Export dive continues on US kraft linerboard, with levels falling for 5th month in row, China demand very soft

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Export dive continues on US kraft linerboard, with levels falling for 5th month in row, China demand very soft

February 15, 2019 - 18:38

OAKLAND, CA, Feb. 15, 2019 (PPI Pulp & Paper Week) -A fifth consecutive price drop on monthly US unbleached kraft linerboard appeared in place this week, with contacts claiming that levels fell once again to Mexico, South and Central America, China, and southern Europe.

The decline started abruptly in October and surprised market players as demand weakness in Europe and China seemed to fuel oversupply on the global export market, according to market participants. In Mexico and South/Central America, the lower prices resulted primarily from new producers who were oversupplied in their home market and reached out with lower-than-market price points. US 175-g+ kraft linerboard to China CIF fell between $20/tonne to $40/tonne in the last month, contacts said, and appeared to be down about $100/tonne since September. This all occurred as corrugated converters in China were full of board in the six weeks leading up to the recently-completed weeklong Chinese Lunar New Year holiday. Contacts claimed packaging demand softened in China due to economic weakness and US trade duties on Chinese products that began in September.

US 175-g+ kraft liner to southern Europe CIF plunged by about 20 Euros per metric tonne in the last month, contacts said this week, and was down roughly 75 Euros/tonne since September, which amounted to US$85/tonne late this week. In Europe, the regional economy slowed last year to an International Monetary Fund-estimated 1.8% real GDP – following 2.4% in 2017. Italy was officially in recession in the fourth quarter. Italy's economy is the world's 12thlargest based on GDP. Packaging producers, with increased regional containerboard capacity from conversions, sought business outside Europe, such as in South America and Mexico. Further, several US box makers in the East told of a small amount of European containerboard delivered along the East Coast in January.

In Mexico and in South/Central America, prices in the last month also declined, by roughly $5/tonne to $10/tonne, contacts said this week. Since September, the decline was deeper in South/Central America than in Mexico, contacts said.

PPI Pulp & Paper Weekpublishes export and domestic prices for US unbleached kraft linerboard on Feb. 22.

Majors trying to maintain.Major players such as International Paper, WestRock, and Georgia-Pacific (GP) were all cited as active sellers offshore. One company executive called out the US for low pricing in Europe. But, for American producers, their bigger export problem was with their No. 2 export destination, China. The lower pricing did not net US producers any more orders, which have been hard to find recently in China.

"They're out there. They're taking orders and trying to maintain their market share at whatever price there is," said a US contact, referring to the big US integrated producers.

"Heavy stock, lower demand, and an economic situation where there's a lot of question marks now," said one US exporter, explaining what the majors face from their customers today.

Converters offshore lived "hand-to-mouth" with long lead times for containerboard last summer. In a quick turn, the market became oversupplied in October. Box makers, with lower-priced offers for the first time in several years, over-purchased, one US contact said. Now, they're trying to "get used to a more normal demand and it will take probably until March or April for the (export) market to recalibrate," the contact said.

The new "normal" was premised upon US box shipments, which grew on average by 1.2%/yr in both 2014 and in 2015. They then surged on average growth of 2.3%/yr in 2016 and 2017, before declining at 1.7% in 2018.

While the kraft liner orders were hard to come by in China for American producers, so were orders for US old corrugated containers (OCC). US export OCC prices to China dropped in a large way in the last month on OCC, as China's demand was minimal for US material,P&PWreported last week. The same occurred on kraft linerboard.

Trump trade.President Trump this week said he might delay a Mar. 2 deadline to reach a trade deal with China, theNew York Timesreported. American officials were in Beijing this week for trade talks and were expected to remain there into next week. The US has said it would increase tariffs on $200 billion worth of Chinese goods to 25% from 10%.

US exports of kraft linerboard remained on par in November, with 50,000 tonnes shipped to China. Several exporters claimed US exports declined in December through February. One cited the normal load to China in November because mills in China wanted the tonnes to arrive by yearend.

'Pause' in Mexico box demand.In Mexico, box demand slowed and was reported by one contact to be not as strong this week as it was two months ago. That along with lower price offers caused downward pressure on US kraft linerboard for the second time in five months to Mexico, contacts said.

"The Mexican box business was good. Now, they have heavy inventory and there's a pause in demand," one US contact said.

 US downtime.GPis taking its annual planned maintenance downtime for a week to 10 days at its large Toledo, OR, containerboard mill in the Pacific Northwest, contacts said this week. There also were claims from contacts "that everyone is taking some sort of (maintenance) downtime" and that GP specifically was slowing machine speeds to reduce output. GP was one of the first North American producers to try "slow backs" on containerboard production almost 20 years ago. Also,West Rockin Tacoma, WA, was down for three weeks for maintenance and unexpected/extended downtime in late January and during the first 10 days of February, sources said. Contacts also told of a two-week shut atJackson Paper's mill in Sylvia NC.

 Lighter and lighter. Linerboardbasis weights continue to decline, as customers want less fiber yet the same or greater strength in their boxes, based on reports from market players. BothPapierfabrik Palmin Germany andSaicain Manchester, UK, are making 75-g (about 15.4-lb) recycled content linerboard.Nine Dragonsin China makes a 90-g, about 18.4-lb test linerboard.Versoconverted a coated printing and writing paper machine last year in Jay, ME, that offered to the market 90-g kraft linerboard. Also, contacts late last year claimedNew Indy Containerboardplanned a 16-lb kraft linerboard at its mill in Catawba, SC. The Catawba mill now makes lightweight coated printing and writing paper, and market reports were that New Indy was expected to convert the machine to linerboard in 2020 or early 2021. There also is one European producer making a 12.3-lb 60-g corrugating medium, contacts said.

 Bay Citiessaid it purchased a high-speed single-passBárberanJetmaster 1750 digital printer for one of its Los Angeles-area plants. Bay Cities runs packaging plants in Ontario and Commerce, CA. "In a time where demands are increasing and lead times are decreasing, with the Bárberan, we will have a machine that's up to that challenge. Customers nowadays don't want mass quantities, they want fewer with more variety," said Bay Cities plant mgr Gabriel Perez. The company said the Bárberan is capable of 80 m/minute on corrugated and can print up to six colors.Digital printingis growing in the US corrugated business, as a high-speed print process that also can turn out customized, high-color graphic packaging. Several contacts this week said digital printing is slowly growing in the USA. One said: "It's the future and we need to be there." The contact noted that box makers that can have both litho-laminated and digital print appear to be in the best position with end-user customers. Digital printing is "about speed-to-market and variable printing."

--Bygrudder@fastmarkets.com