Operating environment

               

Main factors impacting the packaging market


Globalisation

•Increasing role of retail and harmonisation of global brands

•Growing importance of logistics

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 demands globally

•Stronger demand for sustainable packaging

•Digital services change purchasing behavior

Metsä Board regional goals

 

Metsä Board’s main market area is EMEA. We have established our strong market position in Europe with long-lasting customer relationships – especially with brand owners. In Europe, safety is increasing its significance in food packaging. Paperboard is seen as a strong alternative to plastics and aluminium. Growing e-commerce is increasing the demand for high-end white-top kraftliners.

In the coming years, Metsä Board is seeking the most rapid growth in the Americas. Today, we are among the biggest importers of folding boxboard and coated white-top fresh fibre linerboard into the USA. We see several growth drivers in the Americas: limited local availability of premium, lightweight folding boxboard; non-integrated converters looking for alternative suppliers in paperboard; and strong demand in food service applications made from fresh fibre paperboards. In addition, the rise of discounters and growing e-commerce are increasing demand for high-end white-top fresh fibre linerboards.

In the Asia-Pacific region, we are focusing on premium segments and aiming for moderate growth, primarily in cooperation with brand owners.

Market overview

Paperboard – excellent growth potential globally

Demand for paperboard is being driven by a number of megatrends, such as growing population, increasing disposable income, urbanization and ageing population. Scaring pictures of oceans being filled with plastics as well as the increasing understanding of the scarcity of resources increase focus on environmental issues.

Paperboard can be made from fresh forest fibres or recycled fibres. Metsä Board’s paperboard is made exclusively from fresh forest fibres, making it safe in food applications. Many food packaging companies are reducing the use of paperboard made from recycled fibres, amidst concerns of food contamination from mineral oil present in recycled fibres. Thanks to high class product development, Metsä Board can produce high-yield, lighter weight products without compromising on the quality, saving both resources and logistics costs.

Metsä Board is self-sufficient in pulp. Fresh forest fibre pulp is produced from a renewable resource – wood. Wood is used sustainably: forests grow annually more than they are used both in Finland and Sweden.

Metsä Board’s paperboard product portfolio consists of folding boxboard and white kraftliner. Folding boxboard is used to pack consumer goods such as high quality food, beauty care and healthcare products. Thanks to the newly installed extrusion coating line, Metsä Board can also supply PE-coated paperboard for the food service segment. White kraftliner is used to pack heavier goods, e.g. in the food and electronics industry. It is also commonly used as retail-ready packaging and point-of-sale-displays in sales promotion activities. White kraftliners benefit from the increasing e-commerce, especially of luxury products.

At the end of its lifecycle, the paperboard packaging can be recycled and used in the production of recycled pulp. Over 70% of the European paper and board is recycled.

In general, the profitability of the industry is driven by macroeconomic factors, industrial production, the competitive situation and naturally by the profitability of customers and end users. Demand has been relatively insulated from economic downturns, as many of the end use products, such as food, are stable by nature.

The European market for folding boxboard and white kraftliner remains concentrated. The five largest producers represent close to 85 per cent of the European capacity in these grades.

Pulp – global pulp demand-supply balance is good

Metsä Board’s excess pulp volumes (BCTMP and chemical softwood and hardwood pulp) are sold on the market. Global market pulp demand is mainly driven by the increase in tissue paper production, while demand for wood-free uncoated and coated papers is declining. Demand in Europe and North America is stagnating, while strong growth continues in Latin America and Asia, especially in China.

Pulp prices typically fluctuate more than prices for paperboard according to the global demand and supply situation.

Metsä Board’s associated company Metsä Fibre’s next-generation bioproduct mill in Äänekoski started up in August 2017 and was the biggest investment in the Finnish forest industry history. The new bioproduct mill will increase Metsä Board’s annual pulp capacity by approximately 200,000 tonnes as of 2018.

 

Peers

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 21 750
Kotkamills 10 400
Mayr-Melnhof 9 340
International Paper 7 250
Others 18 547
*Total capacity : 3.8 M tons
Source: Metsä Board estimates

 

Top European Producers White Kraftliner & Fully Bleached Linerboard Capacity*

(1,000 tonnes per annum)

Company Capacity % Capacity: tons/year (thousand)
Metsä Board 33 720
Smurfit Kappa 23 495
Mondi 14 310
BillerudKorsnäs 11 235
SCA 8 165
Others 10 225
*Total capacity : 2.2 M tons
Source: Metsä Board estimates

Near-term risks and uncertainties 

 

From 2017 Financial Statements bulletin

Considerable uncertainties still exist in the global economy. If realised, they may result in weakened demand and reduced prices for paperboard and pulp products. An 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 growth of sales 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 developments in international free trade would, if realised, weaken Metsä Board's result.

The US dollar strengthening by 10 per cent against the euro would have a positive impact of approximately EUR 65 million on Metsä Board's annual operating result. Correspondingly, the Swedish krona strengthening by 10 per cent would have a negative impact of approximately EUR 39 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. The sensitivities do not include the impact of hedging.

Wood accounts for more than a quarter of Metsä Board's total costs. The availability of the wood raw material becoming more difficult or a sudden increase in prices would have a weakening effect on Metsä Board's result.

The forward-looking estimates and statements in this financial statements bulletin 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 other main currencies.

More information about longer-term risk factors can also be found on pages 24–25 in Metsä Board's 2016 Annual Report.

risks

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