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Corrugated: Northeast box converters report strong demand, seek more supply management

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Corrugated: Northeast box converters report strong demand, seek more supply management

July 26, 2013 - 10:29

SAN FRANCISCO, July 26, 2013 (PPI Pulp & Paper Week) -US Northeast independent converters report that business is strong, but add that the recent box price increase was a challenge -- fueling interest in developing greater management over their containerboard supply in a consolidating market, according to contacts inPulp & Paper Week's latest regional box market survey.

"Sales and margins are up," said Volk Packaging pres Derek Volk, whose firm operates an independent sheet plant in Biddeford, ME. "The overall mood is very positive."

But implementing the latest box price increase was challenging, he said.

"It created a lot of bad feeling and resentment"."

The company ended up with smaller box price increases than it did with the previous effort of fall 2012.

Customer backlash?Two containerboard and box price increases within eight months is a point of contention with a number of Volk's peers in the Northeast. One of them, who didn't want to be identified, expressed concern.

"I worry that, with these big (price) jumps, people will think about alternatives and move out of corrugated," the contact said. "Corrugated is still great from an environmental perspective what with plastics being oil-based. But going up 15% to 20% (on prices) is too quick. Packaging buyers aren't used to that."

This executive, who said company bookings were up 7% year-over-year on a unit volume basis, noted that the current Northeast market is as "stable and civil" as ever.

Too much, too fast.President Container pres Marvin Grossbard also is concerned about "one (containerboard and box price) increase on top of another, and raising prices so rapidly because box buyers just end up bidding their business out to the lowest-priced supplier."

A couple of months ago the backlogs at the company, which moved from Moonachie, NJ, to a new 522,000 ft2plant in Middletown, NY, a few years ago, were heavier than they are now. But the food and beverage business, the company's main end use sector, is busy. The new "super" plant, which has a 110-in corrugator and about six flexo lines, is one of the largest in the region.

Region's shipments rebound.Box shipments in the Northeast overall rose about 1.4% in 2012 from the previous year and were up about the same amount (per day) for the first quarter of this year compared with a year ago, according to one contact. The region accounts for about 15% of US box shipments.

Regional box shipments declined about 18% from the early 1990s to a low during the 2009 recession, but rebounded by more than 6%.

Volk noted that business is coming back to the USA. Companies that moved to China or Mexico are in some cases discovering that initial economic advantages can dissipate, he said.

The recovery in US housing starts, which were up 11% in June, after a six-year slump, boosts demand for boxes for moving, appliances, and home furnishings, another contact noted.

Box plant consolidation.The number of box plants in the region has been declining due to consolidation at the integrated level (thanks in large part to International Paper buying Temple-Inland and RockTenn purchasing Smurfit-Stone Container), and smaller box plants being scooped up by both integrateds and independents or permanently closing.

In New Jersey alone, the number of integrated and independent box plants dropped from close to 40 in 2001 to about 30 last year.

RockTenn closed its Mansfield, MA, corrugator plant earlier this year and its Williamsport, PA, corrugator plant two years ago. In addition, Norampac closed its Leominster, MA, corrugator plant last year, consolidating some of the business into its Thompson, CT, corrugator operation.

New converting capacity.After earlier pulling back from what was seen as a competitive region, integrated producers more recently have been expanding in the Northeast. Pratt Industries is opening a large new corrugator plant in Macungie, PA, while Packaging Corp of America added a new corrugator in Allentown, PA. Independents such as President expanded capacity and two new sheet feeder plants (Niagara Sheets and New England Sheets) started up in recent years.

Contacts said the capacity additions have not put too much supply in the regional market. These recent integrated box plant additions will in large part serve national accounts while the independent box converters hold their own by concentrating on high graphics production and the specialized needs of the small- to mid-sized customer, they said.

Shifting to recycled board.For containerboard, Northeast independents buy about half of their supply from the three largest producers: International Paper, RockTenn, and Georgia-Pacific. Then they will shop the rest of their business and try to find the best deal they can, said Evergreen Fibres pres Michael Siegel. Evergreen Fibres is a containerboard broker in the Northeast.

An increasing percentage of containerboard consumed by independents in the region is recycled, another broker said. He said that of the four largest independents in the region, two may use as much as 60% recycled board for their containerboard requirements and two may be close to using 90% recycled.

The trend is likely to continue with last week's startup of the new Greenpac joint venture mill in Niagara Falls, NY, that has capability to make 540,000 tons/yr of lightweight recycled containerboard.

More lightweight recycled may eventually flow into the region from two recently converted newsprint machines but so far the SP Fiber Technologies and Atlantic Packaging projects have not had much impact on supply, according to contacts.

"If it's out there, it has been pretty stealth," one trader said.

Nevertheless, independent converters "may be the early adopters in experimenting with new lightweight grades to reduce costs, just as they were with 35-lb high performance," another contact said

'Masters of own destiny?'Northeast independents are also reportedly looking at opportunities to invest in recycled newsprint/printing paper machine conversions or new recycled mills to secure future sources of containerboard supply.

"We don't want to be at the mercy of the big integrated producers every time they want to raise prices," one said. "We want to be masters of our own destiny."

Jamestown Container, a Falconer, NY-based independent with four plants, is an 8% investor in the new Norampac-managed Greenpac mill, with another 12.1% held by a group of eastern Canadian independents. All were earlier investors in the Solvay 800,000 tons/yr recycled containerboard mill in Syracuse, NY, before RockTenn acquired Southern Container in 1999.

RockTenn this week told analysts it is making wet end improvements to its machine No. 2 at Solvay because its needs "additional tons in the Northeast" for its system balance -- interesting because the company was reportedly a major supplier to some of the partners in the Greenpac mill and seen as being impacted by its startup.