Domestic pulp and paper production indices across Latin America are showing significant signs of volatility on the demand side, only partially reflecting the demand recovery for the packaging market.
Packaging demand was stronger in 2024 compared to 2023, as major fruit exporters had entered the market to secure volumes before exporting their crops. Solid domestic retail sales also been boosted consumption of boxboard grades.
OCC imports across Latin America resumed in July and August amid the stronger demand but are expected to slow again as converters and paper producers have secured most of the volumes needed to export fruit crops in the third and fourth quarters.
The tissue market, assessed by imports, is also recovering from a weak 2023 as imports are increasing widely across the region.
Prices assessed by Fastmarkets continued to increase in the third quarter, reflecting the higher cost inflation across the pulp and paper supply chains and higher export and import parities given the general weakening of local currencies versus the US dollar, as we have expected since the start of the year.
We anticipate prices will continue climbing in the coming months, affecting all buyers across the value chain.
However, local industrial and producer price indices in Latin America (either assessing production costs for pulp and paper producers or costs of pulp and paper products as raw materials for manufacturers) shifted their upward trend and started to flatline or even decline in some cases (as is the case in Chile) amid high domestic inventories of those products, which could signal a looser scenario for prices ahead.
The announcement of small price declines from major Brazilian pulp producers for the fourth quarter also contributed to the market sentiment that the paper price forecast might be revised down soon, as cost inflation pressure seems to have been easing across the supply chain.
Retail sales in Brazil increased by 2.1% YoY in September, mainly driven by the solid economic activity in the domestic market and some marginal improvements in the credit conditions, as overall debt levels declined in the third quarter from the second quarter, although they are still historically high.
Online betting in Brazil, with estimated expenditures between 68.2 billion Reais and 240 billion Reais, may have contributed to increased defaults and a potential loss of 90 billion Reais in 2024 retail revenue, impacting growth relative to income, according to a study from the CNC. Retail sales increased in September, but that increase was mostly concentrated in vehicles, motorcycles, personal/household goods, fuels, pharmaceuticals and construction materials, while declines occurred in furniture, appliances, office equipment, textiles and books/stationery, which explains the increase in debt periods.
Industrial production expanded 3.4% YoY in September, the fourth monthly increase in a row, following the overall positive economic environment in the country, given the growth in the BCB’s monthly economic activity index (IBC-Br) since April.
Brazil’s inflation rate accelerated to 0.6% in October from 0.4% in September, according to data from the IBGE. This increase was primarily attributed to rising prices in housing and food, particularly a significant hike in electricity tariffs, which impacted overall living costs. Food prices also saw notable increases due to supply constraints and higher export demand thanks to a weakening in the Brazilian Real versus the US dollar in October since the beginning of the year.
Overall inflation expectations for Brazil are also climbing, which has been motivating the BCB to keep a bearish policy orientation and increase interest rates. Current reference rates are at 11.25% yearly, up from the 10.5% reached in September after several cuts.
The Mexican economy seemed to also be on hold before the US elections in November, holding growth down below its potential. The IGAE index assessed by the INEGI grew only 0.4% YoY in August, and the overall market sentiment for September and October was not particularly optimistic either.
Lower remittances in 2023 and early 2024 due to the stronger Mexican peso versus the US dollar limited the Mexican economy’s liquidity early in the year, forcing companies to trade unsold inventories and avoid building up any more.
However, recent currency depreciation — that has already raised 2024’s current levels above December 2023 — encouraged remittances into the country again, fueling the local economy and boosting industrial activity.
This change in exchange rates is re-energizing the Mexican economy. It is expected to reignite demand from both the domestic and export markets, generate income and increase domestic inflation, especially in early 2026, when the new US president, Donald Trump, will start his second administration and most of the economic uncertainty related to the election will fade.
A sign that the Mexican economy is running below its potential is local inflation, which increased by only 0.5% month over month in October after flatlining between August and September, cooling off the early signs of reignition right after elections in Mexico in the second quarter.
The monthly economic index assessed by the INDEC fell 3.8% YoY in August to its lowest level since April. This downturn is attributed to high inflation, currency devaluation and the rigorous fiscal adjustment initiated by President Javier Milei’s administration.
The government has managed to achieve a fiscal surplus for nine consecutive months, a first since 2008, through cuts in public spending and increased taxes on foreign purchases.
Argentina’s battle against inflation continues, and monthly rates increased by “only” 3.5% in September, the lowest monthly increase since November 2021, according to the INDEC. The government’s economic strategy must evolve to ensure lasting disinflation, as the 2025 budget targets ambitious inflation goals amid economic uncertainty and market disparities.
Chilean economic activity stabilized in September, with the monthly economic index assessed by the Central Bank of Chile flatlining after growing 2.3% YoY in August.
Inflation sped up in October, increasing almost 1% from September, due to the positive economic performance in the country and the weaker Chilean peso versus the US dollar, which triggers domestic inflation as well.
The positive monthly result reflected higher retail sales and mining activity, as industrial
activity was weak in the month.
Economic activity in Colombia grew 2% YoY in August after posting growth of 3.8% YoY in July, according to the monthly economic monitor index (ISE) assessed by the DANE, reflecting the stronger domestic retail market despite volatility in industrial production during that period.
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