Economic factors put oddly divergent pressures on prices for virgin and recycled paperboard.
Cartons and paperboard packaging are subject to a host of changeable factors. Environmentalism, economics, price trends and consumer image all exert pressures-some of them contradictory-on the viability of fiber-based packaging.
Perhaps the most significant trend has been consolidation, among both fiber suppliers and boxboard converters. The latest example was the recent bankruptcy filing by Smurfit-Stone Container Corp., formerly the largest box manufacturer in North America.
As with most industries that undergo large-scale consolidation, the result is a greater share of the market in the hands of fewer suppliers. As of now, the top five suppliers of corrugated and containerboard (including Smurfit-Stone) have about 72% of the market. However, it’s far from clear what impact this situation will have on prices, if any. Pulp, paper and containerboard prices are influenced by a host of factors, both unchanging and mutable.
Flood or shut down
By its nature, production of fiber-based products, including packaging, cannot easily be ramped up and down; to be profitable, mills have to run at close to full capacity. This is why producers have little choice but to either flood the market with product, even when demand sags, or else shut mills down entirely.Demand, on the other hand, is highly sensitive to economic conditions. (This is why sales of corrugated, cartons and other fiber-based packaging are sometimes used as an economic indicator.) The current economic downturn has had a depressing effect on demand and, therefore, on paperboard prices.
That effect, however, is unevenly distributed between the two main types of fiber: virgin and recycled.
The price of recycled fiber plunged during 2008. Old corrugated containers (OCC) dropped from $150 a ton in March to as little as $20 by the end of the year.
The drop in recycled fiber prices is a direct result of the bad economy reducing demand, especially in China, the major market for American OCC, says Josh Zaret, senior research analyst for Longbow Research. China had long been a driver in the OCC market.
“The price has been rising steadily in China over the last couple of years because China has put on a lot of paperboard capacity, and they don’t have trees,” Zaret says. “But [China has] really slowed down their purchases in the last quarter.”
As a result, the prices of paperboard that depends heavily on OCC as feedstock, such as clay-coated recycled and uncoated recycled, came down by about $10 a ton in January, and will probably come down more in the months to come.
Virgin is different
Virgin fiber is another story. While demand for virgin fiber has dropped right along with recycled, prices have not followed suit. For instance, kraft bleached board in folding carton grade, a mainstay for packaging like beverage carriers, began 2008 at $880 a ton, went up to $950 by July, and was at $1,050 by press time.“This is one of a few grades in the whole industry that held its own,” Zaret says.
There’s a paradox at work in virgin fiber pricing, says Ken Waghorne, vice president of packaging for RISI, a research organization for the forest products industry. The reason prices have risen while demand has dropped is because the demand has plunged so steeply that producers were stuck with an excess inventory that they couldn’t sell at any price. That left them with no incentive to lower their prices.
The pricing disparity between recycled and virgin fiber may lead some packagers to make shifts, says Mark Maley, vice president of sales and marketing for recycled paperboard manufacturer and converter Caraustar Industries.
Applications that depend on high-end printing for good shelf presence will have to stay in virgin-based grades like solid bleached sulfate, Maley says. “But many of the [packages for] food packaging and other consumer goods can be moved around between virgin and recycled board,” he adds. “I think things are a lot more interchangeable if you’re willing to step out of your comfort zone and at least take a look. Recycled paperboard products are being used more today as companies focus on sustainability.”
In any case, industry observers believe that in the long term, prices for recycled and virgin paper grades will move away from their respective extremes. As linerboard mills continue to close, the supply of corrugated-and therefore, OCC-will drop, eventually pushing OCC prices back up.
As for virgin fiber, when the economy starts to recover, demand will go back up, and that’s when converters and end users will start to press board producers to pass along their lower costs.
As simple as fiber-based packaging may seem, there are a lot of conflicting factors that bear on how to specify and use it. Staying on top of those factors will help end users avoid paper cuts.
For more information
Caraustar Industries Inc.216-281-7651;www.caraustar.com
MWV
804-327-5200;www.mwv.com
Sonoco
800-5-SONOCO;www.sonoco.com
WEB EXCLUSIVE: Renewable, recyclable, degradable: Fiber hits sustainability trifecta
Fiber-based packaging is in a position to benefit from the sustainability trend. It comes from renewable sources and is degradable and easy to recycle.“We have a good story to tell,” says Ben Markens, president of the Paperboard Packaging Council. “Unlike petroleum-based products, paper is the only renewable one of the packaging [materials], if you think about it. We can plant a tree, and it takes 12 years to make paper from it. To make more plastic, you need, like, a million dinosaurs and three million years.”
In recent years, packaging suppliers and users have played up this advantage through third-party certification by organizations like the Forest Stewardship Council. The FSC provides chain of custody certification for paper products to attest that they follow certain sustainability principles, such as avoiding fiber from old-growth forests.
MWV is one of the major supplier/converters that routinely offers certification from the Sustainable Forestry Initiative (SFI), another program for ensuring sustainable forest management, says Mike Stuckey, MWV’s marketing director for food packaging.
“Essentially, every packaging solution that uses MWV paperboard from one of our U.S. mills uses SFI-certified material,” Stuckey says. “Customers serviced from the company’s converting facilities may label their products once we help them to achieve chain of custody certification.”
End users can take advantage of third-party certification to appeal to environmentally conscious consumers. Two brands of coffee from Kraft Foods, Yuban and Nabob (sold in Canada), use composite canisters from Sonoco. These packages soon will bear logos from the Rainforest Alliance, an environmental group working in partnership with FSC, says Derek Trader, Sonoco’s market segment manager.
