Operating environment

Growth drivers

               

Main factors impacting the packaging market


Globalisation

•Increasing role of retail and harmonisation of global brands

•Growing importance of logistics

•Consolidation of carton converters

Technology

•New innovations utilising wood fibre and other biomaterials

•Continuous development of production technologies

•Digitalisation and automatisation change business dynamics

 

Sustainability

•Greater significance of resource efficiency drives circular economy and life-cycle thinking

•Increasing regulation brings additional obligations

•Social responsibility through value chain

Consumption

•Growing consumption and consumers’ increasing quality needs globally

•Stronger demand for sustainable packaging

•Digital services change purchasing behavior

Market overview

Paperboard – Excellent growth potential globally

Demand for paperboard has been relatively insulated from economic downturns as it is generally used as packaging for many consumer products the demand of which has historically been stable by nature, such as food, cigarettes, pharmaceuticals and cosmetics. Other factors that impact the long-term demand of paperboard include increasing disposable income, urbanisation, aging populations, increased health awareness, heightened packaging regulation and an increasing focus by consumers for environmental issues.

Paperboard products can be made with either long fibre or short fibre chemical pulp, mechanical pulp, BCTMP or recycled materials. Long fibre chemical pulp is primarily supplied to Europe by the Nordic countries whereas short fibre chemical pulp is generally used in Latin America. Paperboard can also be produced from recycled fibre. Many packaging companies, however, are reducing the use of paperboard made from recycled fibres, especially food companies amidst concerns of food contamination from mineral oil present in recycled fibre. Furthermore, initiatives by many global corporations to become more environmentally friendly have driven increased demand for lighter weight paperboard products as these products are manufactured with fewer resources and are more cost effective to ship.

Of the different types of paperboard produced, Metsä Board produces and sells folding boxboard, which is used to package consumer goods such as high quality food, beauty care and healthcare products, and white-top kraftliner, which is used to package heavier goods, e.g. in the food and electronics industry and is also commonly used in presentation packaging in sales promotion activities. Both folding boxboard and white-top kraftliner are produced from primary fibres.

The European folding boxboard market remains concentrated with the five largest producers representing approximately 90 per cent of the total European capacity of folding boxboard in 2015. The European white kraftliner market is also well concentrated with the five largest producers representing approximately 90 per cent of the total European capacity.

The profit cycles of the paperboard industry reflects the fact that consumption and pricing are influenced by the state of the economy, industrial production and, in particular, the balance between supply and demand for the end-use products.

Pulp – Global pulp demand-supply balance is good

Pulp is manufactured by breaking down the cellulose or fibre in the wood obtained from trees and the lignin that holds the wood fibres together. Pulp can be turned into mechanical, chemical or BCTMP depending on the process applied. Chemical pulp separates the fibres by means of a chemical reaction and is used in finer paper and paperboard primarily. Mechanical pulp is generated by milling wood and is predominantly used in publication paper grades. BCTMP production method combines the chemical and mechanical treatments of fibres. Pulp prices typically fluctuate more than prices for paperboard or paper according to global demand and supply situation.

Demand drivers for pulp are paper and paperboard production volumes. Demand is declining in the traditional markets, e.g. Western Europe, and growing in developing markets, e.g. Asia.

 

Competitors

Top Folding Boxboard (FBB) Producers in Europe*

by Production Capacity and Capacity Share(1,000 tonnes per annum)

Company Capacity % Capacity: tons/year (thousand)
Metsä Board 35 1335
Stora Enso 19 750
Kotkamills 10.49 400
Mayr-Melnhof 9 345
International Paper 6 250
Other 13 535
*Total capacity : 3.9M tons

 

Top European Producers White Kraftliner & Fully Bleached Linerboard Capacity*

(1,000 tonnes per annum)

Company Capacity % Capacity: tons/year (thoudan)
Metsä Board 32.49 710
Smurfit Kappa 22 495
Mondi 13 290
BillerudKorsnäs 10 225
SCA 7 165
Other 15 325
*Total capacity : 2.2M tons

Risks

 

Near-term business risks

Considerable uncertainties still exist in the global and, particularly, European economies. If realised, they may result in weakened demand and reduced prices for paperboard and pulp products. The imbalance in supply and demand may impact the prices of end products and Metsä Board’s profitability.

Metsä Board is focusing on the active development and growth of its paperboard business. Growing the paperboard business and introducing new production to the market are dependent on the successful sales growth in Europe, and particularly in the Americas. Increasing sales at the global level also involves cost and exchange rate risks.

There are several geopolitical risk concentrations around the world, and forecasting developments in them is difficult. Changes in these areas may be very sudden and unpredictable. There have been, and will continue to be, international sanctions related to these crises, and they may also have a direct or indirect impact on the demand for paperboards and, therefore, on Metsä Board's result. Negative development in international free trade would, if realised,  weaken Metsä Board's result.

The forward-looking estimates and statements are based on current plans and estimates. For this reason, they contain risks and other uncertainties that may cause the results to differ from the statements concerning them. In the short term, Metsä Board’s result will be particularly affected by the price of and demand for finished products, raw material costs, the price of energy, and the exchange rate development of the euro compared to the company’s main currencies.

The US dollar strengthening by 10 per cent against the euro would have a positive impact of approximately EUR 70 million on Metsä Board’s annual operating result. Correspondingly, the Swedish krona strength-ening by 10 per cent would have a negative impact of approximately EUR 40 million. The British pound strengthening by 10 per cent would have a positive impact of approximately EUR 7 million. The impact of weakened exchange rates would be the opposite. These sensitivities are presented before the impact of hedging.

Additional information on long-term risks is also available in Metsä Board's 2015 Annual Report.

risks

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