MIND THE GAP – HOW ECONOMIC CRISES SHAPE THE P&P INDUSTRY

The fight of the COVID-19 pandemic is causing severe slowdown to the global economy. Global GDP growth is expected to stagnate this year, taken that the outbreak will not be extended significantly into H2. However, the risk of recession increases exponentially alongside the prolongation of the disease and the scale of actions nations are enforcing to control contagion.

DEMAND DECLINE HITS ALL GRADES AND REGIONS

Looking at reference from the financial crisis, a demand decline was witnessed in nearly all regions during 2009. While the global y-o-y decline averaged some 6 percent, the demand shock to developed markets nearly doubled that, while developing markets took only minor hit. The only exception to the trend was China, where demand for paper and board grades grew a robust 8 percent despite the market turmoil. Another fact that deserves being mentioned, is that the impact was short lived on all markets, with 2010 figures already surpassing those of two previous years on all markets.

The impact of the COVID-19 could have several similarities to the crisis over a decade earlier, despite imbalance originating from a very different source. It is clear today that no market will be spared of the pandemic. However, the effectiveness and timing of countermeasures will determine the length and magnitude of the economic impact. In Europe and the US, where economic growth continues to rely largely on consumer spending and where the disease response has been delayed, the impact is expected to be of particular significance. In turn, some Southeast Asian markets, including China, Singapore and Hong Kong, where countermeasures to fight epidemy have proved efficient, are already showing signs of recovery and demand decline could turn out to be short lived.

SUPPLY SHOCK DETERMINED BY VARIOUS PARAMETERS

The impact of the financial crisis on the supply side corresponded to the demand shock both in scale and geography on an aggregate level. Apart from lowered operating rates, the supply shock resulted evidently also in restructuring, Closures were concentrated, unsurprisingly, mostly in Europe and North America, while most impacted grades were graphic paper and containerboard.

The disturbances to the supply side from the novel corona virus will, however, not be limited to market impact. Temporary shutdowns and curtailed production volumes will in first-hand be caused by safety concerns of mill staff and national or regional restrictions to movement and production. Winners will be those with high stock levels, high level of automation in production, and above all, geographically remote mill locations in regions with efficient national response systems. With the epidemilogical peaks hitting markets with some months’ time lag, trade volumes could see temporary peaks when lost production is offset by available supply.

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