Palm’s additional testliner capacity intensifies European containerboard supply pressure

Overview

This report discusses Palm’s plan to convert a newsprint machine at King’s Lynn in the UK to testliner capacity and assesses its impact on the European containerboard market and the pricing environment for related companies. Goldman Sachs’s core view is that the European testliner market is already oversupplied, and additional capacity will further increase system pressure, requiring more capacity closures to stabilize prices.

Core views

Palm’s new capacity is a negative shock to the European testliner market. Current demand growth is limited, while capacity added since 2025 has encountered weaker-than-expected demand. If the Middle East conflict persists and oil and gas prices remain elevated, higher costs could temporarily support containerboard prices, particularly benefiting kraftliner producers. However, if the conflict ends and energy prices decline, weaker cost support combined with testliner oversupply could drive testliner and kraftliner prices lower in the coming months.

Analysis framework

The report uses an industry supply-and-demand balance and cost-transmission framework, focusing on comparisons of new capacity, demand growth, capacity utilization, energy costs, and substitution relationships among different containerboard grades. At the company level, the impact is assessed by business exposure: Mondi, SCA, and Stora Enso are primarily exposed to integrated kraftliner, while Smurfit Westrock has higher direct exposure to European testliner.

Methodology notes

• Industry supply and demand analysisSupply & Demand Balance

  Comparison of capacity expansion and demand growth

  The degree of oversupply and price pressure in the European testliner market is assessed by comparing Palm’s new capacity, existing expansion plans, market utilization, and demand growth.

• Cost transmission analysisEnergy Cost Support

  Support for containerboard prices from oil and gas prices

  The Middle East conflict could increase oil and gas costs, thereby supporting containerboard prices. If energy prices decline, weaker cost support would cause oversupply to be reflected in prices more quickly.

• Company exposure analysisProduct Exposure Mapping

  Assessing company impact based on testliner and kraftliner exposure

  The report distinguishes Mondi, SCA, and Stora Enso’s kraftliner exposure from Smurfit Westrock’s European testliner exposure to assess differences in the impact of falling prices on each company.

• Disclosure methodologyGS Factor Profile

  Comparison of growth, financial returns, valuation, and composite percentiles

  Goldman Sachs discloses that its Factor Profile compares stocks’ positions relative to the market and peers using growth, financial returns, valuation multiples, and composite indicators, but the body of this report does not provide specific stock factor results.

• Disclosure methodologyM&A Rank

  M&A probability scoring

  Goldman Sachs discloses that its M&A Rank scores companies from 1 to 3 based on their probability of becoming acquisition targets, but the body of this report does not analyze an M&A scenario.

• Data toolsQuantum

  Goldman Sachs proprietary financial database

  Quantum is used to query financial history, forecasts, and ratios, supporting in-depth analysis of individual companies or cross-company comparisons.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Mondi

  Primarily exposed to integrated kraftliner production

  Strengths

  High kraftliner market utilization; may benefit from higher prices when energy costs rise.

  Weaknesses

  Kraftliner prices could be weighed down by testliner oversupply and substitution.

  Comparison

  Lower direct exposure to European testliner than Smurfit Westrock.

  Risks

  If energy prices decline and testliner prices fall, kraftliner prices could also come under pressure.

• SCA

  Primarily exposed to integrated kraftliner production

  Strengths

  May benefit from higher containerboard prices in a high-cost environment.

  Weaknesses

  Still faces indirect pressure from testliner substitution and price linkage.

  Comparison

  Like Mondi and Stora Enso, it has lower direct testliner exposure than Smurfit Westrock.

  Risks

  Downside risk to prices increases once energy-cost support disappears.

• Stora Enso

  Primarily exposed to integrated kraftliner production

  Strengths

  Kraftliner utilization is higher than testliner utilization, providing relatively better short-term price support.

  Weaknesses

  Cannot fully insulate itself from price pressure caused by excess testliner supply.

