Price pressure is on for US Kraft liner board to Mexico

There is a month on month reduction in price for Kraft liner board to Mexico

New reports speak of lower prices and demand in Mexico for US unbleached kraft linerboard.

If true, November would mark a fifth month in a row of lower unbleached kraft export pricing on global markets to Mexico, as well as offshore to South and Central America, southern Europe (Italy and Spain), and China.

Pricing for US kraft linerboard to Mexico has already declined $30/tonne since the summer, according to Fastmarkets’ PPI Pulp & Paper Week pricing surveys.

Contacts this week called demand weaker now than in the last month in Mexico and cited inflationary pressures overall on the economy and consumer spending, and said that downward price pressure was occurring in an active way. One called the pressure a weekly occurrence in the last several weeks.

“They are becoming hungrier and hungrier” for lower US kraft linerboard prices, explained one exporter.

Some deep discounting appears

Various contacts this week claimed wide-ranging price declines. There were even deeper declines to China, down possibly as much as $40-90/tonne, and by potentially as much to South and Central America. These big decreases appeared as contacts said some new mill companies began exporting when they saw the third-quarter plummet in US box shipments.

One contact expected export demand for US linerboard to remain weak through year-end and possibly into early next year before turning better for sellers in the late first quarter or about six months from now. For export, suppliers are told of porous demand, as corrugators hold large inventory and work with a decline in demand from end-users.

Pulp and & Paper Week reports linerboard prices on November 18th for the domestic open market in North America and for the export market.

In presentations at the Fastmarkets Forest Products’ International Containerboard Conference (ICC) in Chicago – attended by almost 250 market players and others from 27 countries – Fastmarkets RISI analysts reviewed market conditions in Mexico, South and Central America, China, and Europe (Italy and Spain).

US market ‘uncertainty’

In the US, Fastmarkets Director for packaging and printing paper Derek Mahlburg told attendees about a “huge amount of uncertainty” about the market downturn and when a rebound would start. US actual corrugated box shipments were down 1.3% in the first half of this year, then plunged 4.5% in third quarter year-over-year, and were down 2.4% year-to-date.

Mahlburg forecast roughly a 2% decline in US actual box shipments in 2022 vs 2021.

Some at ICC privately claimed that actual shipments would drop anywhere from 2.5% to almost 3% this year, on an actual shipment basis. They claimed fourth-quarter shipments were likely to be as weak as the shipment movement in third quarter. Third-quarter actual US box shipments dropped 4.5% compared with third-quarter 2021 shipments.

US actual shipments grew by 5.7% in 2020 and 2021 in what was the highest two-year shipment growth in 27 years, according to Fiber Box Association statistics.

Inflation is the “big wildcard of how quickly we can get this under control,” Mahlburg said of the downturn.

P&PW, from market players, first reported a slower pace of North America box demand in April/May this year, and later Walmart and Target put a big stamp on the point by warning about their high inventory of end products at their stores and warehouses.

Trucking demand reduction

Central National Gottesman VP for logistics Simon Preisler told attendees that “warehouses continue to be filled” around the US. Freightwaves’ CEO Craig Fuller told attendees that consumers are not spending as much as last year and it shows from a reduction in trucking demand.

“This will be the worst fourth quarter for the US trucking companies in years,” Fuller said.

“People are not buying boxes unless they are buying things,” Fuller noted.

Fuller also told of a major retail company official saying that the company was in no hurry to move product sitting in a warehouse to a store shelf, especially at a slashed price. These products were purchased at high prices when cost for products and logistics skyrocketed during the pandemic in 2020 and 2021.

If this is true, that might extend the inventory correction that is now in about its sixth month.

Mexican outlook

Related to e-commerce, Fastmarkets economist Rafael Barisauskas told ICC attendees that about 70% of homes in Mexico had internet access for ordering goods and food online. He expected additional containerboard capacity in Mexico from Pronal in 2023.

Cartomicro CEO Luis Gonzalez at ICC said Mexican fruit exporters looking forward were “optimistic” about their business despite poor weather and lack of fertilizer from China and Russia affected overall volume. Further, Gonzalez called out “nearshoring” to help investment in Mexico that would benefit boxmakers.

The nearshoring is occurring as companies hurt during the Covid-19 pandemic in 2020 and 2021 by logistics and shipping costs and delays look to keep their supply chains closer to their home market. Smurfit Kappa Group CEO Tony Smurfit also recently credited the nearshoring for helping his company’s box business in Mexico.

European outlook

Fastmarkets European Packaging Papers economist Tero Eerikainen said that high natural gas cost continues and that 10 million tons of packaging board capacity was at risk this winter in Europe of temporary downtime due the high energy costs.

He said 80% of the 10 million under risk are in Germany (with the largest amount of capacity at risk), followed by Italy, the fifth largest export market for US kraft linerboard, and then Turkey, France, Austria, and France.

Eerikainen said 340,000 tonnes of downtime was taken in Europe in the third quarter because of high energy costs.

In a “Europe in Focus” panel at ICC, two leaders of large containerboard systems in Europe debated the energy crisis.

Mondi Group CEO for Corrugated Packaging Markus Gartner said that “the more you are exposed to natural gas, the more you will struggle.”

He said that companies that are trying to find alternatives to natural gas from Russia but that some fossil fuel alternatives “moved the wheel back” environmentally.

Prinzhorn Holding managing director Harald Ganster said his company’s aim is to be independent from natural gas, but that doing so in its system will take about 10 years.

One claim during the session was that Europe used to import 40-45% of its energy from Russia before the war in Ukraine. Now, that total is 8-9%.

Gartner said natural gas can be replaced by liquefied natural gas, which is made in southern Europe yet is mostly needed in northern Europe.

East Asian perspective

Fastmarkets VP of Asian Paper and Packaging Beth Lis expected that China’s economy would start to improve in March/April 2023 after packaging demand plummeted since May, due to the Chinese government’s zero-tolerance COVID clampdown.

She said Chinese containerboard demand should decline by 3% this year, after increasing by 5% in 2021. She expects a 2% containerboard demand increase return in 2023 in China.

She added that containerboard capacity continues to be on a roll in China. She told of 11 new board machines with 2.4 million tonnes of capacity in 2021, 13 machines and 4.6 million tonnes of additional containerboard capacity in 2022, and 10 machines in 2023-2024 and 4.1 million tonnes of added containerboard and market pulp capacity in China.

Containerboard capacity also is to grow in Southeast Asia, Lis said.

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