Orifjon Abidov, Economist, Packaging, RISI
March 4, 2013
Price offensive by European recycled containerboard producers
European producers of recycled containerboard are lining up behind an effort to increase prices after enduring an extended slide in profitability since the second half of 2011. Major recycled containerboard producers independently announced price increases of up to Euro 60/tonne from February and recently Hamburger independently announced a further price increase from March of Euro 40/tonne for both brown and white top testliner. On the virgin side, SCA Packaging last week followed their recycled counterparts by announcing similar increases and other producers will probably follow given the tight supply situation in the brown kraftliner market. Consequently, this is an appropriate time to examine the major factors explaining these moves and analyze the potential for the increases to actually be implemented.
Our estimates of prices to variable costs show that the recycled industry has had a relatively poor score since 2010, mainly as a result of overcapacity, which had a negative effect on testliner prices during the period of cost deflation. The main argument on the part of European recycled containerboard suppliers for their move is the low stock levels of paper at European mills and healthy order books, which should help them to implement price increases more easily. In our view, there are at least three factors that may have contributed to such low stocks in Europe this year: capacity developments over the last two years, increased export demand for European recycled containerboard and the removal of kraftliner capacity resulting in a shift to testliner, both brown and white top.
From the middle 2011 through most of 2012, the pressure of closure increased substantially on high-cost production units in Europe, driven by inventory drawdown, lean paper supplies in the corrugated industry due to the uncertain European economic situation, and poor profitability. As a result, a total of 760,000 tonnes of European recycled containerboard capacity either left or will be shut down through the first half of 2013, which represents about 3% of the recycled capacity base in 2011. Of course, there were some capacity expansion projects in European mills in 2011-2012 in addition to a new SAICA 425,000 tonne recycled containerboard machine, but the market has not seen much of this new tonnage so far as it takes at least two years to ramp up a newly upgraded/installed machine to its designed capacity.
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For more information on The Outlook for European White Top Containerboard Markets visit www.risi.com/whitetop.
- Orifjon Abidov, Economist, European Paper Packaging, is the author of the Paper Packaging Monitor Europe and the recently updated Outlook for European White Top Containerboard Market. He works out of RISI's Brussels office and can be reached at Tel: (0032) 2 536 07 54 or Email: firstname.lastname@example.org.