How The Economy Affects Packaging

Published on Wednesday, Jul 15 2015

As in any industry, the economy has a massive impact on the packaging market. This is because the materials which make packaging, especially cardboard, can be affected by the price fluctuations and availability of other materials within the market. A stable economy means stable prices for packaging materials, but what happens when the economy starts to look unstable?
In 2014 we saw the cardboard price fall which was due to a downturn in ferrous metals such as mild steel, carbon steel, stainless steel, cast iron and wrought iron. The reason that a downturn in ferrous metals affects cardboard is because the two materials are usually shipped from China on the same vessels. When there are less orders for ferrous metals, this means less cardboard will also be shipped from China as the shipping will be less frequent. This in turn means that the shipping prices increase which then makes the price of cardboard increase with it.
 
 For UK cardboard mills, a decrease in the amount of imported cardboard is great news. With shipping costs at a higher rate in 2014 and the decreased frequency of vessels carrying the materials between Europe and China, merchants turned to the UK cardboard mills to sell their materials to. This meant UK cardboard mills were offered more materials at a lower price.
 
Technological advancements also affect the economy within the packaging industry. Recent developments have enabled us to be able to recycle types of paper, such as corrugated paper and glossy packaging, which were very difficult to recycle in the past. This makes cardboard recycling cheaper and more cost effective which results in a steady increase in the price of cardboard.
 
Another factor which can affect the price of packaging is the mergers and acquisitions between packaging companies. As a result of the weaker economy of the past, several packaging companies have had to merge or even be taken over completely by other companies, especially within the UK. With higher merger and acquisition rates we saw in increase in the interest coverage ratio and slightly higher probability margins in 2015.
 
It seems that several factors create a domino effect which causes a change in the packaging price. The economy is affected by many factors including demand and exportation costs which in turn has an affect on the price of packaging. It’s a good idea for anyone within the packaging industry to keep an eye on the state of the global economy in order to predict what will happen next!

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