Published On: Tue, Nov 9th, 2010

2010 EPRC: Still Problems to Work Through

Per Ove Nordstrom, a McKinsey & Co. global basic materials analyst based in Sweden, is forecasting more slow growth for the economies of Western Europe.

Nordstrom, who offered the keynote presentation at the 2010 European Paper Recycling Conference (EPRC), is predicting average annual Gross Domestic Product (GDP) growth of 1.7 percent in the European Union (EU) between 2010 and 2015.

That rate of growth is below the 2.7 percent GDP growth projected for the United States and well below the 8.6 percent average annual DGP growth Nordstrom predicts for the nations that make up “developing Asia.”

A large factor in the slow growth prospects for the EU is debt load, says Nordstrom. “Both governments and households need to de-leverage from current levels in many European countries,” he remarked. “From start to end, this might take six to seven years,” Nordstrom said of Europe’s belt-tightening process.

Also working against the EU economies, said Nordstrom, is the aging demographic of its population. “The average age is getting older and older in Europe.”

Regarding the paper industry in particular in Europe, Nordstrom listed declining newspaper readership, anti-junk mail legislation and trends toward greater electronic invoicing and electronic medical records as cutting into paper demand.

At the same time demand for paper is flat or decreasing, “The cost of closing a paper mill in Europe is €50-to-€100 million (US$80-160 million), and you just don’t get any return on that,” said Nordstrom.

The result has been more mill capacity than needed. “Margins for European paper producers have been in the decline for a decade,” he remarked, offering attendees a look at a chart demonstrating the lackluster returns for paper companies in both Europe and North America compared to those in Asia and South America.

Recyclers in Europe are likely to continue to have access to Asian markets as long as corrugated boxes made in Asia continue to be sent there with exported products inside. “It is difficult to increase the recovery rate in China while a large share of corrugated boxes are exported,” said Nordstrom.

The 2010 European Paper Recycling Conference was Nov. 3-4 at the Sheraton Congress Hotel in Frankfurt, Germany.


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