Pulp and Paper Prices on the Rise Again?

In 2011, the pulp and paper industry experienced the highest price point in more than 30 years. The industry had an inflationary trend that experts projected would last through 2011, but in 2015 the record price climbed past the previous peak. Yet again, we are seeing high pulp and paper prices and the question remains, when will pulp and paper prices finally stabilize, or will this inflationary trend continue? Well, according to IBISWorld, the price of wood pulp is forecasted to rise even further at an annualized rate of 5.1% in the two years to 2019. One factor driving the current price increase is supply not being able to keep up with the growing demand for paper-based packaging products.

The increase in wood pulp prices has increased production costs for manufacturers that rely on the materials as an input, especially paper-based packaging manufacturers. However, paper-based packaging producers and suppliers will have ways to offset the rising input costs. With the growing demand for paper-based packaging products, packaging producers and suppliers will have the ability to pass on some of these costs to buyers. Some of the factors driving the growing demand include the following: 

Higher Consumer Spending 
Consumer spending is on the rise and one factor influencing this trend is the improving economic activity that will encourage more business to open and existing business to increase hiring, resulting in the creation of more jobs. In addition, the unemployment rate is expected to remain stable for the next two years to come. With stable unemployment and higher confidence in the economy consumer spending will propel growth in demands for various discretionary and non-discretionary goods, which are often shipped using paper-based packaging, resulting in a demand increase.

Growth in E-commerce

The growing number of broadband internet connections and mobile internet connections is expected to rise and further drive e-commerce sales. Stronger internet capabilities and the ease of being able to make a purchase from almost anywhere with the strengthening use of smartphones and tablets will enhance the speed and convince of e-commerce purchases, driving up demand for various packaging products used to deliver online purchases.

Growing Industrial Production

The industrial production index, which measures output from the mining, manufacturing, electric, and gas industries is expected to increase through 2019. The growing industrial activity is expected to drive up demand for paper-based packaging products due to the widespread use to transport various items necessary for production and distribution purposes. In addition, the number of businesses is expected to grow, which will boost demand as business purchase and distribute goods in paper packaging products.

The growing demand stemming from higher consumer spending, strong e-commerce activity and the heightening industrial production will allow manufacturers to avoid some of the additional production costs due to pulp and paper price increases by passing on some of the costs to their buyers. Though, for buyers this means that they can expect to pay more for pulp and paper products that include paperboard, corrugated boxes, paper bags and paper shipping sacks.