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Paper Sector Risk Report

Navigating transformation: strategic agility and sustainability will be key drivers for success

SENSITIVE RISK FOR ENTERPRISES

Last Update: July 2025

Strengths & Weaknesses

Strenghts
  • Rising demand for paper-based packaging driven by exponential growth in e-commerce: The surge in online retail has significantly increased the need for sustainable, durable packaging solutions such as corrugated boxes and paper-based materials.
  • Robust medium- to long-term growth prospects fueled by global population expansion: Continued demographic growth is expected to sustain and increase demand for paper products, including packaging, hygiene products and printing materials.
  • Strong alignment with environmental sustainability trends: Increasing consumer and regulatory focus on reducing plastic waste is boosting the shift toward recyclable and biodegradable paper packaging, particularly in sensitive sectors like food and pharmaceuticals.
  • Well-established recycling infrastructure: The pulp and paper industry benefits from a mature and expanding recycling ecosystem, which reduces raw material costs and environmental impact, enhancing its circular economy credentials.
  • Diverse product portfolio supporting multiple end-markets: Beyond packaging, the industry serves sectors such as publishing, hygiene and specialty papers, which provides resilience against fluctuations in any single market segment.
Weaknesses
  • Ongoing digitalization reducing demand for traditional paper products: The widespread adoption of remote working, digital communication and electronic media is steadily decreasing the need for notebooks, printing paper and physical books, impacting core product volumes.
  • Reputational risks related to environmental concerns: Issues such as deforestation, excessive water consumption and the ecological impact of large-scale tree harvesting pose significant risks to the industry’s public image and may invite stricter regulatory scrutiny.
  • High sensitivity to energy and chemical costs: The pulp and paper production process is energy-intensive and reliant on various chemicals; fluctuations in these input costs, particularly in regions like Europe, can severely compress profit margins and operational stability.
  • Complex and costly compliance with environmental regulations: Increasingly stringent environmental laws and sustainability standards require continuous investment in cleaner technologies and process upgrades, adding to operational complexity and capital expenditure.
  • Dependence on raw material supply chains: The industry is vulnerable to disruptions in the supply of sustainable timber and recycled fibers due to geopolitical factors, climate change, or market imbalances.

Sector Overview

What to watch ?

  • Evolution of e-commerce: The packaging segment is strongly tied to the growth of online retail as e-commerce continues to be the primary driver for demand in cardboard boxes and corrugated cartons. This segment is expected to continue driving sales up.
  • Emerging packaging regulations: Governments, particularly across Europe, are increasingly promoting the replacement of plastic packaging with sustainable alternatives such as paper and cardboard, especially in the food sector, which will shape market dynamics and product development.
  • Ongoing energy fluctuations: After Europe's energy crisis in 2022-2023, electricity and natural gas prices remain higher than usual, eroding the region’s competitive position relative to counterparts in North America and Asia, impacting production costs and profitability.
  • Rising demand for paper-based sanitary products: Growth in the population across developing markets combined with government initiatives in developed countries aimed at expanding access to essential household hygiene products is driving increased consumption in this category.
  • Continued digitalization: The accelerated shift toward digital communication and remote work is expected to further reduce demand for printing and writing papers, challenging traditional revenue streams.
  • Trends in housing and construction: Fluctuations in the housing markets and construction activity in major wood-consuming economies such as the US and China, alongside building renovation trends in Europe, will influence demand for wood-based products, including paper and packaging.
An industrial food processing
The global pulp and paper industry remains a vital sector in the global economy, with an estimated market value ranging between USD340bn and USD380bn. This industry is characterized by its broad product portfolio, including packaging materials, printing and writing papers and hygiene products, serving diverse end markets from e-commerce to consumer goods. As of today, wrapping and packaging is the biggest segment (53% of market share), printing & writing paper is the second (23%), sanitary is third (12%), while newsprint is fourth (5%), followed by others (7%). By region, Asia-Pacific (notably China and Japan) dominates the landscape, accounting for over 45% of the global market share, driven by rapid industrialization and growing demand for sustainable packaging solutions. Other top producers of pulp and paper are the US, Canada, Germany, Sweden and Finland.

