Falling Profits, Plant Shutdowns and a Rebuilt Waste Paper Trade Market: What Next for the Corrugated Box Industry

Multiple papermaking groups around the world have reported plant closures or substantial shutdowns in the first quarter of this year, as financial results reflected falling packaging demand. In April, ND Paper, the US subsidiary of Chinese containerboard producer Nine Dragons Holdings, said it was reassessing business development at two mills, including a kraft pulp mill in Old Town, Maine, which produces 73,000 tons of recycled market pulp, mainly using old corrugated

(OCC) as the primary raw material each year — and this was only the first step announced this spring.

Large groups such as Packaging Corporation of America, International Paper, WestRock and Graphic Packaging International all followed suit, issuing various announcements ranging from closing plants to extending paper-machine downtime. "Demand in our packaging segment was below our expectations for the quarter," Mark W. Kowlzan, president and CEO of Packaging Corporation of America, said on an April earnings call. "Consumer spending continues to be negatively affected by higher interest rates and persistent inflation, and consumers are shifting more toward purchasing services rather than durable and non-durable goods."

Lake Forest, Illinois-based Packaging Corporation of America reported that its net earnings fell 25% year on year and its packaging-paperboard shipments fell 12.7% from a year earlier, then announced on May 12 that it planned to idle its mill in Wallula, Washington, until later this year. The mill produces about 1,800 tons of unbleached paper and corrugated medium a day and consumes nearly 1,000 tons of OCC a day.

Memphis, Tennessee-based International Paper's first-quarter production cuts of 421,000 tons of paper were for economic rather than maintenance reasons, below its 532,000 tons in the fourth quarter of 2022 but still the company's third consecutive quarter of downtime. International Paper consumes about 5 million tons [of recovered fiber] globally each year,

including 1 million tons of OCC and mixed white paper, which it processes at its 16 recycling facilities in the United States.

Atlanta-based WestRock consumes about 5 million tons of waste paper annually. Despite a net loss of 2 billion US dollars, including 265,000 tons of downtime due to economic issues, its results for the second quarter (ended March 31, 2023) were relatively solid; the company said its corrugated packaging segment's adjusted EBITDA was negatively affected by 30 million US dollars.

WestRock has closed or plans to close several mills in its network. Most recently, it announced the closure of its containerboard and unbleached kraft paper mill in North Charleston, South Carolina; last year it also closed a containerboard mill in Panama City, Florida, and the corrugated-medium operation of its recycled paper mill in St. Paul, Minnesota.

As part of an ongoing mill-network optimization strategy, Atlanta-based Graphic Packaging International, which consumed 1.4 million tons of waste paper last year, said in early May that it would close its coated recycled board mill in Tama, Iowa, earlier than previously expected.

Despite lower production, OCC prices continued to rise, though they remained 66% below the average price of 121 US dollars per ton at this time last year, while mixed paper prices were down 85% from a year earlier. According to the May 5 edition of Pulp & Paper Week by Fastmarkets RISI, the US average price was 68 US dollars per ton. Lower output pushed DLK prices up, and as box plants slowed production, five of seven regions saw increases of at least 5 US dollars per ton.

Globally, the outlook is no better. In the quarterly recovered-paper report of the Brussels-based Bureau of International Recycling (BIR), Francisco Donoso, president of Spain-based Dolaf Servicios Verdes SL and of BIR's Paper Division, said demand for OCC is low "the world over".

Asia as a continent remains the world's largest waste-paper producing region, reaching 120 million tons in 2021, equivalent to nearly 50% of world output. Although Asia remains the world's main waste-paper importing region and North America its largest exporter, since China banned most waste-paper imports in 2021, trade has undergone a necessary and substantial shift.

"Reduced exports of goods from China and other Asian countries to Europe and the United States mean packaging production is declining, so both OCC demand and prices are weak," he said. "In the United States, inventories are very low in all regions, including mills and recycling stations, because lower recycling volumes are in fact consistent with reduced global demand."

Donoso said demand for higher grades of paper is even worse than for OCC. "The tissue market is not strong at all, so demand for raw material is really low." His observations are likewise reflected in the US market. Since last autumn, prices for sorted office paper (SOP) have been declining steadily; according to RISI's latest pricing index, SOP pricing fell by 15 US dollars per ton across the United States, with the lowest prices in the Pacific Northwest.

John Atehortua, regional trading manager at Netherlands-based CellMark, said China's import ban forced US OCC exporters to "change their mindset", and they now "must be more proactive in finding customers in Asia". Whereas in 2016 China absorbed more than 50% of US OCC exports, by 2022 more than half of shipments from the United States went to three Asian destinations — India, Thailand and Indonesia.

Simone Scaramuzzi, commercial director of Italy-based LCI Lavorazione Carta Riciclata Italiana Srl, commented on the same trend of waste paper shipped from Europe to Asia after China's import ban. Scaramuzzi said the ban spurred investment in waste-paper plants in Europe and other Asian countries and led to changes in shipping services and prices. Other reasons the European waste-paper market "has changed enormously over the past four or five years" include the COVID-19 pandemic and rising energy costs.

According to data, Europe's waste-paper exports to China fell from 5.9 million tons in 2016 to only 700,000 tons in 2020. In 2022, Europe's main Asian buyers of waste paper were Indonesia (1.27 million tons), India (1.03 million tons) and Turkey (680,000 tons). Although China was not on the list last year, total shipments from Europe to Asia in 2022 rose about 12% year on year to 4.9 million tons.

Regarding capacity development at waste-paper plants, Asia is building new facilities, while Europe is mainly converting existing mills' machines from graphic-paper production to packaging-paper production. Even so, Scaramuzzi said, Europe still needs to export waste paper to maintain a balance between waste-paper production and demand.

——This article is reprinted from China Packaging Network (pack.cn), original link: http://news.pack.cn/show-379352.html