  Comparison

  Along with Mondi and SCA, it is more highly exposed to kraftliner.

  Risks

  Price linkage between testliner and kraftliner could erode earnings.

• Smurfit Westrock

  High direct exposure to European testliner

  Strengths

  European testliner accounts for only approximately 20% of company EBITDA, so profit exposure is below capacity exposure.

  Weaknesses

  Approximately 70% of its European containerboard capacity is testliner, making it directly affected by the oversupplied market.

  Comparison

  More sensitive than Mondi, SCA, and Stora Enso to worsening European testliner supply and demand.

  Risks

  Falling testliner prices could directly compress the profitability of its European business.

• Palm

  Supplier of additional testliner capacity

  Strengths

  By shifting from newsprint to recycled containerboard/testliner, it is entering the more relevant packaging-board segment.

  Weaknesses

  Its startup timing coincides with an oversupplied and low-utilization European testliner market.

  Comparison

  Its 700ktpa of additional capacity creates significant supply pressure relative to Goldman Sachs’s forecast annual demand increase of approximately 230ktpa.

  Risks

  If the market cannot absorb the additional supply through closures, the new capacity could intensify price declines.

Key data

• Palm King’s Lynn original newsprint capacityApproximately 400ktpaPalm plans to convert the newsprint machine at its King’s Lynn mill in the UK.
• Palm planned testliner capacity700ktpaTestliner production is expected to begin in the first quarter of 2027.
• Current European testliner capacity utilization85%RISI estimate, indicating that the market is already in a loose supply situation.
• Goldman Sachs forecast testliner demand growthApproximately 1.2% per year, or about 230ktpaUsed to measure the pressure from new capacity relative to the market’s ability to absorb it.
• Total capacity expansion in the coming months9%Palm’s new capacity combined with two previously expected large expansion projects.
• Testliner share of Smurfit Westrock’s European containerboard capacity70%Indicates relatively high direct exposure to European testliner.
• European testliner share of Smurfit Westrock EBITDAApproximately 20%Goldman Sachs estimate, indicating that direct profit exposure is below the capacity share.
• Goldman Sachs Global Investment Research number of covered stocks3,104Disclosed data as of July 1, 2026.

Impact & implications

At the industry level, additional testliner capacity intensifies oversupply in the European containerboard market, potentially forcing more capacity closures and creating downward pressure on prices around year-end. At the company level, Mondi, SCA, and Stora Enso, which are primarily exposed to integrated kraftliner, previously benefited in the short term from price increases driven by high energy costs. However, testliner and kraftliner are substitutes and their prices typically move together, so testliner oversupply could still transmit to kraftliner. Smurfit Westrock has higher direct exposure to European testliner, but this business accounts for approximately 20% of company EBITDA, so the impact should be assessed in conjunction with its profit contribution.

Risks

• A persistent Middle East conflict could drive oil and gas prices higher, potentially prolonging cost support and delaying price declines.
• If European testliner capacity closures exceed expectations, supply and demand pressure could ease.
• If demand growth is stronger than Goldman Sachs’s forecast of approximately 1.2% per year, the market’s ability to absorb new capacity could improve.
• Price linkage between testliner and kraftliner could spread the impact to kraftliner companies with relatively low direct exposure.
• Although Smurfit Westrock has high capacity exposure, its estimated profit exposure is only approximately 20% of EBITDA, so the actual earnings impact could be smaller than its capacity share suggests.

What to watch

• Whether the Palm King’s Lynn project begins production as planned in the first quarter of 2027.
• The pace at which new European testliner capacity comes online and whether significant capacity closures occur.
• Whether European testliner capacity utilization remains at approximately 85% or declines further.
• The direction of the Middle East conflict and changes in oil and gas prices and their impact on containerboard cost support.
• Whether testliner prices decline around year-end and whether the decline transmits to kraftliner prices.
• Comments on containerboard prices and costs in the subsequent earnings guidance from Mondi, SCA, Stora Enso, and Smurfit Westrock.