OAKLAND, Sept. 20, 2013 (PPI Pulp & Paper Week) -US containerboard inventories jumped by nearly 147,000 tons in August as mills ran at close to 100% of capacity despite sluggish box shipments, according to the latest Fibre Box Assn (FBA) and American Forest & Paper Association (AF&PA) statistics earlier this week.
That brought inventories at mills and box plants to 2.48 million tons -- their highest level for August in eight years and the highest level for any month since February 2009 during the Great Recession. Weeks of supply at 4.3 also soared to their highest level for August since 2005.
The jump in inventories compares to an average decline of 21,000 tons for August during the past decade, representing a nearly 170,000 "swing" from the historical seasonal pattern, said Vertical Research Partners analyst Chip Dillon in a report.
Since last June, total containerboard inventories surged by 338,000 tons or 16% --"nearly nine times the average 39,000-ton increase seen for these three months over the previous 10 years," Dillon noted. This followed a 243,000-ton drop in inventories from February to May during the period when a $50/ton April price increase was implemented in the USA on linerboard and corrugating medium.
Containerboard inventories at box plants rose by 88,000 tons (4.2%) to 2.14 million tons during August, while mill inventories increased by 59,000 (21%) to 339,000 tons.
"Independents ordered more heavily in the spring when there seemed to be tightness in the market and all of the shipments arrived during the summer," one contact noted.
Changing market perceptions?The jump in inventory, high production levels, soft box demand, and new startup tonnage entering the market from three new or converted machines increased the feeling among buyers and sellers that there could be some sloppiness in prices later this year as the market moves into the seasonally slow period.
"The latest statistics are changing perceptions and my fear is perceptions could become reality," one seller said.
Statistics shipments slow. US shipments in August totaled 31.74 billion ft2, down 3.4% from a year ago on an actual basis, but up 1.0% average-week (adjusted for one less shipping day in the latest month), FBA reported.
Year-to-date box shipments were down 0.4% actual and up 0.8% average-week from the first eight months of 2012 (adjusted for two less work days this year).
US containerboard mill operating rates of 99.6% in August, "a rate not matched in seven years since September 2006," notedScoring Boxesanalyst Richard Storat.
Linerboard mills ran at 99.6% in August, while medium mills hummed at 102.9% of capacity.
Record production.Containerboard production of 3.11 million tons hit a record high for the month of August and was up 4.4% from a year ago.
Linerboard production was up 4.6%, with kraft linerboard output up 3.5% and recycled liner up 8.8%. Medium production increased 3.7% in August, with semichemical output up 0.8% but recycled medium 7.1% higher than a year ago.
The jump in recycled containerboard production reflects start up of one new and one converted machine in the US, but does not include another conversion in eastern Canada.
Startup tonnage ramping up.SP Fibre Technologies' 390,000 tons/yr PM 2 at Dublin, GA, reportedly now moved up most of its startup curve since beginning production in April. The tonnage gain is offset by the shift of the mill's PM 1 back to newsprint for a 140,000 tons/yr net lightweight packaging capacity increase -- of which some output is reportedly bag paper.
Since starting up in mid-July, the new 540,000 tons/yr Norampac partnership Greenpac machine in Niagara Falls, has been gradually moving up its startup curve and the company begsn selling to outside converters, according to contacts.
Atlantic Packaging Products is also reportedly making progress ramping up its 300,000 tons/yr converted Whitby, ON, former newsprint PM and finding customer partners to take the tonnage. The company is rumored to still be studying a new sheet feeder in the Midwest to take tonnage from the PM.
Impact of introductory tons?The three machines together have total eventual capacity of nearly one million tons/yr and will continue to ramp up production through early next year, contacts said. Some recycled containerboard startup tonnage is reportedly being sold at anywhere from $30-50/ton or more below market levels, depending on the customer, according to some contacts.
With containerboard inventories now relatively high, some contacts wonder if the new startup tonnage will begin to result in pricing erosion.
"You can feel it and are starting to see it," one independent converter said.
The converter said the impact would be felt in the market over the next couple months.
But most contacts said they have not seen much evidence of any price discounting outside the startup tonnage, with the market still in supply and demand "balance" during the seasonally strong period for box demand.
"We haven't seen much evidence of second- or third-tier recycled mills feeling like they have to match (the introductory tonnage) prices," one trader said.
But one contact said there is some "pressure" on recycled linerboard prices in the Northeast, although corrugating medium is still in surprisingly tight supply. Even with medium mills running at 103% of capacity, some converters find it hard to buy 23-lb high performance medium and sometimes have to substitute heavier weight grades or in one case use recycled linerboard.
Sheet prices holding up?Sheet prices throughout most of the country seemed to be holding up in the third quarter, with one major exception, according toPulp & Paper Week's quarterly survey.
Using 32 ECT sheets as the barometer, prices increased 4.3% in the Northeast, 9.2% East Central, 1% in the North Central, and 5.4% in the West, when compared to prices reported in the last survey in the June 14 issue of PPI Pulp & Paper Week.The takeaway from the survey is that sheet plants aren't being offered any sheet price discounts in the mist of their traditional busy season.
The one exception is the Southeast/South Central where sheet prices fell 5%, most likely because there is new capacity and suppliers in the region, contacts said. One converter told of recently seeing signs of more competitive pricing in sheets in the upper Midwest.
Comparing prices from the most recent survey to sheet prices from a year ago (again using 32 ECT as the barometer), they are up 22% in the Northeast, 23% in the East Central, 10.6% in the Southeast/South Central, 15.% in the North Central, and 38.1% in the West, according to the survey.
Some contacts expect mills to throttle back a bit on production in September. International Paper will reportedly have its 2,435 tons/day Rome, GA, mill down for about 3.5 weeks in July for boiler maintenance. RockTenn also reportedly took 10 days of downtime at its 1,630 tons/day Seminole mill in Jacksonville, FL.
Competitive export pricing.High US containerboard inventories may keep pressure on prices in export markets, according to traders.
In southern Europe, US kraft linerboard export prices have dropped another Euro 10/tonne in September, following a Euro 10-15/tonne decline in July/August, according to contacts. The main reason has been sluggish European box demand, more kraftliner imports into the European market, and a large gap between European kraft liner and recycled containerboard prices, according to contacts.
European recycled containerboard producers, however, has been able to raise prices by Euro 40/tonne in Germany and France, and Euro 15-20 in Italy, according toPPI Europe.
Producers announced a Euro 50/tonne increase effective with Aug. 1 shipments. A couple of European producers announced Euro 30-40/tonne price increases for Oct. 1.
In South/Central America, prices are reported as being fairly stable at $520-530/ton FAS but have eased somewhat from peak price levels last spring.
"Who knows how long it will stay at this level, given the slowing economy developing in the region, devalued exchange rates in relation to the US dollar, and growing inventories and new capacity coming on line?" one trader asked.
The trader said the market may be at a "dangerous crossroads."
In Mexico, many US linerboard exporters said they've implemented all of the announced $50/tonne spring price increase. Mexican converters, however, in some cases claim they are not paying all of the increase. The current Pulp & Paper Week Price Watch reflects another $10/tonne of the increase being implemented in addition to the $25/tonne already reflected to bring the level to $645-665 FOB Laredo border. Some exporters, though, wonder about the sustainability of the price increase.