Sector very buoyant despite challenges
Originally Published December 1, 2021
OCC and other grades benefit from strong demand but supply chain and logistics issues remain.
The containerboard market has remained strong in North America in Europe in the wake of higher demand for the product throughout the Covid pandemic, pulling up prices for old corrugated (OCC), mixed paper and brown grades. In the US, containerboard mills reported strong sales and earnings during the third quarter, despite continued supply chain interruptions and transportation snags for both incoming raw materials and outgoing products.
Moving into the fourth quarter, they were generally paying above US$ 200 per tonne for OCC in most regions of the US and buyers were not anticipating any relief during the final months of 2021.
During the first nine months of 2021, US containerboard production increased by 9% compared to the same period in 2020, according to the American Forest and Paper Association (AF&PA). The industry operating rate during the third quarter of 2021 was at 95.6% – a gain of 1.7 points compared to the third quarter of 2020, AF&PA reported.
Some of the tight supply experienced through the summer was relieved, as mill inventories of containerboard at the end of September increased by 31 500 tonnes from the end of the previous quarter and were up 17 200 tonnes compared to September 2020, it added.
According to major containerboard producer International Paper (IP), ‘Containerboard inventories in our packaging network improved in the latter part of the third quarter. And we are in a much better position as we enter the seasonally strong fourth quarter.’ US boxboard production also was strong, showing a 2% gain during the first nine months of the year compared to same period of 2020.
The boxboard operating rate was 95.0%, up 3.6 points from Q3 2020 and up 1.4 points year-to-date, AF&PA said. Containerboard makers continued to implement price increases. Profit margins generally improved but mills did continue to experience higher input costs – both for recycled fibre and for wood fibre, particularly in the southeastern US.
‘The supply chain and input cost environment remains very challenging,’ said Mark Sutton, IP’s chairman and ceo. ‘It impacted our results much more than we anticipated. The widespread supply chain constraints limited our ability to capture the full opportunity that comes with a strong level of demand that we’re seeing. Input costs in the third quarter rose, including the rising costs of OCC. Every mode of transportation is tight and we expect the transportation environment to remain tight for the foreseeable future.’
Mark W. Kowlzan, ceo for Packaging Corporation of America (PCA) agreed. ‘For the last several quarters, freight and logistics costs have risen, and were US$ 0.23 per share higher compared to last year, driven by significant increases in fuel costs, tight truck supply, driver shortages and the higher mix of spot pricing to keep up with box demand,’ Kowlzan said while reporting on his company’s third quarter earnings.
‘With no relief from the supply chain obstacles that we, our customers and our suppliers continue to face along with unprecedented inflation-related challenges, the combination of all of these efforts are critical to our success going forward.’
PCA reported a new all-time record for containerboard shipments with continued strong demand in the company’s box plants as well as its domestic and export containerboard markets.
Waste Management, the largest collector and processor of recyclables in North America, reported that earnings and profit margins for recycling were at their highest level ever, driven by strong demand for recycled material and great operating performance from the company’s new state-of-the-art material recovery facilities.
Republic Services said the average recycled commodity price per tonne sold during the third quarter was US$ 210, which represented a US$ 54 per tonne increase compared to the second quarter and an increase of US$ 118 per tonne compared to the prior year. Despite a shortage of available shipping containers and other logistical challenges, US recovered paper exports were up 16% during the first eight months of the year compared to the same time in 2021. Exports of OCC, accounting for 62% of the total, were up 18%, to 6.8 million tonnes.