Kraft paper: Industry shipments, pricing and mill operating rates are improving

GRADE STRUCTURE. Grocery bags and sacks and retail bags are the largest market for bleached and unbleached kraft packaging papers, accounting for about 43% of total shipments, followed by multiwall shipping sacks at 38% and wrapping and converting papers at 19%. Basis weights for most bag and sack papers range from 30 lb to 80lb/3,000 ft². Kraft paper can be machine finished (MF) by calendering or machine glazed (MG) on a Yankee dryer to improve printing quality. Specially engineered multiwall shipping sack grades with higher tensile strength are also available.

PRODUCTION/CAPACITY. A long-term decline in demand for unbleached kraft packaging papers, particularly for grocery bags, caused producers to reduce production capacity for these grades by 1.4 million tons, or 40%, over the 10-year period from 1985 to 1995. U.S. production capacity for unbleached packaging papers appears to have stabilized at about 2.2 million tons, which includes as much as 200,000 tons of “swing” capacity between kraft paper and linerboard. Bleached kraft paper capacity is about 440,000 tons. No new capacity additions are planned.

Industry shipments of bleached and unbleached kraft paper are forecast to increase about 2%, or 43,000 tons, this year, after declining by 130,000 tons in 1998. Lower shipments of grocery bag and sack paper have accounted for most of the decline, mainly due to market share loss to plastic grocery bags. Shipments of multiwall shipping sack papers and specialty converting grades have remained fairly stable. The multiwall sack grades remain competitive with alternative materials and provide cost-effective packaging solutions for a wide range of industrial and consumer markets.

Operating rates for kraft paper mills are estimated to be only 83% this year, but linerboard production on “swing” machines raises the actual industry operating rate closer to 90%.

OUTLOOK. Kraft paper is expected to continue to lose market share to plastics, although at a slower pace than in past years. Unbleached kraft paper in particular will continue to battle with plastics in all of the major markets. Although many consumer polls indicate a preference for paper in grocery sacks, for example, it has had virtually no impact because of paper’s higher costs vs plastics for supermarkets. Kraft paper producers have responded to these changing dynamics by adjusting their product mix and shifting production to lightweight linerboard and specialty grades and introducing handle bags. Overall supply and demand should remain in balance, and industry operating rates should remain stable as kraft paper mills adjust to changing market dynamics.

Exports of unbleached kraft paper have been hurt because of reduced shipments of shipping sack paper to Asia and Latin America. Lower economic growth, combined with new kraft mill startups in these regions have reduced the level of imports.

PRICING. Heavyweight kraft paper prices closely tracked linerboard prices over the past two years, falling from a peak of $590/ton to approximately $410/ton and then rising to about $470/ton in mid-1999. Multiwall shipping sack paper prices also declined, dropping to approximately $600/ton from $720/ton. Multiwall paper prices recovered to about $690/ton during the third quarter of 1999. Prices should remain stable over the next 12 months.

Year-end price history for 70-lb grocery sack paper: 1988, $455; 1989, $495; 1990, $465; 1991, $425; 1992, $390; 1993, $320; 1994, $490; 1995, $530; 1996, $410; 1997-98, $450. Multiwall shipping sack paper (50-lb): 1988, $520; 1989, $560; 1990, $580; 1991, $560; 1992, $580; 1993, $550; 1994, $620; 1995, $700; 1996, $600; 1997-98; $650.

—By NOEL DEKING

News Editor