The emergence of the COVID-19 pandemic in early 2020 wreaked havoc on daily human life around the globe and triggered a period of high volatility that continues to this day. Consumers and the U.S. economy are transitioning to their post-pandemic and stimulus status in 2022, but that transition has brought its own turbulence, putting many of the trends of the past two years in a state of flux and creating some bumpy transitions.
The corrugated and box-board markets continue to reflect broader trends, taking a step back in the second half of 2021 as emerging issues such as logistics, material shortages and labor become major factors in the U.S. economy. The shift in commodity spending in 2022 has also had a significant impact on packaging demand. With many businesses and retailers still in active inventory-building mode, the speed of the transition has caught them somewhat off-guard, which has dealt a severe blow to inventories and led to more cycles of volatility throughout the supply chain.
A symbolic example of this is consumer purchases of goods, with the service sector almost completely blocked and the heavy fiscal stimulus providing ample purchasing power. These two drivers reversed in early 2022 as consumers shifted spending back towards services and faced severe inflation, leading to a sharp decline in goods purchases.
The post-pandemic shift in consumer spending is changing demand for packaging, and these ups and downs are being reflected and even amplified in the packaging market.
Shipments of corrugated boxes began their own roller-coaster ride in 2020, first as the pandemic became severe, resulting in large purchases of essential goods, and then collapsed during the initial strict lockdown. However, as 2020 progresses, corrugated box shipments and box board paper demand are starting to show incredible strength as consumers purchase packaged goods, especially those shipped via e-commerce.
The supply and availability of box board paper has also fluctuated considerably over the past few years. With booming demand in 2020, capacity growth was minimal, in part because pandemic restrictions made it difficult for factories to do work, leaving the market desperate for more supply and higher prices.
By 2021, the demand blowout triggered a large supply response, but the market remained tight due to continued strong demand and the need to rebuild severely depleted stock of box-board paper.
While the demand outlook for 2022-2023 has cooled due to the post-pandemic transition trend and fears of a potential recession, producers are continuing to increase supply, which will bring about another fundamental shift in the market.
What are market dynamics at play going into 2023?
The corrugated box and carton paper market has grown rapidly over the past few years and we do not see the pace of transition slowing down anytime soon.
Indeed, the sharp turnaround in commodity purchases in early 2022 is a reminder of how quickly things can change, and the upcoming cluster of capacity additions in late 2022 and early 2023.
Will create another opportunity for market dynamics to evolve rapidly and have complex effects.
Just as the intensity of demand driven by the pandemic led to a major round of capacity increases, supply and demand will continue to interact; If demand weakens significantly beyond 2023, new supply disruptions could come in the form of production cuts or even shutdowns. For buyers, the supply risk will not abate entirely, but will take on a new form.
The extent to which demand for corrugated boxes can get back on track depends largely on how quickly the commodity sector of the US economy can complete its adjustment to the post-pandemic or at least post-stimulus environment, or whether this recovery will be hampered or delayed by economic headwinds and ongoing supply chain issues.
With seemingly endless global chaos, including, but not limited to, the Russia/Ukraine war and the resulting energy crisis, the ongoing pandemic and rising interest rates, there is no reason to believe that volatility and rapid change won't continue for the U.S. economy, as well as the dynamics driving prices and availability in the packaging market. Keeping up with changes in the demand, supply, cost and price outlook for box-board paper will provide plenty of opportunities to respond to and find value in market developments.
Post time: Nov-10-2022