Paper

The paper industry returned to growth in 2024, with pulp production, pulp prices and paper goods output increasing by 2%, 5%, and 4%, respectively. This moderate recovery was primarily driven by renewed demand from client industries, following several quarters of inventory destocking amid subdued household consumption and industrial production.

However, the rebound would appear to be short-lived. Signs of deceleration emerged in the second half of 2024, and by the first half of 2025, pulp and paper goods production had begun to decline across several markets including Brazil, Canada and Sweden. With the global economic outlook deteriorating –exacerbated by the Trump Administration’s tariff policies – production and prices are expected to remain flat through 2025, with risks skewed to the downside.

Adding to the industry’s challenges – ranging from elevated energy costs and intensifying competition from low-cost producers, to the growing impact of extreme weather events and tightening environmental regulations – slower growth could nonetheless catalyse long-overdue consolidation. Already, the trend has gained momentum in recent years, as evidenced by major deals such as the Smurfit-WestRock merger and International Paper’s acquisition of DS Smith.

In the long term, overall paper pulp and paper goods production will continue to grow broadly in line with GDP as different trends play out among the main segments: the production of graphic paper is expected to continue its decline due to digitalisation – paper-based packaging will remain dependent on industrial production – while demand for sanitary paper will remain robust thanks to its non-discretionary nature and to rising household incomes.

Disconnect between paper pulp upstream and paper products downstream

The paper industry includes the production of paper pulp and its transformation into paper-based packaging, graphic paper and sanitary paper goods. Paper companies operate upstream (paper pulp), downstream (paper products) and throughout the entire paper value chain (vertical integration). The paper industry is mostly local or regional due to the high transportation costs associated with the bulky and heavy nature of paper products, making it more economical to produce and distribute locally. Vertically integrated paper companies control over two-thirds of global paper pulp production with pulp mills operating close to paper mills for efficiency purposes. The remaining third, known as market pulp, is sold in international markets to serve the needs of countries with a deficit in forestry resources and of companies operating only downstream. While paper pulp price levels vary between regions because of differences in grades, properties and operating costs, they generally tend to follow similar patterns across all major producing regions. Because China produces nearly a third of all paper products, the country is the number one driver of the global pulp market.

Paper pulp production and prices to stabilise in 2025 after a modest recovery in 2024

Global paper pulp production grew by 2% in 2024, marking a modest but meaningful rebound from the sharp 6% contraction recorded in 2023. This turnaround signaled the end of a prolonged destocking cycle among downstream industries, which had spent much of the previous year adjusting to weaker household consumption and sluggish industrial activity across key markets. In 2023, production had merely returned to pre-pandemic levels, but demand remained tepid, prompting paper manufacturers to scale back orders and reduce inventories. This recovery in demand had a positive impact on paper pulp prices (+5% in 2024), which did not make up for 2023 however (-7%).

We anticipate both pulp production and prices to flatline in 2025. Already in the second half of 2024, both indicators began to lose steam in key markets including North America, Brazil and Scandinavia, before decelerating further (prices) and seeing negative growth (production) in H1 2025. The deterioration of the economic outlook for 2025 triggered by US tariff policy and amid elevated uncertainty will translate into lower demand for paper packaging, and ultimately for paper pulp, bearing in mind that packaging captures about 70% of pulp production.

The weakening outlook compounds the challenges facing pulp producers in the Northern Hemisphere including the US, Canada, Scandinavia and Japan, whose share of global production has steadily declined over the past decade in favour of southern hemisphere players like Brazil, Indonesia, Uruguay and Chile. These emerging producers not only supply structurally pulp-deficient countries such as China, Japan, and India, but are also increasingly competing for market share in North America and Europe.

In addition to intense competition from low-cost producers, pulp manufacturers must contend with persistently high energy costs – particularly those operating mills in Europe and Asia, and those without efficient cogeneration systems or relying on wholesale energy markets. Growing consolidation among vertically integrated paper companies, which act as both customers and competitors, is another source of concern. Notable examples include International Paper’s acquisition of DS Smith and Smurfit Kappa’s merger with WestRock in the first half of 2024.

Notably, the European Union Deforestation Regulation (EUDR), which was originally set to enter fully into effect in January 2025, has been postponed to 2026 to give companies more time to prepare in order to meet its requirements. The regulation will require companies to ensure that their paper products are not sourced from deforested areas, in an effort to promote more sustainable practices across the industry. While this may benefit companies with strong sourcing standards, it is also expected to increase compliance costs, complicate supply chain management, and potentially restrict market access for both European importers and international exporters that fail to meet EU requirements. The EUDR represents the latest major step in the EU’s push to drive sustainability in the paper industry.

Paper products: paper-based packaging bounces back, graphic paper is in decline, while sanitary paper goods strong resilience

The paper industry produced an estimated 428 million tons of paper-based products in 2024, up 4% from 2023. Uruguay (+14%) and Chile (+11%) outperformed other leading producers, whose output growth oscillated between 0 and 6%.

Paper-based packaging accounts for 70% of paper product volumes. Because paper is used across a very broad range of industries both for primary packaging (packaging in direct contact with goods) and secondary/tertiary packaging (packaging used for storage and transport), production is broadly aligned with trends in industrial production and global trade. Much like paper pulp, paper goods production recovered significantly between H2 2023 and the beginning of H2 2024, before losing momentum.

Accounting for 20% of paper product volumes, graphic paper peaked in 2007 and has been declining continuously ever since, with production down by a third over the past decade. A decline in printed newspaper readership and reduced consumption of printing paper due to the digitisation of the economy are powerful and secular trends; production data, where available, show that 2024 did not buck the trend. Strategies to reduce overcapacity by closing mills in mature economies at a rate of 3% to 6% per year and find more profitable and viable niche markets are the priority for specialised players. That said, conversion of production lines from graphic paper to packaging could increase overcapacity in this adjacent product market.

Comparatively, sanitary paper goods, which represent 10% of paper product volumes, are more immune to the economic cycles owing to their mostly non-discretionary nature. Per-capita consumption is strongly correlated with household income levels: global production has grown by 25% over the past decade, driven mostly by China (+44%), Brazil (+35%), Mexico (+22%), Poland (+70%) and India (+290%). Sanitary goods differ significantly from the rest of the market as they are mostly consumer goods sold through mass retail. Once again in 2024, top producers including Kimberly Clark, Oji Paper, Essity, Unicharm, Hengan International and Ontex all fared better than the wider paper industry by reporting stronger sales growth and broadly stable gross margins.

For 2025 and 2026, we anticipate long-term trends will persist and continue to drive sales of sanitary paper goods, but further reduce those of graphic paper. Paper-based packaging sales should remain flat at best in 2025 and see modest growth in 2026, with possible new episodes of volatility (inventory building, inventory clearing) triggered by changes in US tariff policy.