Although it was a strong year for most pulp & paper markets, gains on the pricing side have been largely offset by increased input costs. Heading into 2022, we see a less favorable supply-demand outlook in most markets given that demand growth is likely to be tepid following up a year of strong gains. At the same time, investment in new capacity is set to ramp up. Below, we highlight some of our key themes for the year:

• Get ready for more efficient packaging: While not a “new” trend, we are seeing a renewed push from Amazon to design packaging that is right-sized and recyclable. While e-commerce remains a tailwind, right-sized packaging will partially offset gains. We expect that there will be opportunities for value-add packaging producers to take market share in the e-commerce channel. 
• Logistics will continue to have an outsized impact on pulp & paper markets: Disruptions to onshore and global supply chains have had a material impact on pulp & paper markets. As global supply chains start to normalize, we think that there could be an increase in imports of paper & tissue products and increased exports of containerboard.
• New capacity in pulp & containerboard will impact supply-demand balances: Following relatively strong years for pulp & containerboard, new capacity could disrupt delicate supply-demand balances over the coming year. Capacity additions are notably large in hardwood pulp.
• The pace of return to “normal” will drive paper & tissue demand: The pandemic has driven significant dislocations in demand for paper & tissue products. When (or if) the United States begins to return to pre-pandemic norms, we expect that there could be a shift in demand for tissue products back towards the away-from-home channel and more stable uncoated freesheet demand.
• Paper-based packaging will see tailwinds from plastic to paper substitution: With continued focus from brand-owners on reducing carbon emissions, packaging has been identified as a key area of focus. Therefore, we expect that paper-based packaging products (paperboard in particular) will see increased demand due to plastic to paper substitution.

Stock recommendations into 2022
In Canada, our Top Pulp & Paper Idea for 2022 is Cascades Inc. (TSX: CAS). We like the company’s exposure to recycled containerboard and upcoming potential catalyst in the start-up of the Bear Island containerboard mill. In addition, Cascades trades at a substantial discount to its US packaging peers, which remains near the widest margin over the last 5 years.

In the US, our Top Pulp & Paper Ideas for 2022 are Clearwater Paper (NYSE: CLW), Resolute Forest Products (NYSE: RFP), and Rayonier Advanced Materials (NYSE: RYAM). We view these as continued turnaround and deleveraging stories, with markets under-appreciating operational improvements and rapidly improving balance sheets.