The three major folding carton grades for food applications—coated recycled board (CRB), coated unbleached kraft board (CUK) and solid bleached sulfate board (SBS)—have different outlooks in terms of supply, demand and pricing in light of changing consumer preferences, supplier dynamics and COVID-19 impacts, according to an analysis from Rabobank, headquartered in the Netherlands. But all of the grades could benefit in part from the backlash against single-use plastic packaging. The report, titled Folding Carton Grade Shifts in North America, was prepared by Xinnan Li, who is based in Toronto and focuses on food and agribusiness supply chains for RaboResearch’s Food & Agribusiness.
Li says the key takeaway from her report is that folding carton producers need to be flexible and innovative in their approaches to production, while cost control and asset optimization also will be keys to competitiveness.
CRB primarily is used for indirect food-contact retail packaging, while CUK often is used in beverage carriers and frozen food packaging because of its wet strength, and SBS frequently is used to make food service containers and confectionary and luxury food and drink packaging.
Total North American folding carton capacity, which includes food and nonfood applications, has declined over the last decade, with a compound annual growth rate (CAGR) of approximately negative 0.62 percent from 2010 to 2020. However, CUK saw mild growth of 0.8 percent CAGR, Li notes in her analysis.
She says a few factors have contributed to CUK’s growth. Li cites consumer demand as the primary driver, noting a preference for the unbleached look of this material. It also is very strong, particularly when wet. This makes it very popular for use in beverage carriers, she says, noting that demand from this segment is so strong there often is not enough for use in frozen food applications.
“CUK only has two suppliers in North America,” she says, citing WestRock and Graphic Packaging International Inc., both of which are headquartered in Atlanta. “It is a concentrated market,” Li says, with these two companies having “power for pricing and supply.”
According to the Rabobank analysis, a shift among these grades, especially in the food segment, is occurring, influenced in part by sustainability and consumer preferences. This shift has been reinforced by the pandemic.
With the growing consumer preference for kraft and natural packaging, unbleached CUK is growing in popularity because many consumers associate its brown color with sustainable qualities. Virgin-fiber-based CUK is used in direct contact with food and is eroding SBS’ market share, which also is made from virgin fiber. CUK also benefits from lower production costs relative to SBS, according to Rabobank, which is contributing to the grade’s growth.
Rabobank also points to the increase in at-home consumption of food and beverages during the pandemic, which has increased demand for beverage carriers. This demand is likely to continue because of the expected continued strength in off-site consumption, even as restaurants recover from the pandemic.
Additionally, according to Li’s analysis, while all folding cartons could benefit from the sustainability initiatives to replace plastic, beverage carriers are among the leading segments that are substituting single-use plastics with fiber-based options. Graphic Packaging and WestRock have developed products intended to replace six-pack rings or shrink-wrap in this segment.
Graphic Packaging’s KeelClip is a recyclable paper fastener for cans that is designed to replace plastic rings, tops and shrink wrap while also offering merchandising benefits that similar beverage packaging can’t offer. The company’s Cap-It product line is a recyclable paperboard product designed for use with polyethylene terephthalate bottles that have neck rings.
WestRock’s CanCollar features a patent-pending tooth design and its wet strength CarrierKote, which it describes as “a renewable, responsibly sourced, recyclable paperboard, containing up to 15 percent recycled content.” The company also touts the CanCollar’s ability to reinforce brand elements.
Rabobank’s analysis predicts that the beverage carrier trend will accelerate as consumer awareness grows and governments implement policies that target single-use plastic packaging.
Li says paper packaging in general will benefit from the backlash against single-use plastic. She says, “Folding carton food containers, beverage carriers, there are so many examples.”
She adds that while some of these applications would require plastic liners, they would still represent a significant reduction in plastic use.
In the last decade, SBS demand in North America has decreased, despite the material’s superior printability relative to the other grades. According to the Rabobank analysis, this is in part because the board is used in nonfood segments, such as tobacco and Bristol board, which are declining, and competition from CUK in other segments.
Imports of folding boxboard, a high-yield and low-cost alternative to SBS, also pose a threat, as do microfluted packaging solutions, especially for luxury foods and nonfood and personal care products, according to Rabobank’s analysis.
Many times, CRB is the first choice for packaging without direct food contact because it offers low cost and good recyclability, particularly when high strength and printability are not required. The pandemic has stimulated CRB demand as food retail sales have soared. However, Rabobank says this effect could be temporary.
North American-made CRB also faces competition from imports, in some cases from virgin grades, as less fiber is needed to make boards of similar strength. However, as consumers and brands put more emphasis on sustainability, CRB will continue to emerge as a better choice compared with virgin grades in light of its high recycled content.
CRB has benefited from the low cost of mixed paper, which averaged $39 per metric ton from August 2020 through August 2021, the Rabobank analysis notes, though its price is higher now. It already is the least-expensive folding carton product, but producers are working consistently to optimize production costs while improving the quality of the board. Rabobank calls out Graphic Packaging’s new machine that is being constructed at its Kalamazoo, Michigan, mill, which it says is expected to replace high-cost production of CRB at other facilities. Li says she expects asset optimization to be an ongoing trend across all folding carton grades as machines age and new technologies are developed.
She says mixed paper pricing decreased because of China’s import ban, with the recent increase fueled by inefficiencies in the recycling system because of the pandemic. “Once the recycling system is able to run well, we will still produce lots of mixed paper,” she says, adding that she is expecting pricing for the grade to normalize downward. “I’m hesitant to put a dollar amount on it, but we are not going to be close to where we are today.”
Li says though mixed paper had an official price of zero dollars in the recent past, some mixed paper consumers have said they still had to pay for the material to keep their suppliers’ doors open. Therefore, mixed paper technically was sold at cost.
Supply-and-demand dynamics have shaped the pricing trends of the SBS and CUK folding-carton grades, with SBS prices remaining flat while CUK prices increased at a CAGR of 3.5 percent from 2015 through 2020. Rabobank says the average 5 percent premium SBS garnered relative to CUK before 2018 has become an 11 percent discount.
However, Rabobank predicts that SBS will stand in for CUK in some applications, particularly in frozen foods and food service, if the pricing differential increases, limiting CUK’s pricing upside and further growth potential.
Despite the various trends shaping demand and pricing for each folding carton grade, total demand is stagnant, leading to a 1.3 percent capacity reduction over the past decade that primarily affected the CRB and SBS grades, Rabobank notes.
Rabobank recommends that folding carton producers work to lower costs through asset optimization and by replacing older machines that are more expensive to operate with more efficient ones, reducing input costs and incorporating more recycled fiber. Li also says that innovations in board performance will be key, such as increasing strength, reducing weight, using innovative coatings or customizing designs for specific applications.
A notable innovation Li cites is the CRB that Graphic Packaging will make at its Kalamazoo plant, which she says promises the wet strength needed for beverage carriers that is traditionally only seen in CUK. “That’s never been heard of.”
The company invested $600 million in the project, which Graphic Packaging says it believes will produce the highest quality CRB in North America with the lowest-caliper capabilities.
CRB is generally 20 percent less expensive than SBS and CUK, Li says. While its recycled content and recyclability are attractive to consumers and brands, she says these traits are not likely to translate into a price premium. “It will be a selling point, but it comes down to performance.
“CRB is going to be the go-to just because it’s 20 percent cheaper” in applications that don’t require food contact or much strength, she says. “That’s a huge advantage.”