The outlook for the global pulp and paper is marked by transformation. Despite challenges such as digitalization reducing demand for traditional paper products, the sector is undergoing a significant transformation fueled by technological innovation, rising paper recycling rates and increasing regulatory support for eco-friendly alternatives. This dynamic evolution positions the pulp and paper industry for sustained, tech-driven growth well into the coming decade. Companies must adapt to remain viable in a rapidly evolving landscape. Players that fail to modernize operations, diversify offerings and respond to global trends (such as e-commerce growth, packaging innovation and carbon reduction) risk losing relevance, market share and long-term competitiveness.

In terms of financial performance, the past two years were tough for the sector. Revenues fell by around -14% y/y on average in 2023 and timidly recovered by +4% y/y in 2024. The sector had a five-year historical compound annual growth rate of sales of +6%. This drop was driven by a contraction of both prices and volumes due to the weakening of the global economy. Indeed, paper (together with other commodities) lost a lot of pricing power last year amid increasing economic uncertainties. In parallel, the pulp & paper sector is energy- and raw-materials-intensive, notably dependent on chemicals and natural gas for transforming raw wood into pulp and then into other derived sub-products. Therefore, companies have seen margins squeeze in the past years. As a fact, operating margins moved from a five-year historical average of 8.8% to only 6.2% in 2024. The sector’s margin deterioration was particularly exacerbated in Europe, where energy prices increased the most. Nevertheless, operating conditions started to improve gradually since Q4 2024 and throughout 2025, indicating that the worst is already behind, even if geopolitical tensions persist. For 2025, we expect revenues to recover by around +4.3% y/y, supported by the fact that destocking in many end-markets has ended and the belief that consumer e-spending should gradually start to improve as inflation has receded.

Subsectors

Paper packaging: Despite softness across most paper sub-sectors in 2024, packaging remained resilient, with global capacity rising modestly by 3–4% y/y, and with demand increasing around +2% y/y. In 2025, the paper and paperboard packaging sub-sector is expected to continue growing, fueled by the rapid expansion of e-commerce and the ongoing transition from plastics in the food packaging segment. While pricing power remains limited across the industry, the packaging segment stands out with stronger margin protection, backed by steady demand and its eco-friendly positioning.

Freesheet, newsprint and printing & writing paper: The printing and writing sub-sector is a fragmented market that has been shrinking in size due to digitalization. Both supply and demand of printing and writing paper have declined by about -25% from the levels recorded a decade ago, especially in North America, where the drop has been sharper (-55%). In 2024, global demand for printing and writing papers contracted by nearly -6% y/y, coated woodfree fell by -7%, uncoated by -6% and mechanical grades by -5%.

Pulp: The pulp market is more consolidated than other subsectors, characterized by high capital intensity and significant chemical consumption. Key producers are located in the US, Brazil, Chile, Canada and Northern Europe, while China leads both in production and consumption. In 2024, the market faced challenges, including declining revenues and prices, due to oversupply, reduced demand and trade disruptions, leading to decreased profitability. However, as supply and demand dynamics begin to rebalance, pulp prices are anticipated to stabilize and modestly recover in the latter half of 2025.

Forest, wood and timberlands: Lumber, a key processed wood product primarily used in construction and manufacturing, is a critical commodity closely tied to housing and infrastructure cycles. In 2024, lumber and wood product prices continued their downward trajectory, declining by approximately -14% y/y. This sustained softness was driven by weak housing demand, persistently high interest rates and market oversupply, factors that collectively weighed on pricing across the entire value chain. The lumber and wood market is expected to stabilize in 2025, with prices likely to level off or experience a modest recovery as housing markets are gradually adjusting.

Contacts

Maria Latorre
Sector Advisor
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Allianz Research
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