Corrugated Packaging Under Pressure: Falling Profits, Mill Shutdowns and a Reshaped Waste Paper Trade

Several papermaking groups worldwide have disclosed plant closures or widespread shutdowns in the first quarter of this year, with financial results reflecting softer packaging demand. In April, ND Paper, the U.S. subsidiary of Chinese containerboard producer Nine Dragons Holdings, said it was re-evaluating business development at two mills, including a kraft pulp mill in Old Town, Maine, which produces 73,000 tons of recycled market pulp annually and mainly uses old corrugated

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

Packaging Corporation of America, International Paper, WestRock, Graphic Packaging International and other major groups soon followed with announcements ranging from plant closures to longer paper-machine downtime. Mark W. Kowlzan, president and CEO of Packaging Corporation of America, said on an April earnings call: 'Demand in our packaging segment was below our expectations for the quarter. Consumer spending continues to be weighed down by higher interest rates and persistent inflation, while consumers are shifting more toward services rather than durable and non-durable goods.'

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

Memphis, Tennessee-based International Paper cut 421,000 tons of paper production in the first quarter for economic rather than maintenance reasons, down from 532,000 tons in the fourth quarter of 2022, yet still marking its third consecutive quarter of downtime. International Paper consumes about 5 million tons globally each year,

including 1 million tons of OCC and mixed white paper, which it processes at its 16 U.S. recycling facilities.

Atlanta-based WestRock consumes about 5 million tons of waste paper annually. Although it reported a net loss of US$2 billion, including 265,000 tons of economic downtime, its second-quarter results for the period ended March 31, 2023, were relatively solid. The company said adjusted EBITDA in its corrugated packaging segment was negatively affected by US$30 million.

WestRock has already 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 shut a containerboard mill in Panama City, Florida, and the corrugated medium operation at its recycled paper mill in St. Paul, Minnesota.

As part of its 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 of US$121 per ton at the same time last year, while mixed paper prices were down 85% from a year earlier. According to the May 5 issue of Pulp & Paper Week from Fastmarkets RISI, the U.S. average price was US$68 per ton. Lower generation also pushed DLK prices higher, with five of seven regions posting increases of at least US$5 per ton as box plants slowed production.

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

Asia remains the world's largest waste paper-producing region by continent, with output reaching 120 million tons in 2021, equal to nearly 50% of global production. Although Asia is still the main waste paper importing region and North America its largest exporter, trade flows have undergone necessary and substantial shifts since China banned most waste paper imports in 2021.

'Lower exports of goods from China and other Asian countries to Europe and the United States mean packaging output is falling, so both OCC demand and prices are weak,' he said. 'In the United States, inventories are very low in all regions, including paper mills and recycling stations, because lower collection volumes are actually consistent with weaker global demand.'

Donoso said demand for higher-grade paper is even worse than for OCC. 'The tissue market is not strong at all, so demand for raw materials is really low.' His observations are mirrored in the U.S. market. Since last autumn, sorted office paper (SOP) prices have declined steadily; according to the latest RISI pricing index, SOP prices fell by US$15 per ton across the United States, with the Pacific Northwest seeing the lowest levels.

John Atehortua, regional trade manager at Netherlands-based CellMark, said China's import ban forced U.S. OCC exporters to 'change their mindset' and now 'must be more proactive in finding customers in Asia.' In 2016, China absorbed more than 50% of U.S. OCC exports; by 2022, more than half of U.S. shipments went to three Asian destinations — India, Thailand and Indonesia.

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

Data show that 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 among them last year, total shipments from Europe to Asia rose about 12% year on year in 2022 to 4.9 million tons.

In terms of capacity development for waste paper plants, Asia is building new facilities, while Europe is mainly converting existing paper machines from graphic paper to packaging paper production. Even so, Scaramuzzi said Europe still needs to export waste paper to maintain balance between waste paper production and demand.

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