Paper

The global paper industry continues to face a structurally slower growth regime, with global production increasing by about 1.0% per annum since the beginning of the decade, compared with 1.5% per annum over the previous decade. Softer demand from the packaging industry and the secular decline in graphic paper use, together with new capacity additions in Southern Hemisphere countries and an environment of elevated operating (production and transport) and financial costs (cost of debt), are weighing on profit margins and pushing most risk metrics to historical highs.

The recovery seen in 2024 in pulp production, pulp prices and paper goods production proved short-lived, with all three indicators decelerating markedly in 2025 (-1%, -3% and 0%, respectively) amid weaker-than-expected economic growth across most mature economies. The adverse impact of the Middle East conflict on the global economy will weigh on any potential recovery and we expect paper pulp and paper goods production in 2026 to remain at 2025 levels. A slight improvement in the global economic environment in 2027 could translate into a marginally better trading environment.

In addition to the industry’s existing challenges (elevated energy costs and intensifying competition from low-cost producers, the growing impact of extreme weather events and tightening environmental regulations), slower growth could nonetheless catalyse long-overdue consolidation. The trend has already gained momentum in recent years, as evidenced by major deals such as the Smurfit WestRock merger (2024), International Paper’s acquisition of DS Smith (2024) and the Suzano-Kimberly Clark tissue joint venture (2025).

In the long term, overall pulp and paper production will continue to grow broadly in line with GDP, although trends differ significantly across segments. Graphic paper production is expected to continue declining because of digitalisation; paper-based packaging will remain dependent on industrial production; while demand for sanitary paper products should remain robust thanks to their non-discretionary nature and rising household incomes.

Disconnect between paper pulp upstream and paper products downstream

The paper industry includes the production of paper pulp and its transformation into paper-based packaging, graphic paper and sanitary paper products. Companies operate upstream (paper pulp), downstream (paper products) and across the entire paper value chain (vertical integration). The industry is largely local or regional due to the high transportation costs associated with the bulky and heavy nature of paper products, making local production and distribution more economical.

Vertically integrated paper companies control over two-thirds of global pulp production, with pulp mills operating close to paper mills for efficiency reasons. The remaining third, known as market pulp, is sold internationally to meet the needs of countries with limited forestry resources and companies operating only downstream. Although pulp price levels vary across regions because of differences in grades, properties and operating costs, they generally follow similar patterns across major producing regions. Because China produces nearly one-third of all paper products, it is the primary driver of the global pulp market.

Paper production flat in 2026, pulp prices further down despite inflationary pressure

The recovery seen in 2024 in pulp production, pulp prices and paper goods production proved short-lived, with all three indicators decelerating markedly in 2025 (-1%, -3% and 0%, respectively) amid weaker-than-expected economic growth across most mature economies. A handful of countries, including China, where paper goods production rose by 5%, Poland (+2%), Uruguay (+2%), Portugal (+1%) and Finland (+1%), nevertheless managed to buck the global trend and gain market share in an otherwise depressed environment.

We expect pulp and paper goods production to remain broadly flat in 2026, as renewed inflationary pressures triggered by the Middle East conflict weigh on household consumption and industrial production in mature economies. Despite capacity reduction efforts in Northern Hemisphere countries and a generally inflationary environment, pulp prices are expected to decline at a low single-digit rate owing to continued investment in new capacity in Southern Hemisphere countries (notably Chile, Brazil, Uruguay and Indonesia) as well as in China.

This is likely to reinforce the long-running shift in global production away from Northern Hemisphere producers, including the US, Canada, Scandinavia and Japan, whose share of global output has steadily declined over the past decade in favour of Southern Hemisphere players such as Brazil, Indonesia, Uruguay and Chile. These emerging producers not only supply structurally pulp-deficient markets such as China, Japan and India, but are also increasingly competing for market share in North America and Europe.

Notably, the European Union Deforestation Regulation (EUDR), originally scheduled to enter fully into force in January 2025 and subsequently postponed to 2026, has been postponed again until 2027 to give companies more time to comply with its requirements. The regulation will require companies to ensure that their paper products are not sourced from deforested areas, in an effort to promote more sustainable practices across the industry. While this may benefit companies with strong sourcing standards, it is also expected to increase compliance costs, complicate supply chain management and potentially restrict market access for both European importers and international exporters that fail to meet EU requirements. The EUDR represents the latest major step in the EU’s broader push to improve sustainability in the paper industry.

Paper products: paper-based packaging bounces back, graphic paper is in decline, while sanitary paper goods strong resilience

The paper industry produced an estimated 429 million tonnes of paper products in 2025, virtually unchanged from 2023 (+0.4%).

Paper-based packaging accounts for 70% of paper product volumes. Because paper is used across a broad range of industries, both for primary packaging (packaging in direct contact with goods) and secondary and tertiary packaging (packaging used for storage and transport), production trends are broadly aligned with industrial production and global trade. Much like pulp, paper goods production recovered significantly in 2024 before losing momentum and declining from mid-2025 onwards.

Accounting for 20% of paper product volumes, graphic paper peaked in 2007 and has been declining continuously ever since, with production down by one-third over the past decade. Falling newspaper readership and reduced consumption of printing paper due to the digitalisation of the economy are powerful secular trends, and available production data suggest that 2024 did not buck this trend. Reducing overcapacity through mill closures in mature economies at a rate of 3% to 6% per year, while developing more profitable niche markets, remains a priority for specialised players. That said, the conversion of production lines from graphic paper to packaging grades could increase overcapacity in this adjacent market.

By contrast, sanitary paper goods, which represent 10% of paper product volumes, are more resilient to economic cycles owing to their largely non-discretionary nature. Per capita consumption is strongly correlated with household income levels. Global production has grown by 25% over the past decade, driven primarily by China (+44%), Brazil (+35%), Mexico (+22%), Poland (+70%) and India (+290%). Sanitary paper goods differ significantly from the rest of the market because they are primarily consumer products sold through mass retail channels. In 2025, as in previous years, leading producers including Kimberly-Clark, Oji Paper, Essity, Unicharm, Hengan International and Ontex outperformed the broader paper industry, reporting stronger sales growth and broadly stable gross margins.

For 2026 and 2027, we expect long-term trends to persist, continuing to support sales of sanitary paper goods while further reducing demand for graphic paper. Paper-based packaging production is likely to remain flat at best in 2026 before returning to modest growth in 2027.