US corrugated board CEOs optimistic about long-term business despite short-term challenges

Smurfit Kappa CEO Tony Smurfit, Hood Container pres/COO Charlie Hodges, and Kruger senior vice-president and COO Michael Lafave discussed the containerboard and corrugated box markets during a discussion panel on Nov. 8 at Fastmarkets’ Forest Products International Containerboard Conference (ICC) in Chicago, IL, and said they continue to be optimistic about their businesses long-term.

The CEO Panel was moderated by Bank of America Securities managing dir George Staphos. The three executives agreed the current and short-term corrugated board market situation is challenging, but they believe the industry will “get through this” as it did when Covid-19 unexpectedly hit the markets.

The current challenges include high inflation, which affects industries’ costs and profitability and at the same time reduces consumers’ purchasing power, Fastmarkets Director of Macroeconomics Lasse Sinikallas noted during his presentation at the ICC, adding that “the inflation peak has not passed yet.”

“The consumer is somewhat feeling the impact of inflation in their pockets… We’ll get through this as he did in the past. We’re very optimistic…,” Smurfit said.

“If you look back a few years, we didn’t know about Covid and we got through it… People are resilient, and adjust and adapt to new realities… The reality we’re seeing now is a different reality and is uncertain (very high inflation and interest rates)… But we have to take a long-term view in our business and look for the opportunities…,” Lafave said.

“When we look at industrial production, it’s very difficult to understand what is going to go on over the next six months or in the next year… (There are) A lot of issues short-term, but long term we’ll see continuation of growth overtime,” Hodges commented.

US corrugated box shipments declined 4.5% in the third quarter, following a 2.3% year-over-year decline in second quarter this year. That indicates that the box demand and Covid-influenced surge that began in March 2020 and lasted into early this year was over. US shipments increased nearly 6% in 2020 and 2021, in what was the strongest demand growth in 27 years.

“If you look back the last few years, we saw an acceleration in structural change in the retail channel and e-commerce in 2020 (with 30% plus increases). That pace of growth has deaccelerated, but it’s still growing 6-8%, which is very positive for the corrugated board sector,” Lafave noted.

“There are not as many corrugated boxes at our doors as there were during the pandemic,” Hodges commented. He noted that there are other opportunities corrugated board producers should look at, like intermediate packaging.

Along with the decline in corrugated box sales, containerboard mill inventory increased significantly in September and was 11.5% higher than a year ago. Industry participants are now concerned about the 2 million additional tons of containerboard capacity that is expected to enter the North American market in the next 11-12 months. In an attempt to somewhat offset the inventory build, two of the three largest producers, International Paper (IP) and Packaging Corp of America (PCA), took a combined 650,000 to 660,000 tons of containerboard downtime in the third quarter.

During the ICC panel, the CEOs also mentioned that labor is an issue in the industry and “will continue to be an issue,” while “logistics costs have probably peaked at this stage.”