All over THE PAPERS

Over the past year, the European office paper market has been hit by capacity reductions, Russian mill closures following the country’s invasion of Ukraine and restricted imports from Asia due to exorbitant sea freight rates. On top of that, exploding costs for energy and other price hikes have forced vendors to significantly increase their prices.

At the same time – albeit with poor availability, long lead times and an uncertain outlook on pricing – stocks across the whole supply chain increased substantially.

“We’re now in a market where buyers and resellers are reducing their stock levels and manufacturers are actually lacking orders, with operating rates below acceptable levels. It will take a while before a normal supply/demand balance is re-established, but resellers and their customers no longer need to be afraid of restricted availability and increased pricing like we experienced last year.”

The Us View

Eric Kriegsman, Procurement

Manager Europe at RAJA Group-owned Viking, says this all led to a scenario where resellers were unable to fulfil volume requirements and forced to swallow these inflationary costs, which were ultimately passed on to their customers.

However, he adds that the situation changed quite drastically during the final months of 2022. “Energy prices more or less normalised, sea freight rates decreased sharply and available capacity could again meet demand.

A similar situation exists on the other side of the Atlantic, according to an industry source. He reports that the Federal Reserve’s campaign to bring down high inflation has slowed price increases, with extra paper available from foreign suppliers and declining ocean freight charges making them more competitive against domestic players.

This, he says, will likely drive competition and force paper vendors to rethink their pricing strategy to maintain market share. “As such, you’ll see the average cost of copy paper decline from previous levels, although I don’t predict a complete collapse in pricing, as we saw in the years prior to the pandemic.

“That said, if operating rates consistently drop below 90% come Q2, I do believe paper mills will take downtime. Alternatively, they’ll need to reassess their equipment strategy with conversion to more profitable products, or permanently shut down machines and reduce capacity entirely.”

Hybrid Working Impact

While the supply and demand see-saw appears to be levelling out, it’s evident that the COVID-induced shift in working practices is having a considerable effect on the demand for paper. It’s a dynamic situation which needs close monitoring, says John Parke, Customer Marketing Manager at Domtar in the US.

“2022 saw an increase in demand for office paper, with year-on-year growth gaining back some of the ground lost since 2020, as employees returned to the workplace. However, the prevailing view is that there will be a levelling off in this demand recovery this year, unless we witness a real push for mandatory five-days-in-the-office policies becoming the norm. And this is unlikely.” experienced pre-COVID demand in these legacy categories coming back.

“Hybrid working is here to stay, with reduced demand for all traditional OP as a consequence. There is a stronger need for hybrid and home office solutions and we are expanding our portfolio accordingly.”

Australian Anguish

In addition to the impact of evolving work preferences and the backwash from geopolitical events triggered by war in Europe, the global paper industry also had to deal with localised supply side and resource issues.

In February, for example, Nippon Paper announced its Australian subsidiary Opal Australian Paper would permanently cease production of graphic papers – which include A4 copy paper – at its Maryvale mill in the state of Victoria. This came after the company’s supplier VicForests was forced to halt eucalyptus timber production in an area inhabited by an endangered species of possum. Opal concluded that finding a viable alternative source was not possible.

The effects of home or hybrid working are also influencing the types of products that consumers are buying. As Christina Fadler, Senior Communications Manager at Mondi Uncoated Fine Paper, comments: “While there has been a general trend over the past 12 months of employees returning to offices, they are often still keeping their home arrangements in place for at least part of their working week.

“As such, we’re still seeing higher demand for printing paper in smaller packs which is optimised for the inkjet printers often used in domestic spaces.”

Parke concurs: “Sales of three-ream and five-ream packs grew again in 2022, while eight-ream sizes declined. This is an indication of the higher percentage of work still being done in the home office. The latest figures are likely to reveal sales reverting back to the standard 10-ream cartons as more offices have reopened.”

