Can box board manufacturers weather the storm of overcapacity and uncertain demand? In this article, we will explore some strategies that will help drive the growth of this evolving market. After two difficult years, European demand for box board and corrugated board/cartons is expected to start recovering this year. However, sluggish economic growth in Europe is likely to remain subdued and consumer spending remains uncertain in the near term.
Due to the next few years of box board production capacity growth faster than demand, the market has faced 5 million tons of overcapacity dilemma, the challenges faced will continue to increase. As a result, utilization rates are likely to remain at historically low levels for an extended period of time, which will weigh on producers.
How can corrugated board/carton and box board paper producers grow their business in the near future? They can improve profitability by shutting down part of their closed-box board capacity, but this may reduce their future growth potential and market share. In Europe, a large number of plant closures will be needed to raise operating rates to the long-term average of 92 per cent. Therefore, producers of corrugated board/carton and box board paper also need to look for other options to improve their competitiveness. Vertical integration through mergers and acquisitions could be one way to strengthen operations.
Previously, the news of the merger of the Schmofferkappa Group and Westlock had largely been settled, and the deal would create a globally integrated company that could perform better in the economic cycle than non-integrated businesses. The deal is unusual because there has been consolidation among local producers of cardboard and corrugated boxes on the same continent.
Now, according to recent news, another mega-merger may be taking place between Desma and Mondi. What benefits do these companies get for their corrugated box and board businesses through this transaction? Are these actions just the beginning of a wave of mergers and acquisitions that will consolidate the European corrugated board/carton and box board markets?
In terms of size, DESma is currently the second largest producer of box board in Europe. The company has a total production capacity of 4.1 million tons of box board paper, mainly producing recycled box board paper, supplemented by a small amount of raw box board paper and other packaging grade products. Eighty-seven per cent of its capacity is in Europe. Like the rest of North America. The company's corrugated board/carton plant is expected to have a capacity of more than 9 billion square meters, of which approximately 93 percent is located in Europe and the rest in North America. Its European operations are spread across the continent, but the majority are located in Western, Central and Southern Europe.
It is estimated that Desma purchased more than 600,000 tons of cartons on the open market, as its own carton production was not sufficient to supply its corrugated board/carton plant. Of these 600,000 tons, about 400,000 tons are native box board paper, and the rest are recycling box board paper. Therefore, the company's investment plan to increase the capacity of carton board in Italy and Portugal makes sense. However, even after that, the company could operate its box board plant at maximum capacity with priority given to in-house production, but there would still be a shortage of native box board.
Mondi is currently the fifth largest producer of carton board in Europe with a total capacity of 2.6 million tonnes, of which 90% is in Europe and the rest in Africa. The company's estimated 2 billion square meters of corrugated board/carton capacity is all located in Europe. Mondi is also a major producer of other paper and wrapping paper, with a production capacity of more than 4 million tons of kraft paper, pulp, printing paper and specialty paper, with facilities mainly located in emerging European countries and regions.
It is estimated that Mondi's recycling box board paper capacity is just enough to meet the needs of its corrugated board/carton plant. At the same time, the company estimates that it has 1.5 million tons of excess raw box board capacity. The company can only utilize about 45 percent of the box board paper inside its corrugated board/carton factory. Integration with corrugated board/carton producers who lack native box board paper will benefit Mondi and may improve its operating rate and profitability.
As vertical integration improves operational efficiency, it is obvious why box board producers are looking to corrugated board/carton assets - greater integration could significantly improve their profitability while potentially driving some high-cost producers out of the market. Corrugated board/carton producers can also see cost and synergies from mergers and acquisitions. Regardless of their ownership, however, they should see a similar recovery in demand in the short term. So there is no need for them to pursue mergers and acquisitions as the cost structure is likely to remain stable; It is expected that the supply of carton board paper will remain adequate and reasonable in the short term.
