Paper is needed to replace plastic packaging and supply shortages are likely to drive up prices, says Rachel Reutter of the JOHCM UK Opportunities Fund.
The terrible events of the Russian invasion of the Ukraine have focused the world’s attention on supply shortages in global commodity markets, particularly those of oil and grains.
A commodity which has received a lot less press attention is paper, a product essential to the transport of goods and to reducing the use of plastic packaging.
A key component of paper-based packaging is Testliner, a recycled linerboard used for the external lining of corrugated cardboards. Until recently, up to 40% of new European Testliner capacity was meant to be built in Russia, conveniently close both to European and Asian markets. The European companies behind some of these capacity increases have now had to withdraw their plans and look for new locations.
European demand for Testliner is likely to outstrip supply while producers struggle with a delay that could last five or more years. The average price of recycled containerboard has increased significantly (more than doubling from €350 to €750 per tonne in the year to the end of June), which alongside growing demand for recycled packaging solutions is driving considerable profit growth for European paper and packaging companies, many of which are listed in London.
Demand for paper and cardboard materials to reduce plastic waste will in the meantime only accelerate. According to Material Economics, as much as 25% of current European plastic packaging, equivalent to around 4.5 million tonnes, could be replaced by paper-based products. This shift would be as much as €5.7 billion in new revenue into the paper and packaging sector.
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