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Wood pulp and paper prices continue to rise
In 2015, global wood pulp prices climbed past the previous peak from 2011, which was the highest price point in more than 30 years. Unfortunately for manufacturers that rely on the material as an input, especially paper-based packaging manufacturers, higher wood pulp prices have been increasing their production costs. According to IBISWorld, the price of wood pulp is forecast to rise even further at an annualized rate of 5.1% in the three years to 2019. The rising price of wood pulp will also be reflected in the domestic price of paper, which is projected to grow at an annualized rate of 3.2% in the next three years.
Paper-based packaging producers and suppliers will have ways of counteracting rising input costs, though. For instance, growing demand for paper-based packaging products will allow packaging producers to continue passing on some of these costs to buyers. Sustained growth in e-commerce activity and increases in consumer spending power will drive growth in demand for paper-based packaging products. Heightened industrial production activity and government spending will also boost demand for packaging products.
Increasing consumer spending will propel growth in demand for various discretionary and nondiscretionary goods, which are often shipped using paper-based packaging. This rise in consumer spending will be driven by several factors. For one, IBISWorld expects that the national unemployment rate will remain at prerecession levels during the three years to 2019. Improving economic activity will encourage more businesses to open and existing businesses to increase hiring, creating more jobs. In addition, consumer confidence, as measured by the consumer confidence index, is forecast to rise at an annualized rate of 3.2% in the next three years, which reflects improving consumer attitudes about the economy.
With stable unemployment and higher confidence in the economy, consumer spending is anticipated to grow at an average annual rate of 3.3 % from 2016 to 2019. Lastly, the US population is projected to expand at an annualized rate of 0.8 % during this time, which will slowly drive up demand for food items and other essential goods that require paper-based packaging.
The growing number of broadband internet connections and mobile internet connections is expected to further drive e-commerce sales and demand for packaging products, particularly those used in commercial shipping applications.