Cepi

Unexpected challenges ahead (and how to face them)

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The Confederation of European Paper Industries (CEPI) has recently released its figures on pulp and paper production across the Continent over last year, highlighting how the critical economic context led to a significant decrease. Nonetheless, forecasts suggest the picture might soon improve.

«Current economic conditions mean that the cost of the projects in which pulp and paper companies are already engaged has increased, while regulatory predictability has decreased. Our ambition as an industry has not, and we will continue to propose affordable and scalable solutions for the EU’s transition towards a circular bioeconomy». These were the very words with which CEPI director general Jori Ringman commented on the latest data released by the Confederation of European Paper Industries, that indicate a sharp slowdown in volumes, across a variety of sectors. As figures show, producers displayed a lacklustre performance last year, largely due to a difficult global economic context. Despite criticalities, players still look resilient enough to invert the trend by building upon innovation and digitalization, just like other sources outside CEPI already suggested.

Even worse than the pandemic

The analysis demonstrates that the consumption of paper and board experienced a 3.5% decline last year, in Europe, and that – especially over the last quarter – the decrease was «steeper than previously estimated». This was also due to the overall slowdown of the Eurozone, triggered by «record high energy and raw material prices» as well as by rocketing inflation rates. Compared to 2021, paper and board production also fell (-6.1%) and therefore volumes resulted even lower than during the worst periods of the Covid-19 pandemic (-4.7% in 2020). Once again, growing energy prices played an important role, forcing many plants to temporarily stop their activities, most of all over the last two quarters of the year. As anticipated, the situation might change for the better, in the short-medium term. Although «paper and board packaging production in Europe has decreased in 2022, by 4.6% compared to 2021» CEPI is confident that «multi-year trends for pulp and paper manufacturers remain positive» and that «packaging paper and board, as a sustainable substitute for fossil-based alternatives, still is one of the sector’s main drivers for growth». Energy and raw material-related issues still need to be considered very carefully, since the decline in «paper for recycling utilisation» (-6.4% in 2022) was also driven by «high electricity, gas and CO2 prices».

As for the good news

No room for panic, though: «the sector’s trade balance» still proves «positive», according to the Confederation, even if «a decline both in and outside European markets may point to a weakening of the sector’s competitiveness». The mandatory condition for a complete recovery is that paper and pulp producers increase their already considerable investments, specially in the field of so-called green technologies and processes, also in order to fulfil the EU’s climate ambitions and requests. Other analysts and organisations agree. For instance, the International Energy Agency (IEA) believes that the pulp and paper segment is among the most sustainable: it only generated 2% of global industrial emissions in 2022; and its output and demand are poised to grow too, until 2030. «Greater efforts must be made to reduce the emission intensity of production» and move away from fossil fuels by «accelerating the energy efficiency improvements» and IEA wishes «the deployment of industrial heat pumps» and other innovative, green technologies will be adequately incentivised. The goal is in first place that to reduce the amount of heat needed for pulp and paper drying. Furthermore, as a recent McKinsey report indicated, process digitalisation, advanced analytics plus robotics and automation could become a key element for competitiveness and a source of savings. Analysts estimated that those companies who strived to optimise their workflow by better elaborating their datasets and invested in automatising their handling and warehouse operations were able to record an impressive improvement in their EBITDA, in a 5-17 percentage points range.