GUADALAJARA, Mexico, 17 May 2022 (PPI Latin America) - Participants in the Mexican corrugated paper packaging market expect demand to remain firm in the country this year amid good levels of industrial and agricultural exports, as well as the recovery of the local economy.

This opinion was shared by several industry executives gathered at the Intercorrugado 2022 event, held by the Mexican Corrugated Board Association Amexiccor in Guadalajara, Mexico, on May 4.

In a discussion panel during the event, Mileva Rivera, vice president of Latin American sales for international trader Canusa, stated that after surviving difficult moments during the pandemic, the industry is now stabilizing.

“We all lived during an immense containerboard consumption boom, and for better and for worse, the packaging industry showed that it is an essential business and that no one can live without a paper box. We experienced moments of frenzy with lack of paper and the logistics chaos, but we survived that and now it is clear that the sense of urgency for paper that led to record highs in purchases is over and demand has started to stabilize,” she said.

Unlike two years ago, when dealing with uncertainty in paper packaging consumption was the main concern, Mexican producers and buyers now understand the market impacts from lockdowns, including higher demand from e-commerce as well as consumer trends such as plastic substitution that have gained strength.

“The pandemic brought a lot of things, including the accelerated growth of e-commerce and the urge for plastic substitution that started in European countries that spread out to other markets. Despite the fact that prices moved up due to demand in this period, mills are now having to deal with high production costs that will continue to pressure buyers. We already see that all suppliers in Europe are setting new price hikes for the coming weeks, for example” Central National’s senior packaging sales manager Norma Arteaga stated during the same panel.

Traders agreed that paper supply is better than it was months ago, and mills are considerably reducing backlogs for the main export markets such as Mexico.

“There are no major delays now and clients have good levels of inventories, but the logistical scenario is still uneven, with some countries in South and Central America still facing obstacles to receive paper,” Rivera commented.

Jorge Luzuriaga, director for Latin America at trader GAK, also said that despite the fact that demand is returning to its regular seasonality, the market now has to deal with steep cost inflation.

“Latin America registered an average inflation rate of 11.3%, and growth will reach about 3% this year. We hope that the signs of a slowdown that are noted in some markets are temporary, but we see interest rates moving up while inflation steps up, too, which is dramatically reducing purchase power. E-commerce demand - after booming [following the onset of the pandemic] - will grow at lower rates, so the premise that there was a lack of paper no longer exists,” Luzuriaga said.

Arteaga also believes that cost inflation will prevent paper prices from moving lower, at least for now, while logistical problems will continue to disrupt the supply chain.

“We are still facing severe problems in the logistics chains, including by sea and also with trucks in the USA. There are labor discussions taking place with raises on the way everywhere. We have been working hard to align operations to keep deliveries on track, but with the recent conflict in Ukraine and Russia, new developments can arise. Asian ports are still completely congested right now,” Arteaga said.

Rivera noted that Mexico has benefited from its geographical proximity to the United States during the pandemic, but even transport by land is more expensive now.

“Freight costs from the US border to Mexico City moved from $50 to $180 in a short period of time,” she said.

In a solo presentation during the event, Jesus Rincón, chief executive officer of Titán, corrugated board subsidiary of Bio-Pappel Group, indicated that the group’s outlook for Mexico is still positive for the coming years.

In a panel discussing post-pandemic market outlooks, Rincón noted that the highest demand growth for containerboard in the country will continue to be driven by the food industry.

The executive also expected that demand from e-commerce will continue to grow in the country, with earnings from this segment estimated to reach $29 billion in 2022.

For the paper industry, Rincón noted that the supply chain has become more complex, and industries are having to deal with a high-inflation scenario.

“All of this is taking place at the same time that raw materials availability is lower and industries face higher energy costs,” he said.

Taking a macroeconomic view, Rincón said that Mexico’s gross domestic product is expected to increase by 2% in 2022 and 2.1% in 2023.

“We estimate a moderated recovery of the Mexican economy during the first quarter of 2022, but the positive news is that several important international investments will take place in the country in the coming months, such as a new plant of Constellation Brands in Veracruz, many projects from Bimbo, an automotive cluster in Bajio, among others,” he explained.

The pandemic, Rincón said, also boosted innovations in the containerboard market in order to increase the substation of plastic and flexible packaging for paper.

“Companies had to invest in the development of high-performance containerboard for the agriculture market and improve coating technologies,” he noted.

Looking at the post-pandemic supply outlook in Latin America, the executive stressed that while Brazil should continue to be self-sufficient in paper production, Mexico will remain a net importer of old corrugated containers (OCC) and containerboard.

“Mexico will continue to depend on imports of raw material, especially from the US. An example of that is that in 2021 we broke a record in OCC imports, which increased by 191% compared to 2020,” Rincón said.

From Fastmarkets RISI