Inflation, Supply, and the COVID-19 Rebound Impact Paper Industry in 2022
With the pandemic restrictions in place globally throughout 2020 and 2021, we faced two of the most tumultuous years in modern business history. While COVID-19 continues to be a factor, 2022 saw some businesses return to normal and others begin a new, post-pandemic phase. The paper industry continued to face challenges, including economic factors, supply issues, inflation, and the ever-changing workplace.
Rising Economy Impacts Industry
The state of the economy plays a large role in the production and retail of paper. According to the Bureau of Economic Analysis, there was a sizeable decrease in real GDP during the first half of 2020 due to the pandemic slowing down the production of many industry’s products, including paper. As industries rebounded over the last two years, there’s been an overall increase in GDP – reflecting an increase in exports and consumer spending – along with local, state, and federal government spending throughout 2022. The unemployment rate remains low, with professional services and other white collar industries continuing to add jobs, according to the November 2022 report from the Bureau of Labor and Statistics. The recovering economy was one driver of increased paper demand this year.
In-person Office and School Drives Demand
Another factor driving more paper need was the return to in-person office and school. While remote work and hybrid models may be here to stay, significant numbers of workers and students returned to their respective working and learning spaces in 2022, increasing the need for paper.
Post-COVID Capacity Decreases Tighten the Market
While paper production has steadily decreased over the past decade, it dropped more rapidly during the pandemic due to supply chain issues and the dwindling demand from schools, offices, and printers. Some paper mills permanently withdrew from the market and others shifted production to different needs, such as containerboard. In 2022, some mills readded capacity, but buyers’ need to rebuild badly depleted inventories led to continued shortages, according to RISI Paper Trader.
Rising Costs a Factor
Cost inflation has been a major storyline for all industries and consumers in 2022. According to RISI Paper Trader, at mid-year the U.S. Producer Price Index (PPI) was up 25% since the start of 2021, the trucking PPI up 40%, and natural gas prices jumped to nearly triple their early 2021 levels. As a result, almost all paper producers, including several importers, implemented uncoated freesheet price increases in 2022.
What will 2023 have in store? Factors like the economy, inflation, and changing demand will continue to play a large role for the paper industry.
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