Bain & Company warns paper packaging industry faces structural overcapacity

Bain & Company’s 2026 Paper & Packaging Report identifies challenges in how paper packaging stakeholders operate and respond to structural overcapacity, input cost volatility, and weak demand across sectors. 

The global consultancy outlines three priorities that companies should focus on to improve their performance: focus on capacity, accelerate AI adoption for efficiency, and stronger commercial execution to protect margins. 

The report shows that most industry players aim to grow their profits at four times the rate of the market, but only 7% of industrial companies achieve this goal.

Packaging Insights speaks to Ilkka Leppävuori, head of the Paper & Packaging Sector at Bain & Company, to discuss the factors that have led to a production capacity greater than its market demand, amid a much-touted fiberization trend in packaging.

How did overcapacity become an issue for the paper and packaging industry?

Leppävuori: Many producers have had optimistic growth plans, backed by investments in capacity, over the past decade. The market growth has turned out to be lower than expected in many segments, leading to overcapacity.

Further, many companies with struggling sites have been slow to react, hoping that the market will turn more positive soon instead of closing capacity. This positive market turn has not yet happened.

What are companies getting wrong when they plan for future demand?

Leppävuori: Getting large investments right in terms of geography, product grade, and timing is incredibly difficult in this industry. The most successful companies in the industry are great at it and reap the benefits later through market share gain and disproportionately high margins. 

However, many companies have made large investment decisions during a very positive cycle, leading to inherently too optimistic assumptions on market growth and estimated profit margins in their investment calculations. Often, the decided investments are then completed exactly at the time when the market has already turned down, leading to a very challenging first year of production.

How should producers decide which mills or grades to keep, convert, or close?

Leppävuori: These decisions require very careful scenario thinking and calculation, combining the different scenarios of end market demand, cost evolution, estimated supply and demand balance, and competitive moves by product grade. 

This should be further combined with the required investments and other one-off costs associated with capacity investments, conversions, or closures, to have a probability-weighted view on the outcomes of these decisions.

Would you say overcapacity is a short-term or a long-term problem?

Leppävuori: Overcapacity has been a recurring problem in the industry for decades, every once in a while. It’s a combination of long-term structural problems caused by industry participants, linked to the general optimism in growth plans. But it’s currently amplified by the current short-term cycle, especially in Europe.

The report recommends mergers and acquisitions to tackle overcapacity. How realistic is this solution?

Leppävuori: Mergers, acquisitions, and consolidation will very likely lead to a healthier supply and demand balance in the industry. If two producers combine forces and overlay their manufacturing footprints, it typically leads to meaningful optimization opportunities, especially in overcapacity situations. This applies to both upstream producers and packaging converters.