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Containerboard stocks rise 110,000 tons with mills catching up on orders; July box shipments up 2.9%

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Containerboard stocks rise 110,000 tons with mills catching up on orders; July box shipments up 2.9%

August 16, 2013 - 12:04

SAN FRANCISCO, Aug. 16, 2013 (PPI Pulp & Paper Week) -US corrugated box shipments in July jumped up 2.9% from a year ago, while containerboard inventories rose 110,000 tons from the prior month, according to Fibre Box Assn (FBA) and American Forest and Paper Association (AF&PA) statistics released on Aug. 15.

"Mills had been running behind on shipments but now are beginning to catch up, with all the deliveries arriving at the same time," one trader said. "All the railcars are suddenly showing up at customer's plants."

Box shipments in July totaled 30.749 billion ft2, up 2.9% from a year ago on the same number of 21 shipping days in both periods, according to the FBA. Year-to-date shipments are up 0.1% on an actual basis and 0.8% average-week (adjusted for one less shipping day in the latest period).

Deutsche Bank analyst Mark Wilde said box shipments for the latest month may have benefitted from a "phantom day" this July, with FBA not counting Friday July 5 as a "shipping day" but some box plants reportedly running after the Fourth of July holiday to keep up with orders.

Containerboard inventories at box plants and mills jumped 110,000 tons in July to end the month at 2.333 million tons. This would be more than the average 77,000 ton increase for July over the past decade, according to analysts.

Weeks of supply pushed up to 4.0 weeks from 3.8 weeks at the end of June.

Converter stocks jump 150,000.Inventories at box plants increased by 150,000 tons in July to reach 2.05 million tons, equal to 3.5 weeks of supply, "the highest mid-year inventory level seen since the summer months of 2009," notedScoring Boxespublisher and analyst Richard Storat. Mill inventories, however, dropped 41,000 tons.

The latest month's 110,000-ton jump in inventories followed June's 83,000 ton increase for a 193,000-ton increase over the last two months, reported Vertical Research Partners analyst Chip Dillon. "Over the previous 10 years, the average increase over the June-July periods was just one-third this amount or 63,000 tons," he noted.

Inventories had been relatively lean this spring due to heavy mill maintenance and project downtime, according to contacts. Producers have said they would like to build inventories to more comfortable levels to avoid logistical costs like running out of certain board grades at their box plants and having to ship from more distant mills or buy from other producers. RockTenn, for example, has told analysts that it would like to carry more than 4.0 weeks of inventory to avoid extra logistical costs.

"No one has been running out of paper, but in some cases converters have been forced to use paper with the wrong trim width or basis weight," one trader said. "But all of that is now mostly in the past."

"Mills are also trying to build inventories before they go in the seasonally strong late August-to-October period for corrugated box demand when inventories typically fall," another contact noted.

Virgin mills hit near 101%.US containerboard mills on average ran at 98.6% in July down from 99% in June but above the average rate of 96.5% year-to-date, according to the AF&PA. Linerboard mills produced at 97.4% in July, while corrugating medium mills ran at 101.5%.

The overall averages were pulled down by lower operating rates at recycled linerboard mills, which ran at 86.3% in July. That reflects an 11% increase in the statistical capacity base over the previous month, with the startup of the new Norampac/Greenpac joint venture 540,000 tons/yr lightweight recycled linerboard machine in Niagara Falls, NY in mid-July.

Virgin kraft and semichemical corrugating medium mills pushed the accelerator to 101% in July, while recycled medium mills hit 102% of capacity, according to the AF&PA statistics.

July production up 5.3%.US containerboard production surged 5.3% in July to 3.07 million tons, bringing the year-to-date increase in output to 2.3%.

Linerboard production was up 5.2% from a year ago, with kraft linerboard up 6.5% while recycled linerboard was down 0.2% despite startup of the new Greenpac machine and incremental capacity from a newsprint conversion by SP Fiber Technologies in Dublin, GA. Semichemical medium production was flat in June compared with a year ago, but recycled medium output was up 12.8% from a year ago.

SP Fiber added about 140,000 tons of incremental recycled containerboard capacity in April by converting the large newsprint machine No. 2 at its Dublin mill to packaging grades (but switching a smaller PM 1 from packaging grades back to newsprint). Atlantic Packaging Products started up a converted newsprint machine in late May at its Whitby, ON, mill. The machine is expected to eventually produce 300,000 tons/yr of lightweight recycled containerboard. Its output is not be reflected in US industry statistics.

The startup of the two converted newsprint machines has progressed slowly, according to contacts this week.

"They've been operating for some time now, but we're not seeing (tonnage) in the market," one industry executive with major integrated said in a late July conference call.

"The jury is out on whether they will meet the industry's performance needs," the executive said.

One East Coast converter told of beginning to see improvements in quality and service from one of the conversion project machines.

Export: Still lack of supply?US linerboard export production of 301,000 tons remained relatively flat in July in comparison with the previous month, but was down 9.6% from a year ago. Year-to-date linerboard production for export is flat, up 0.1% from the first seven months of last year, according to AF&PA statistics.

"Export is really what's left overafter producers fill their domestic demand and mills are trying to catch up on deliveries.There really isn't any weakness in overseas demand," one trader said. "If anything, there is probably still some unfilled export demand."

US linerboard exports for the first half of 2013 were down6.4% from a year ago to 1.91 million tonnes, (vs. 2.04 million tons in first half 2012), according to US Dept. of Commerce statistics. Shipments by major region through June totaled 403,000 tonnes to Western Europe, down 14.3%; 310,000 tonnes to Mexico, up 2.0%; 306,000 tonnes to Central America and the Caribbean, up 5.1%; 233,000 tonnes to South America, down 0.8%; and 135,000 tonnes to China, down 13.0%.

In a $40 million project,RockTennplans to build a new woodyard and chip delivery system at its 678,000 tons/yr Florence, SC, linerboard mill, the company told analysts recently. The company said it expects the project to generate returns in the mid-20% range based only on fiber cost savings. RISI estimates the mill currently has fourth quartile manufacturing costs, partly due to three narrow 166-168 in. trim machines.

Squire Corrugated Container,which operates a sheet plant in South Plainfield, NJ, filed for involuntary Chapter 7 bankruptcy on Apr. 19. Petitioning creditors includeGeorgia-Pacific, Viking Industries, andFreedom Corrugated. The company was founded in 1967. At the time of closing it has a monthly capacity of 32 million ft2. An equipment auction will be held.

Grupo Gondisaid it has received approval from Mexico's Federal Commission on Competition (CFC) to complete its acquisition ofGrupo Garze. From the acquisition, Grupo Gondi gains 550,000 tons/yr of recycled paperboard capacity and six box manufacturing plants with 10 corrugators.