Current Situation and Future Trend of European Paper and Paper Packaging Industry under the Influence of Energy Crisis
Europe has transformed from one of the lowest-cost paper-producing regions to the highest-cost region on the planet, according to a new report by Rabobank. To remain competitive on the world stage, paper producers in Europe must act together to decarbonize energy supplies and lower prices by switching to new technologies, the report's authors claim.https://www.risedongsheng.com/
The study noted that since the COVID-19 pandemic, the "new normal for energy" has become a reality, with cost prices rising 210% between 2020 and 2022. In contrast, North American and Asian markets have grown by 70% and 40% respectively, putting Europe's paper packaging industry at a distinct disadvantage.
"Energy will continue to be a key competitive advantage for European producers, not only globally but also within the continent," said Dr. Natasha Valieva, senior analyst for food and agricultural supply chains at RaboResearch. "Europe's new energy normal presents challenges but also opportunities. With the right approach to decarbonisation, the industry can maintain its competitive position. However, the opportunities are not the same for every company."
Accelerating the energy transition
To remain competitive with the rest of the world, European Union policymakers should support mechanisms to ensure that companies in member states do not face a competitive disadvantage compared to other regions, and promote a level playing field within Europe, Ms Valieva said. "The playing field is disrupted by differences in energy supply systems and recent government interventions, as well as existing differences in the energy market environment - such as gas and electricity prices, taxes and grid transport charges."
New technologies are critical to making the European Union paper industry globally competitive again, the report said. Governments must also help provide long-term solutions during the energy transition by supporting infrastructure development for alternative energy and gas supplies. Nearly 50 percent of the emissions reductions needed to achieve mid-2050 will come from technologies that are not yet on the market, the report noted.
These include green hydrogen and carbon dioxide capture on an industrial and commercial scale, as well as other "breakthrough technologies" that can produce paper and paperboard without water or steam. "Despite the challenges, Europe's new energy normal has accelerated the energy transition in the industry," Valieva said.
Crash inevitable?
Ms Valieva said that despite industry and government actions to accelerate Europe's energy transition and reduce costs, the market had reached a point where many companies faced an inevitable recession. "There may be companies - often small and medium-sized companies in the supply chain - that deal with additional energy costs and adopt all the strategies described in the report that may be too challenging or prove insufficient to remain profitable and competitive".https://www.risedongsheng.com/
For example, not all companies have enough capital to make proper investments given the impact of the energy crisis. This is especially the case if they are not prepared to invest in energy solutions ahead of time, Valieva explained. The low demand business environment, coupled with the significant increase in the cost of new investment projects, can be unbearable for many companies. "In addition, interest rates are rising in the European market, which may limit some companies' access to Working Funds, which in turn limits their ability to finance new projects," she continued.
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Even if new technologies enter the market, many companies will not be able to survive in the European market, the report said. "These companies may need to find a way to survive. If their assets are attractive enough to other players, some may go bankrupt and decide to exit the market and sell (sometimes minority stakes - we have seen several examples)."
Large exodus of European companies?
Some paper companies have decided to leave the European market for lower-cost locations such as the US. The biggest recent example is the Smurphy Veselok deal, which Ms Valieva said corroborates Rabobank's analysis. "Before the merger announcement, we observed that the new situation in the European energy market prompted European companies to re-examine their strategies, also at a strategic level."
The report points to several delayed development plans by major European paper companies. For example, Stora Enso has decided to delay a possible future renovation of its Langbrugge graphic packaging plant in Belgium, which has a total investment of 400 million euros.
In addition, Schumacher Packaging has postponed plans to build three paper packaging plants in Poland and the UK as part of its 700 million euro investment plan. MM Paper & Board has also decided to postpone plans to invest 660 million euros in Poland until 2024.
The examples show that while some companies are considering exiting the market entirely and selling, others are looking for opportunities to grow and improve competitiveness through synergy effects and economies of scale, Valieva said. The report does not provide a detailed overview of total exits, delays and acquisitions in Europe, but this will be the subject of upcoming research. "However, the Smurphy Veselok deal could drive more M & A activity by European companies in Europe and beyond."