By Will Mies, Director, News Editorial, RISI
SAN FRANCISCO,
Sept. 10, 2008 (RISI) -
Oil is not the only commodity whose price can be affected by hurricanes on the US Gulf Coast.
In talking to US box converters about the proposed new $60/ton US containerboard price increase, some producers played up the current series of hurricanes – Gustav, Hanna and Ike – and the impact on operations of Gulf Coast mills. One converter said the description he received of supply disruption sounded “almost apocalyptic.”
Such sales talk is not surprising because, after all, it was the impact of Hurricanes Rita and Katrina in September 2005 that kicked off the long current upcycle in containerboard prices. Until the hurricanes knocked out an estimated 150,000 tons of production due to mill curtailments and inventory damage, prices had been eroding since the spring of that year due to excess supply.
“It took an act of God to rescue the market,” one contact told PPI Pulp & Paper Week at the time.
Since the fall of 2005, the benchmark US price of 42-lb unbleached kraft linerboard has increased by $215/ton in five price increases (not counting the new $60/ton price hike proposed for Oct. 1).
Fast forward to the latest series of hurricanes belting the US South in September 2008. Heavy rain, flooding and loss of power from Hurricane Gustav have again played havoc with mill operations, but fortunately due to careful planning by mills in the region there were no deaths or significant damage to mill property.
International Paper lost around 10,000 tons of production at its Pineville and Campti, LA, mills. The Pineville linerboard curtailed Aug. 31 and was not expected to resume production until early this week. IP’s Red River containerboard mill at Campti experienced “limited” downtime of several days.
“Hurricane contingency plans were executed at all affected locations and the majority of the mills continued to operate safely through the storm,” noted Amy Sawyer, IP’s senior manager of packaging communications.
Temple-Inland lost an estimated 18,000 tons of containerboard production from curtailments of its Bogalusa, LA, and Orange, TX, containerboard mills starting on Aug. 31. Boise lost 6,500 tons of linerboard production at DeRidder, LA, while Georgia-Pacific may have lost close to 10,000 tons at its Monticello, MS, linerboard mill from several days of curtailment. The hurricanes are also likely adding to major wood harvesting problems and additional costs.
But the total US containerboard production loss from Gustav came in at more than 40,000 tons, enough to help keep inventories down going into the announced $60/ton containerboard price increase for Oct. 1 – but not enough to significantly change the supply/demand balance as Rita and Katrina did in the fall of 2005. (Though whether the latest hurricane, Ike, would hit the Gulf Coast was still a question mark Tuesday night.)
With US box demand sluggish, more containerboard capacity entering the market in the fourth quarter, and export demand slowing, supply management appears to be the main driver of the current $60/ton price increase attempt – and this time the curtailment is likely to be man-made rather than an act of nature.
And that happened on Tuesday with IP’s announcement of the “indefinite” closure of its 430,000 ton/yr PM 3 recycled containerboard at Valliant, OK.
RISI is the leading source of global news for the forest products industry.
Click here to learn more about our news products and services.
Click here to see all RISI's pulp and paper news products.
