Are converted packaging imports a ‘canary in the mine’ for domestic manufacturing?

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Once, miners took caged canaries down into mines because of their sensitivity to noxious gases and low oxygen levels was high. In the event of a risk, the canary would cease to sing and perhaps even die before workers noticed the same problem. The canary was sacrificed to provide a window of opportunity for escape.

Thankfully, those days are long gone in most of the world. The ‘canary in the mine’ is a saying that reminds us that there are leading indicators of which we need to take account.

As 2022 begins, a scan of import data shows converted packaging imports barely missed a beat over these last two disrupted years.

The canary is singing for local manufacturing, and right now, that might just be good news.

 

Supply chains and local packaging integrity

Global supply shortages and supply-chain disruptions have been a feature of the pandemic. Starting with face masks and sanitisers and of course now for vaccines and test kits, the integrity of global supply has been front of mind.

Calls for increased ‘sovereign manufacturing’ for security, health and economic reasons have been ever-present. Those calls have become more consistent – and more nuanced – as the disruptions have continued.

Some manufacturing is simply not feasible or appropriate in every global location. That is what trade is for, after all. For other products, the rationale for local manufacture is stronger.

As an example, there is a reason that most industrialised countries produce the vast majority of their own packaging: integrity of local supply chains for other manufactured goods – leave alone households and consumers – relies on packaging being available.

In Australia and New Zealand, the favourite example must be corrugated packaging. In the last financial year, Australian consumption was 1.443 million tonnes, with just 0.110 million tonnes or 7.6% made up of imports, 70% of which came from New Zealand.

In that context – and some more we will come to – it is worth examining the role of pre-converted packaging imports and their recent strength.

 

Value of Pre-Converted Packaging Closes in on $500M per year

Over the year-ended November 2021, Australia imported converted packaging worth AUD487 million, up 11.3% on the prior year. The value of those imports, shown below, covers only the major products, excluding around AUD60 million of additional material used mainly in offices.

Australian Converted Packaging Imports: Main Grades: Jan ’18 – Nov ’21 (AUDM)

Source: ABS and IndustryEdge

 

The pandemic has seen the value of these imports lift sharply, but for some grades, more than others. From January 2020 to November 2021, the value of imported Corrugated Cartons (+8.7%) and Folding Cartons (+8.9%) have been growing steadily.

However, for smaller sized Sacks & Bags <40 cm (+26.5%) and for humble Moulded Fibre (+23.4%), the rise in import values has been especially strong.

Moulded fibre data is only available by value, so we will examine this separately. Volume data shows that over the year-ended November, imports totalled almost 132,000 tonnes, down just a little from the peak of around 134,000 tonnes in mid-year.

Annualised Converted Packaging Imports: Main Grades: YE Jan ’18 – YE Nov ’21 (‘000 tonnes)

Source: ABS and IndustryEdge

 

 

Corrugated Cartons

Folding Cartons

Sacks & Bags >40cm

Sacks & Bags <40cm

Total

YE Nov ’20

39.6

42.2

6.3

37.0

125.0

YE Nov ’21

36.3

43.6

4.4

47.3

131.6

% Change

-8.2%

3.4%

-30.0%

27.8%

5.3%

 

As the table demonstrates, by volume of imports, there is only one grade experiencing growth of any note: smaller sized sacks and bags.

Their lift of close to 28% in a year is notable and makes sense. Home deliveries of meals, bans on single-use plastic bags and other pandemic-linked applications all add up to a large rise in use of paper bags, especially those imported.

Corrugated carton import declines are reasonably modest and come about at the same time as local producers – Visy and Opal – reduced their exports to meet significant local demand.

 

Prices have not moved in the last year

In total, the data shows that with imports up 5.3% by volume and values up more than double that, imported packaging has increased in price, though perhaps less than some might have expected.

This can be seen in the table below for the last year.

Converted Packaging Imports: Main Grade: YE Nov ’20 v YE Nov ’21 (AUDFob/t & %)

 

Corrugated Cartons

Folding Cartons

Sacks & Bags >40cm

Sacks & Bags <40cm

Wtd Average

YE Nov ’20

2,506

3,590

2,818

3,492

3,497

YE Nov ’21

2,536

3,647

3,129

3,484

3,549

% Change

1.2%

1.6%

11.0%

-0.2%

1.5%

Source: ABS and IndustryEdge

 

The main – and growing – import grades all experienced relatively small price increases over the last year. We can attribute that in part to many of these markets being highly competitive.

The prices detailed here are recorded on a Free-on-Board (Fob) basis. They do not have shipping and freight to Australia, Australian land freight or other costs added to them. As the volumes grow – and they are likely to continue to grow – some of the prices are likely to make local manufacturers more interested in this market which is pushing toward AUD500 million per annum.

 

Moulded fibre is a special case and a unique opportunity

There is nothing certain about opportunities to take up more manufacturing. Market opportunities and improving prices are one thing, but the other conditions need to be right, from feedstock to manufacturing support from Governments and the community.

Perhaps the first, best opportunity will lie in Moulded fibre and its increasingly diverse applications. Certainly, the stars are aligning for what was once considered egg cartons and not much more.

Australia’s Moulded fibre imports were valued at AUD48 million year-ended November 2021, with China’s share around 60% of that and the only other significant supplier being Malaysia with 25% as the chart here shows.

 

Annualised Moulded Fibre Imports by Country: Jan ’18 – Nov ’21 (AUDM)

Source: ABS and IndustryEdge

 

The value of these imports may not be enormous, but as can be observed in the chart, growth in their value was almost 19% over the year-ended November 2021.

Two other factors make Moulded fibre attractive right now.

First, its applications are growing and expanding into areas of food contact, pushing beyond the use of recovered fibre to use more virgin fibre. That is increasing sector value and it is also likely to make the sector more stable – diversification does that.

Second, Australia’s recovered fibre resources have stressors of their own, not least the escalation of export bans (from Australia) and import bans and increased quality requirements (in recipient countries.

There is a third feature to Moulded fibre production that could make it a product of specific domestic interest in the near term: the equipment is relatively inexpensive and certainly straight forward. There is already interest in the sector and its expansion opportunities.

If ever there was a time Government would be receptive to supporting Moulded fibre investments, it is now.

 

Canary’s song is loud and clear

If there is a canary singing right now in the converted packaging market in Australia, it appears to be calling out the opportunity to increase local manufacturing of packaging materials, especially those made from recycled fibre, whether in part or in whole.

There may be time to pass and planning to be completed, but the opportunities continue to mount, and that is a good start.

If there is a ‘most likely’ development, it is the rapidly expanding Moulded fibre sector.

 

This is an edited extract of an item first published in Edition 199 of Pulp & Paper Edge in January 2022

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