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Linerboard: US export prices still under pressure from increased supply offers

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Linerboard: US export prices still under pressure from increased supply offers

May 16, 2014 - 12:14

OAKLAND, May 16, 2014 (PPI Pulp & Paper Week) -US linerboard export prices remained stable in most global markets, but there was plenty of supply as producers from North America, Europe, Brazil, Russia, and other countries attempt to push more tonnage into export markets, according to contacts.

"There are an abundance of offers out there," one trader said.

US linerboard production for export in April dropped to 332,000 tons from 376,000 tons in March, but was still up 9.3% from a year ago and up by 5.7% year-to-date. The drop-off may have reflected spring maintenance downtime at US kraft linerboard mills. US linerboard mills ran at 92% of capacity in April, down from 95% in March and 97% in April, based on revised industry capacity.

US trade statistics show US kraft linerboard shipments for the first quarter up 1.3% to 963,000 tonnes, with growth in shipments to Mexico (9.2%) and Central America (8.8%) , China (42.0%), Asia/Oceania (5.4%), and Africa (24.3%), and declines to Western Europe (9.5%), Canada (29.7%), and South America (14.8%).

European kraftliner hike stalls.Western Europe is showing the most weakness in prices among major developed markets due to slow growth in box demand and slow economic growth.

European kraft linerboard producers were unable to implement their announced Euro 50/tonne price increase this spring. The main reason was a Euro 25/ton decline in recycled containerboard prices since mid-February as well as low priced kraft linerboard imports coming into Southern Europe, according toPPI Europe.

"At the moment, US kraftliner 175-g+ is trading in Italy at Euro 470-480/tonne, free delivered, while Europeans are selling paper at about Euro 510-530/tonne," an Italian market contact toldPPI Europe. "So far, we don't see any immediate initiatives from US producers to raise prices as the euro/dollar exchange rate still remains in their favor."

"The Europeans need to take some ownership on the pricing situation as they always announce and then play a wait-and-see attitude," a US export contact said. "No one wants to be first to stick their neck out and hold the line."

The contact said negotiations are just beginning on June order volumes and "we are already getting some requests for discounts from current levels."

Central/South America mixed.The Central and South American markets are showing mixed trends, one trader said.

"There are some pockets of regional demand being outweighed by the increasing supplies coming from the US, Europe, and intra-regional sources," the contact said.

"There is no problem in getting paper, and with the current soft demand players have been taking excessive risks selling into troubled customers in order to keep the mills running," the contact said.

With this backdrop, the contact said prices remained surprisingly stable at around the $490-500/ton FAS range "although we are one tick away from opening the supply flood gates."

The contact added that this "would put significant pressure on prices, especially in South America as the region concludes its agricultural buying."

US corrugating medium export prices have been under pressure recently, trading $25-30/ton below kraft linerboard instead of a more typical spread of $10/ton and at the same price a couple years ago.

"Large blocks of tons (are) chasing a few accounts," the trader said.

Stable demand in Mexico.InMexico, "stable demand and decent supply flows" were in play, according to one trader. The contact said agricultural demand for boxes had slowed because of lack of rain in the West and demand from the maquiladora sector in northern Mexico was slow due to sluggish growth across the border in the USA, but said the "rest of the country seems to be moving along."

One US exporter told of recently taking orders around the published $625-640/tonne FOB Laredo price and so far prices seemed to be holding. Another contact said there was some discounting in US export prices down to the $610-630/tonne range and he said that he could "feel the price pressure building as supply offers increase."

RockTenn completed its acquisition for $343 million of the Simpson Tacoma containerboard mill in Washington state, the company said. The purchase price reflects an EBITDA multiple of less than six times based on the mill's financial results for the 12 months ending March 2014, according to RockTenn's release.