Kraft linerboard pricing picks up slightly, but box business is slow

by GREGORY RUDDER, Executive News Editor

GRADE STRUCTURE. Linerboard is used as the inner and outer portions of domestic corrugated containers. The board is made in a range of basis weights, and the standard is 42-lb/1000 ft2. However, for the first time in 2001, U.S. output of high performance 34- to 37-lb linerboard exceeded output of the standard 42-lb, as producers continued their move to lighter basis weights that were strong and had higher recycled content. Other important weights are 33-lb, 55- to 61-lb, and 69-lb. U.S. kraft and recycled linerboard production in 2002 was on track to total 23.18 million tons, up 2% from 2001's output, and including about 2.6 million tons of export linerboard.

CURRENT MARKET CONDITIONS. North American producers-by trying to match supply with demand, containing inventory, and shutting down old, high-cost capacity-implemented a $20/ton increase on 42-lb unbleached kraft linerboard in July 2002. It was the first price increase in almost two years. The increase raised the contract pricing to $430 to $440/ton.

The increase took three months to be partly implemented-after major producers proposed a $30/ton increase-because of continued inconsistent demand for boxes. Year-to-date through November, U.S. actual box shipments were flat compared with shipments through November last year.

Based on a Pulp & Paper Week estimate, U.S. actual box shipments were on track to total 377.7 billion ft2-in what would be the third year in a row that shipments declined year-over-year. The three-year decline has never happened in the last 40 years of U.S. box business.

U.S. boxmakers face a growing U.S. trade deficit that attracts foreign boxed goods, the continued loss of manufacturing offshore to Asia and Mexico, and global expansion of containerboard capacity in Asia and Europe while U.S. linerboard capacity remains flat.

Still, North America's largest producers of containerboard and boxes continued growing by consolidation in 2002. Weyerhaeuser Co. completed the $7.9-billion acquisition of Willamette Indus-tries Inc., moving Weyerhaeuser up as the second-largest containerboard and corrugated producer in North America. Mead Corp. and Westvaco Corp. combined in a $3-billion deal. Smurfit-Stone Container Corp. purchased the former Mead 850,000-tpy corrugating medium mill in Stevenson, Ala., for $375 million at the end of September. And Temple-Inland Inc. purchased Gaylord Container Corp. for $868 million.

Driven by the consolidation, North American containerboard producers permanently shut 1.4 million tpy of capacity last year. This continued a trend that began in 1998.

SUPPLY/DEMAND. The U.S. corrugated business should continue to be soft until the U.S. economy picks up on a sustained basis, and output of nondurable consumer increases on a consistent basis. In August, September, and October 2002-historically the big box shipment months of the year-U.S. manufacturing of nondurable consumer goods declined each month.

Despite the soft box conditions, U.S. kraft linerboard producers have seen less pricing volatility. From 1999-2002, 42-lb kraft linerboard in the East averaged $430/ton, according to Pulp & Paper Week, compared with a 1995-1998 average of $400/ton.

PRICES. In the last eight years, U.S. East prices for 42-lb kraft linerboard have averaged $425/ton in 2002, $444/ton in 2001, $468/ton in 2000, $401/ton in 1999, $372/ton in 1998, $340/ton in 1997, $380/ton in 1996, and $510/ton in 1995. Over the last eight years, the average price was $415/ton.

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