Grade Profile

Linerboard: Market recovery will continue;
price hikes predicted for 1998

GRADE STRUCTURE. Linerboard is used as the inner and outer portion of domestic corrugated containers, although exports comprise 18.6% of production. It is made in a range of basis weights. Standard is 42 lb/1,000 ft2; other important weights are 26 lb, 33 lb, 69 lb, and 90 lb. The growing sector of high-performance linerboard (35-36 lb) offers strength at lower basis weights. Production of 100% recycled linerboard has grown rapidly in recent years; in 1997, it represented roughly 16% of industry capacity compared with 2% in 1990. Unbleached kraft liner statistics include "regular" liner (14.2 million tpy); mottled and white top (about 1.4 million tpy), but exclude solid bleached (191,000 tpy) and wet-strength grades used for moisture-resistant boxes (550,000 tpy).

CURRENT MARKET CONDITIONS. The U.S. linerboard market strengthened in the third and fourth quarter of 1997, fueled by growth in the U.S. economy, declining inventories, curtailed mill production, and a healthy export market. Fiber box shipments improved throughout 1997; and January-to-November, year-to-date shipments increased 2.9% on an actual basis from same period in 1996, while growing 3.3% on an average-week basis. Total containerboard inventories fell throughout 1997, with linerboard stocks at box plants and mills dropping from 2.21 million tons or 5.9 weeks of supply in January, to 1.75 million tons or 4.3 weeks of supply in October.

U.S. kraft linerboard prices started a slow but steady recovery in the last half of 1997, rising from a first-quarter price around $300/ton and below in the East, to a year-end December price of $380-$400/ton in the East. The improvements stem from two successful price hikes of roughly $50/ton each. Prices were stable at year-end. Linerboard exports were phenomenally strong in 1996 and 1997, particularly to Asia. As of December, a fourth-quarter market collapse in the Far East still had no visible effect on U.S. linerboard. Linerboard exports reached about 4.5 million tons in 1997, a 19% increase over exports of 3.77 million tons in 1996 (a 37% increase over 1995). Exports will remain strong but slow in 1998 with forecasters predicting export tons to reach 4.55 million, a 1.5% increase over 1997.

SUPPLY/DEMAND. U.S corrugated box and linerboard demand will continue its rebound in 1998; observers believe the negative impact of the 1994-1997 capacity expansion should ease. By year-end, tight linerboard markets prompted many to predict two price increases for 1998. Operating rates for kraft and recycled linerboard were in the 91%-92% range in 1997 and should increase to 93% in 1998. Barring unforeseen glitches tied to the Asian crisis, a sustained recovery should continue. Some observers warn that linerboard producers still need to carefully manage inventories, while taking a break from building new capacity. Linerboard consumption is expected to show reasonable growth in 1998, increasing by an average of 2.7% over linerboard consumption in 1997. Box shipments should remain strong in 1998, rising 3.0% to an estimated 399.3 billion ft2, compared with box shipments of an estimated 388 billion ft2 in 1997. Total linerboard production in 1998 will reach 24.7 million tons, a 2.5% increase over 1997 levels of roughly 24.1 million tons.

PRICES. Linerboard prices are expected to continue the recovery initiated in the last half of 1997, backed by a growing economy, tempered production, solid exports, and slower capacity growth. Liner prices in 1997 hit an average of about $350/ton, with December prices in the $380-$400/ton range. Forecasters predict a push for a Spring price increase of roughly $50/ton. The liner price in 1998 will average $430-$440/ton. Historical year-end transaction prices for 42-lb kraft linerboard in the eastern U.S. follow: 1997, $390; 1996, $350; 1995, $480; 1994, $430; 1993, $315; 1992, $340; 1991, $350; 1990, $360.

BY Carolyn Marshall

News Editor

FORECAST (000 tons)

U.S. capacity (year-end): 26,456 26,759

Capacity share of top five companies:
45.1% of total 1996 capacity

Capacity share of top 10 companies:
71.8% of total 1996 capacity

1. Excludes Canadian mills.