Kriegsman, meanwhile – and this is perhaps a geographical difference in work patterns and what employers are happy to accept – does not expect a return to the pre-2020 status quo anytime soon: “The closure of premises during the pandemic saw traditional ways of document processing and archiving suddenly abandoned and replaced by digital applications. Since then, we have not

The facility will now focus purely on packaging products, with its M5 paper machine being discontinued. Maryvale was the only remaining domestic copy paper machine in Australia, producing up to 220,000 tonnes a year. The loss of this facility is causing huge supply issues across the region.

Adam Joy, CEO of dealer group Office Brands, explains the difficulties it has been experiencing. “We just can’t get our whole volume from one provider at the moment. Mills are running at full capacity and there’s no way that a single supplier can carve out an extra 15,000 tonnes just for us. We’ve had to pick up 3,000 here and 4,000 there, and we’re chatting to everyone across the world including India, Thailand, Indonesia and China. There’s paper coming from everywhere. Everyone is similarly affected and is trying to find their volume wherever they can.

“Another big issue concerns the import tariffs in place in Australia. They were introduced to try and protect the Australian business which now no longer exists. However, they make the imports that we are currently forced to rely on more expensive.

“It doesn’t make any sense and we’ve raised it with the government minister responsible. But the authorities don’t seem in a rush to look at the problem and, of course, they still get revenue out of it. Unfortunately, it’ll probably be at least six months before we get an outcome here.” (For more on the Australian business supplies landscape, see our Big Interview on page 18).

Europe is also likely to see more imported paper in the future. Kriegsman notes that the production capacity for woodfree uncoated paper on the continent has seen a significant reduction over recent years and this is not expected to change in the foreseeable future. In fact, further reductions are anticipated.

A fire at Resolute Forest Products’ recycled pulp mill in Michigan towards the end of last year, meanwhile, continues to cause supply issues in the US. The company – now owned by Domtar – is one of the main providers of the product in the region, with the facility normally producing 171,000 tonnes of pulp annually.

The Green Debate

The impact of the fire has opened up a conversation about the need for continued diversification in the sourcing of raw materials, while maintaining the positive story the North American paper industry has to tell, according to Parke: “Producing recycled copy paper is one way to make an eco-friendly contribution, but so is buying virgin product coming from SFI or FSC sources.”

On the topic of sustainability, Mondi’s Fadler adds that while the demand for more environmentally sound consumption from paper customers has been there for many years, it was further exacerbated by the pandemic as well as increased reporting of climate change challenges.

“A particular topic we’ve seen emerge concerns product circularity, as it is key to using our scarce resources responsibly. Creating recycled paper from post-consumer waste involves a complicated network of collection, cleaning, de-inking and, finally, the production of new paper from what was formerly waste. Specifically challenging is de-inking – the process of removing printed inks from waste paper – so it can be made into usable paper again.

“This difficult procedure can be made much easier by using specially treated paper. Whatever the customer’s needs — be they CO2 neutral, totally chlorine free, recycled, Blue Angel, FSC or PEFC-certified paper — all of Mondi’s products are sustainably produced.”

In sustainability terms, Kriegsman refers to the European pulp and paper industry as one of the biggest success stories of the last century. He cites the fact that all primary forests in the region are protected and paper comes from sustainably managed sources where the cycle of planting, growing and logging is carefully controlled. The area covered by forest has actually grown considerably over the past two decades.

He adds: “The sector is one of the lowest industrial producers of greenhouse gases, accounting for less than 0.8% of the European total, with carbon emissions having reduced by 48% per tonne of product from 1990 to 2019. Additionally, between 2010 and 2018, the industry reduced its total energy consumption by 11.6%. It produces 54.3% of its electricity on-site, of which more than 96% is generated through highly efficient combined heat and power plants.

“By using paper from sustainably managed forests and always recycling it, we really do not have to feel guilty about buying this natural and renewable product,” he concludes.