. We estimate operating rates will decrease to around 84-85% in the second half due to increasing containerboard capacity. However, the timing of capacity start-ups will determine when operating rates start declining. Additional downtimes are probably over, but producers need to slow their machines to adjust their output to market demand levels during the forecast period. If we assume operating rates of 90%, the current overcapacity in Western Europe stands at more than 2.0 million tonnes.
5. Our forecast includes significant capacity closure assumptions. Operating rates will be about 1 percentage point lower if these assumed closures do not occur. This highlights the severity of the overcapacity situation, and we expect that not every high-cost mill or machine will be able to survive with operating rates this low.
6. Upward cost pressure in containerboard production will most likely continue, albeit at a slower pace. OCC prices have stabilized in July and are expected to remain at a similar level in the second half. A balance between OCC collection volumes, trade and domestic demand is approaching. Uncertainty regarding consumer spending might shake the OCC markets, and we are not ruling out volatility in OCC shipments and prices in the near term. Stronger demand and trade will likely increase OCC prices further, while weaker conditions could swing prices in the opposite direction.

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