As you’d expect, I keep a close eye on the industry news and reports for the things that affect our industry and in particular the NZ market. In this update I look at the continued rise in paper prices and other impacts on the back of more mill closures. I’ve also provided an update on my recent posts on the supply chain and the tight NZ labour market.
Paper prices continue to rise
We’ve communicated a number of price increases of the past few years. These increases have largely been on the back of growing demand for the product and a decrease in supply. It’s economics 101 in action. The issues driving the increase in paper prices – high raw pulp prices, a congested supply chain and elevated transportation costs – are forecast to continue. We expect paper prices to remain elevated, if not increase, for the foreseeable future.
StatsNZ data showed pulp, paper, and paperboard input prices had risen 7.2 percent to June 2022, the fastest annual increase since the data series started just over a decade ago.
Paper mill closures
One of the key contributors to the decrease in paper supply is the high number of paper mills closing their doors around the world. In 2021, according to a report from PaperMoney, there were more than 50 paper mills that either closed their doors for good or layed off a significant portion of their workforce. In 2022, according to a similar report by PaperMoney, that number has grown by nearly 20%.
The Pixelle mill in Maine, recently announced it will be closing in the first quarter of 2023. The Pixelle mill is of particular interest as it is one of the largest suppliers of paper release liners in North America. The industry has been challenged by an ongoing shortage of paper release liners so the closure of the Pixelle mill is significant.
An article on Smith Corona by Alaina D’Altorio provides a good overview of the likely impacts of the closure and the resulting removal of 20-30% of paper release liner from the market. In short, with no supplier likely to fill the gap left by Pixelle, label manufacturers will need to fight for what little product is available and begin making the move to alternative options.
Linerless labels is an option but for many it requires a significant investment in printers, maintenance and client acceptance. As a result, the market appears to be shifting to PET liners with a portion also moving to the more internationally utilised glassine. These moves are expected to put further pressure on the international liner supply which is only just recovering from the UPM strike earlier this year.
Packaging continues to grow
The global packaging printing market is predicted to continue its growth trajectory according to a report published in November by ReportLinker. It is expected to reach US$507 billion at a CAGR of 7.6% by 2027. The New Zealand market, according to data published by IBISWorld, is following a similar growth path despite experiencing a small decline between 2017 and 2022. The New Zealand print services market is forecast to grow 1.9% in 2022.
The report, and others, attribute the continued growth to the demand for innovative packaging and labelling to support differentiated and aesthetically effective products and the advancement of digital printing and other technologies such as IoT, AI and data analytics. Some of the key growth markets include food and beverage, pharmaceutical and cosmetics. Demand for sustainable packaging options is also a key contributor.
Supply chain improving but disruption is the new norm
The September 2022 DSV Air & Sea Report suggests we are on a path back to normalisation. The spot market pricing, as measured by the World Container Index, fell sharply in early September. That said, the rates are still well above (295%) the rates in October 2019 so we are obviously not back to normal yet. Some analysts have suggested the carriers will attempt to slow the return to normal to protect current price levels.
Port congestion around the world continues to present a barrier with nearly 8% of the world fleet currently delayed in various ports. This is a significant improvement on January 2022 reports when nearly 14% of the world fleet was delayed.
Massey University’s Supply Chain Risk Analytics Network (SCRAN) recently released their mid-year risk outlook for New Zealand highlighting that a variety of factors that affect the stability of New Zealand’s supply chain may converge over the upcoming northern hemisphere winter.
- Covid-19 lockdowns have caused manufacturing delays and congestion at ports. As winter approaches in China, it is likely that similar lockdowns may be more frequent and widespread, causing significant uncertainties to supply chains here.
- In Europe, the ongoing war in Ukraine is accelerating the inflation of oil prices, shipping, and raw materials. Combined with winter energy demands, this will see a continued rise in costs and disruptions.
NZ labour market remains tight
The unemployment rate remains at a near record low at 3.3% in the June 2022 quarter. Businesses are feeling confident about future economic conditions, indicating the demand for labour will remain elevated. This is evidenced by the 15% increase in online job advertisements over the year to September 2022.
During the September 2022 quarter, 43% of businesses reported finding labour as their primary business constraint, an increase from 37% in the June 2022 quarter (QSBO). However, the number of filled jobs grew over the year to August 2022 (up 2.4%, 53,176 more jobs).
The labour market is extremely stretched, with the population ageing and more people leaving the country than arriving. For the year ending June, the net permanent and long-term migration outflows were 11,500 people (10,710 aged between 15-64). This compared with net inflows of 91,700 (70,680 aged between 15-64) in the March 2020 year.
However, with border and other long-term visa categories reopening, it is expected there will be more skilled people coming into New Zealand easing labour shortages and wage pressures. There were increased numbers of Working Holiday visas (7,476) approved during September 2022. Also, the number of people on the Jobseeker Support-Work Ready benefit is gradually declining after peaking during the COVID-19 pandemic in 2020.