Recycled paperboard: Industry consolidation and mill closings bring pressure on sector

INDUSTRY STRUCTURE. Recycled paperboard is primarily used to manufacture industrial and consumer packaging products. Recycled paperboard is made from 100%-recovered paper—collected from paper manufacturing and converting plants and postconsumer sources—and represents the largest single market for recovered paper in the U.S. This year, paper mills primarily producing recycled paperboard will process more than 20 million tons of wastepaper.

The most important end uses for recycled paperboard are folding cartons, corrugated containers, rigid set-up boxes, composite cans, paper tubes and cores, gypsum wallboard, solid fiber partitions, book covers and binders, and insulation board. The major end uses measured by paper mill production capacity are linerboard (28.8%), corrugating medium (25.4%), folding cartons (17.8%), gypsum wallboard (10.0%), tubes, cores, and other converting grades (18.0%). The converting grades include miscellaneous products such as spiral tubes and cores, composite cans, fiber drums, tags and labels, file folders, writing tablets, book cover stock, and game boards.

PRODUCTION/CAPACITY. Total demand for recycled paperboard has grown about 50% over the past decade. The fastest-growing segments have been 100% recycled linerboard and corrugating medium used for corrugated shipping containers. Production of recycled paperboard for gypsum wallboard has also been growing rapidly. At the same time, the output of coated folding cartonboard and uncoated chipboard grades, setup boxboards, and some miscellaneous grades has remained relatively unchanged.

Recycled linerboard and corrugating medium accounted for about 90% of total new capacity additions in the past decade. Total U.S. production capacity is currently about 18 million tons. The resurgent demand for certain recycled packaging grades, combined with the increasing need to reduce solid waste, will encourage growth in this segment of the paper industry over the next decade.

The industry is undergoing significant restructuring, as a series of mergers and asset sales have consolidated market share and led to rationalization of capacity. In the past 12 months, a total of six older, high cost recycled paper mills have closed. During the same period, three new operations have started producing recycled paperboard for gypsum wallboard.

OUTLOOK/PRICING. In general, recycled paperboard markets are highly competitive. The economic slowdown that started in the fourth quarter of 2000 combined with rising energy costs has placed additional pressures on recycled mills. Energy costs, mainly natural gas, represent about 15% to 18% of the manufacturing costs of recycled board.

Another major concern for recycled paperboard mills is the volatility of recovered paper prices. Fiber costs are about 25% of manufacturing costs. During the second half of 1999, prices of old corrugated containers OCC began climbing again, and this supported the first price increase in more than two years for recycled paperboard grades. Most mills raised prices $50/ton for coated recycled folding carton grades, followed by a second price increase in 2000 due to continued rising costs for fiber, energy, chemicals, and freight. Current prices are about $450 to $460/ton for linerboard grades, $590 to $630/ton for coated folding cartonboard grades, and $450 to $460/ton for uncoated chipboard grades. Recycled board prices will remain near their current level the remainder of the year. High energy costs will offset any softening in fiber costs, which have already dropped $5 to $10/ton this year.

by Noel DeKing

News Editor