Leading Russian Analyst Evaluates Local Corrugated Packaging Market in Q1 2021

Growth is higher than expected. Optimistic scenario suggests annual increase of up to 11%

“Results of Q1 2021 are better than we thought,” says Yuri Alpeev, Strategic Marketing Director at GOTEK Group, Chairman of the Expert Council at National Packaging Confederation. “The market have grown up by 11.4%.”

“At the beginning of the year our forecast for year-to-year growth was 6-7%, but at the moment we consider an 11% growth as an optimistic scenario.

“What will the scenarios depend on?

“Using the phrase new reality, we really believe that much of the past, pre-COVID life will undergo significant changes. Moreover, the pandemic will act as a catalyst for a number of trends that developed long before its start.

“One of these trends can be considered the growth of the e-commerce. We can say that a fairly large number of consumers have formed the habit of buying online, as evidenced by the continued growth of this market segment at double-digit rates.

“In January-February, e-commerce turnover grew by 44% compared to same period of 2020.

“According to Rosstat Russian statistic agency, in Q1 2021 the retail trade turnover has increased by 4.8%, mainly due to the growth in food sales (+ 8.6%). Non-food products barely caught on in the positive zone (+ 0.9%).

By the end of 2021, online retail segment will maintain double-digit growth rate, demand for individually packaged products will remain high

“As for production in manufacturing industries, the situation is opposite: production of non-food products grew faster (+ 7%) than production of food products (+ 1%).

“Taken together, these factors have created a multiplier effect for the development of corrugated board packaging market.

“For the rest of the year, we believe that the gradual lifting of restrictive measures will have a significant impact on the change in the structure of spending during this period.

“The recovery of the service sector and the reduction in consumption of essential goods will lead to a slowdown in market dynamics in the second half of the year.

“Experts predict that the e-commerce segment will maintain double-digit growth rates, while most offline purchases will be carried out in small stores near home. Demand for individually packaged products will remain high for reasons of hygiene.

“Interest in new products will remain equally high, especially in the food sector, so many companies will maintain or increase the frequency of new product launches.

“Accordingly, along with the increase in the use of primary packaging, the tendency for a decrease in the circulation of all types of packaging materials will continue against the background of an increase in the total volume of production.

Stocks of recycled containerboard in warehouses of corrugated board manufacturers are not sufficient to stabilize prices in this segment

“There is also a negative side to the growth in consumption of corrugated cardboard packaging.

“Bad situation with the collection of waste paper, rooted back in 2020 as a result of restrictive measures during the pandemic, kept pace at the beginning of 2021 and led to a noticeable shortage of supply and an increase in cost of MS-5B (OCC) grade waste paper (+ 46% from March to December 2020) to up to 22,220 rubles (252 euros) per ton on average.

“As a result of destabilization in the system of waste paper collection — production of recycled containerboards, in Q1 2021 prices of testliner increased to 40,969 rubles (465 euros) per ton (+ 41% to December 2020).

“The high dynamics of the corrugated board packaging market increases the demand for raw materials and creates additional pressure on the cost of recycled containerboards.

“At the same time, conditions that contribute to the previously predicted scenario for a decrease in prices in the II-III quarters of 2021 are not being implemented.

“Considering the recycled containerboard balance sheet, warehouse stocks of corrugated board manufacturers in May-June are not sufficient to ensure the stabilization of prices in this segment.

“High demand for corrugated board products and a shortage of waste paper are two multidirectional factors driving price increases throughout the supply chain.

At the end of the year, we expect an increase of corrugated board production of 7.6%-11%

“Despite the shortage of recycled raw materials, the balance of supply and demand for recycled containerboards was achieved due to a change in consumption of cellulose and waste paper. This was possible, since the price ratio of cellulose and recycled cardboard grades turned out to be less than 20% in the period.

“However, without decrease in exports, increase in imports and slowdown in dynamics of corrugated packaging market, this is not enough to bring prices down.

“Favorable prices for recycled containerboard abroad, which were lower than prices on Russian market in April 2021, do not allow to consider the supply of recycled cardboard from neighboring countries as a way to stabilize the market due to the lack of free import volumes to Russia, as demand in the EU in H1 2021 remains high.

“Thus, taking into account the accumulated growth rates of the corrugated packaging market in Q1, by the end of the year we expect an increase in production by 7.6%-11%.

“Such difference is largely determined by instability of economic situation, as well as the unobvious prospect of restrictive measures and social distancing, inevitably affecting the change in consumer behavior patterns.

Compensatory increase in prices for corrugated board products for companies should be at least 25-30%

“Despite the fact that we expect stabilization of waste paper price (+ 1% in H1 2021, followed by slight seasonal fluctuations), it is obvious that the growth in recycled containerboard prices (+ 34% in June compared to March), followed by the cellulose cardboard (+38 % in June to March), will continue until the end of H1.

“We see a number of factors that, in our opinion, will lead to stabilization of containerboard prices in the second half of the year.

“As for the manufacturers of corrugated cardboard packaging, we see a compensatory increase in prices for corrugated packaging by at least 25-30% to eliminate the risk of liquidity loss of the companies, regardless of their integration level.

“In Q3 2021, the pricing tactics will remain. If prices for raw materials stabilize, prices for finished products will also be tamed.”

gofro.expert


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