Inflationary pressure on packaging materials will continue to rise in 2022 leading to double-digit price increases, with food packaging being a major contributor. That’s according to a new report from Rabobank that covers the 12-month inflation outlook in North America for packaging materials in light of the Russia-Ukraine war.
Notes Rabobank, heading into 2022, U.S. consumer retail demand remains strong. Total retail sales achieved a 10.3% CAGR in the past two years, with goods requiring more packaging than before. In many cases, the demand exceeded the growth in packaging production, leading to a tight food packaging market with high operating rates across various materials, such as beverage cans, corrugated boxes, and PET milk bottles. Meanwhile, cost inflation is increasingly hitting the packaging sector due to increases in energy, transportation, and labor costs. Notes the report, “Along with the ongoing conflict between Russia and Ukraine, these factors will lead to continued price increases of food packaging in the next 12 months.”
In the area of fiber-based packaging, the report reveals that U.S. corrugated containerboard has seen five price increases since the pandemic, which is just one less than in the past decade. Surging e-commerce sales, which jumped 14.3% since 2020, recent cost increases, and a consolidated industry led to ongoing price increases. While fiber is the most important cost component—which in North America is relatively shielded from the impact of the Russia-Ukraine war—other supply chain factors can add up and swing paper prices as well.
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· Soaring energy costs in Europe have created massive uncertainties for European paper producers. In Q4-21, petroleum-based energy accounted for 3% to 8% of the total cash costs in North America. With a potential 45% increase in crude oil prices, energy costs for paper packaging are expected to increase by 3.4%.
· As a result of the expected double-digit increase in transportation costs and rise in fuel costs, production costs are expected to increase by 2.3% to 3.6%.
· Cornstarch is a small, yet essential, papermaking chemical in North America, where the market has already experienced tight supply and high demand over the past two years. Since the Russia-Ukraine war, corn prices surged again, with prices now twice as high as two years ago, strongly indicating a continued upward trend in cornstarch pricing.
Due to the short-term capacity constraints and cost increases, Rabobank predicts that corrugated prices may experience double-digit growth in 2022. However, it advises, there is ample supply from conversion and greenfield projects expected to come online starting in 2023.
As for folding carton packaging, Rabobank says it has a more stable demand outlook, but is subject to the same general underlying inflationary factors as corrugated packaging.
In the area of plastic packaging, the report shares that over the last two years, there have been once-in-a-lifetime prices increases as a result of weather events, infrastructure breakdown, COVID-19, and labor shortages. But demand for resins remains strong, it says, as the U.S. economy has shown resilience, even in the face of higher inflation and fuel prices.
Prices of major packaging resins, such as PET, were up US$0.26/lb, or 48.6%, in 2021. Recent events in Ukraine continue the upward pressure on packaging resins, with regional PET prices increasing by US$0.20/lb in the first two months of 2022. North America depends heavily on imported material, and there has been no improvement on that front with continued supply issues in domestic PET production.
Says Rabobank, the ongoing war in Ukraine has led to volatility in global energy markets, pressuring upward movement in packaging resins. Polyethylene suppliers announced an increase of US$0.04/lb in March, with further increases of US$0.04 to US$0.05/lb in April. Polystyrene used in foodservice packaging is experiencing a US$0.05/lb hike due to higher costs for monomers and benzene feedstock. Prices are moving upward all along the resin supply chains.
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Despite the price increases, the report notes that some relief is on the way in North America, particularly in PE supply, with several new chemical plants coming online this year. “Most of these plants were originally destined for the export markets,” says the report, “but logistical problems may hinder the 40% export goal and redirect some supply to relieve domestic markets.”
As for aluminum, it has experienced significant price volatility with a price increase of over 40% in the past two years. The U.S. market continues to be dominated by the enormous supply gap that led to 15 billion cans being imported in 2021, or more than 15% of long-term demand in the U.S. On top of the already large supply and demand constraints in the global market, the recent energy price surge has added another layer of inflation to the energy-intensive industry. Says Rabobank, “Not only do we expect higher prices in 2022, but we also expect small beverage producers to face continued risk of aluminum can supply shortage.”
The glass packaging supply chain is energy-intensive and is expected to be heavily impacted by rising energy costs. As the largest importer of glass bottles, U.S. glass bottle supply is more closely linked to the global market, and the impact of the EU energy crisis may be more pronounced. Tight supply, especially for wineries, distilleries, and craft brewers, as well as higher cost, are expected for the next 12 months.