European Paper and Packaging: Cost inflation poses near-term challenges; Stora Enso has medium-term catalysts

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European Paper and Packaging: Cost inflation poses near-term challenges; Stora Enso has medium-term catalysts

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08 Jul 2026 14:59:05 ET │ 29 pages

European Paper and Packaging

Cost inflation poses near-term challenges; Stora Enso has medium-

term catalysts

Ephrem Ravi AC

CITI'S TAKE +44-20-7986-2462

We expect rising input costs to pressure European paper and packaging ephrem.ravi@citi.com

margins in 2Q26, driven by elevated chemical and logistics expenses. While Ashish Khetan

producers are implementing price increases to mitigate inflation, we believe

the full benefits will not be realized until 3Q26, impacting near-term +91-22-4277-5121

profitability. Consequently, we are reducing our 2026/2027 estimates and ashish.khetan@citi.com

lowering target prices for Billerud (Neutral, TP to SEK 66), Mondi (Buy, TP to

€8.20), and Stora Enso (Buy, TP to €11.4). We forecast an operating loss for

Billerud in 2Q26 due to weak demand and higher maintenance costs. In the

medium term, we see potential for stronger profitability across the sector

beyond 2026 as cost pressures stabilize, price increases take effect, and

volumes improve gradually.

Sector-Wide Margin Compression — We expect rising input costs to pressure

margins across the European paper and packaging sector in 2Q26. Higher fuel and

energy prices are driving up chemical and logistics costs. These headwinds are likely

to impact Billerud and Mondi particularly hard given their exposures to these costs.

While companies are implementing price increases, we believe the full benefits will

only materialize in 3Q26, creating a near-term margin squeeze.

Company-Specific Headwinds Persist — Several companies face significant near-

term operational headwinds. We forecast an operating loss for Billerud in 2Q26,