There is new recycled containerboard capacity scheduled to come on stream at the end of 2013. Blue Paper, a joint venture between VPK and Klingele Papierwerke (Germany), is in the final stages of converting a fine paper machine (from UPM Stracel in France) into a 300,000 tonne lightweight containerboard machine. The paper will be used in-house and will hence increase the level of vertical integration. When taken together with VPK’s expansion plans in the UK (i.e. the new box plant that Rigid Containers are setting up in the South West and the new conversion machinery for the two existing plants in the Midlands and North), there is clearly intent to seriously grow organically. In a UK corrugated market that’s growing by 1% annually at best, they’re having to be aggressive to realise their ambitions. Others also continue to raise the bar in terms of their productivity and / or capacity:
In sheet feeding I understand that Hargreaves (an independent based in the North West) have invested circa £2 million to upgrade their corrugator. The subsequent capacity creep will come on top of Onboard Corrugated’s second corrugator (which goes live in late November) and CSI’s planned new capacity next Spring. Together that equates to a 25% uplift in UK capacity…which is likely to result in some disruption. Sheet plants have also been busy investing of late…with more productive kit being seen as vital for those seeking to compete as the lowest cost producer. It’s increasingly hard going for the sheet plants of yesteryear with an ancient printer slottter and a secondary conversion operation in the form of a sleepy straight line gluer (unless they’re in a niche market).
In the meantime the August £40/tonne increase in recycled containerboard has been comfortably implemented and paper mills find themselves almost universally profitable, with even the least efficient now back in the black (albeit modestly in their case). Perhaps predictably, the ease with which the last recycled price rise went through for paper makers means that there is strong consideration being given to a further £30/tonne increase from mid-October / early November. The options and thinking (which for some is understandably bordering on tortured uncertainty) run along the following lines:
CEPI confirmed European recycled containerboard stocks were 491,000 tonnes in week 38 (representing just 2% of European demand) and hence 7% lower than at this time last year. With supply still tight, surely we can and therefore should put up prices However, the new Blue Paper capacity will kick in just when the market is set to tail off as we enter the seasonally quiet quarter one. Perhaps this will precipitate some deflation and hence wipe out another price rise within just a few weeks It is worth it Maybe it would be better to avoid another price rise and instead go for relative price stability through to at least the Spring Hence, why not forego an October / November price rise in exchange for avoiding deflation early in the New Year Then again, should I bear in mind that the European economy is picking up somewhat and stocks really are incredibly low If we put up containerboard price again with only weeks to go to Christmas, would we leave our sheet feeder and box plant clients enough time to galvanise their own price rise …and of course there is uncertainty about what the evil competition will do!
As you can see, it’s a tough call for paper makers – from their perspective at least. Ever bullish, Emin Leydier have just announced a €40/tonne increase in recycled containerboard in all European markets except the UK and Spain. Mondi have also announced a €30/tonne increase in Poland. Similarly, Pro-Gest Group have opted to lift all recycled brown and white containerboard prices by €30/tonne from the 1st of October. The Jungle Drums suggest that DS Smith will probably announce a £30/tonne increase from mid-October…so it will be interesting to see what Smurfit Kappa and SAICA are minded to do.With Smurfit Kappa having just taken out 15% of UK recycled containerboard capacity by closing the two paper machines at Townsend Hook, it seems reasonable to anticipate that the same market forces will see them also put prices up
Whatever the outcome, it does rather underline the very real need for sheet board and box makers to at least finish recovering the August price rise. The majority of these have been implemented, with a few cautious stragglers intentionally going for a strategy of ‘last and least’. It may not seem terribly courageous at first glance; nonetheless we are in the closing chapter of a game of ‘chicken’ as local competitors hold out as long as they can before yielding to the inevitable and asking clients for help with higher prices. It’s a bit like seeing who can hold their breath for the longest underwater…sooner or later everyone needs to come up for the oxygen of sustainable prices.
Looking further afield and into the future, the bold folk at SAICA are exploring building a new paper mill in the eastern US. They are said to be actively travelling and looking for potential partners. The earliest likely start date would be 2016 and they should be fully operational in 2017; adding about 1% to the North American market. Following continued consolidation in the US paper and box market and a decent spread between the price of OCC and recycled containerboard in the States, the opportunity would seem to be a potentially lucrative one. SAICA should also find independents welcoming the introduction of a new entrant with a world class cost base and lightweight liner expertise.
