US kraft linerboard export demand remain weak while mills sit ‘hungry’

US KLB was being offered at as much as $150-180/tonne below the expected top-of-range prices

Global exporters of US unbleached kraft linerboard said US mills are “hungry” for orders this week, yet noted hardly any signs of a demand pickup offshore or in Mexico. Reports were that boxmakers were stuffed with linerboard inventory and aggravated by ongoing diminished demand.

A more than six-month downturn in US export kraft linerboard pricing continued this week, buyers and sellers told Fastmarkets’ PPI Pulp & Paper Week. The expanse on pricing from top-of-market major exporters to new or smaller producers with bottom-of-market price levels was huge this week, contacts told P&PW. In some regions offshore, US kraft linerboard was being sold or offered at as much as $150-180/tonne below the expected top-of-range prices.

Prices since June last year as reported by P&PW are down $120/ton and $50/tonne to the largest export destinations for US kraft linerboard in South/Central America and Mexico, respectively. Levels also are down by $260/tonne and Euro 125/tonne to China, and southern Europe’s Italy and Spain, respectively, according to P&PW’s price survey. These dramatic declines occurred as the market pricing bottom gave way, from a release of shipments at mid-year that had been mired in the supply chain bottleneck and loaded up box makers offshore, and at the same time a reduction in box demand due to economic factors around the globe.

Now, contacts continued to tell the same or similar supply/demand story offshore, with the addition that they hoped for an uncertain pickup, especially with more than a couple million tons of new capacity starting up in the US in the next nine months.

South America

“Demand continues to be low and I don’t think that will change in the next [few] months,” a South American boxmaker said.

“Inventory is not turning down at the pace we expected. There’s inflation, low demand. It’s everywhere,” a US supplier to the largest US export destinations said. “… there’s a lot of uncertainty.”

Italy

“Box plant demand in the last two months of 2022 (was) in sharp decline, stocks are very high, and there’s less consumption by the final users,” a contact in Italy said. “I think that this situation will continue until the end of March.”

Another agreed, sounding hopeful more than certain: “It’s a hard call right now. We need to see some more demand return. There’s a lot of supply chasing limited demand. … You still have a lot of hungry suppliers out there. Prices are definitely under pressure.”

Mexico-Central/South America

“Prices are dropping everywhere,” a seller to Latin America and Mexico said. “Mexico (demand) at the moment started a bit slow this month. I think demand will get [better] in February. Guatemala in December was better than expected and I think January demand will be the same as in December. Ecuador and Chile’s demand are really low,” the contact noted.

“We think in May that their demand will” pick up, the contact added.

China

In China, a buyer of US kraft linerboard said: “We didn’t see any demand pickup. China’s official New Year holiday starts on Jan. [22] but most of companies already released their people for long holidays. Hence, logistics/marketing is going to be frozen from this week to the end of January.”

And contacts who are in China or do business in China expected low demand for linerboard for about a month after the Chinese Lunar New Year holiday, which would be through February. One expected a pickup in linerboard buying in China in March and April in what would be a first pickup in about a year. The pickup would need to be prefaced on “if Covid-19 is behind them” and if the government in China remains on a path of easing rules on Covid-19. Another contact believed that China’s one-year zero tariff program would spur flooding of “testliner and fluting” imports into China. Already, Russia was actively sending kraft linerboard to China and one contact told of $600/tonne recycled linerboard in China from Australia.

“All virgin grade (US) linerboard mills are hungry for orders,” one of the contacts for China business said.

“Clearly, demand is not good”

This depressed market condition continued as economic uncertainly swirled around the globe. Inflationary cost pressure left corrugated box converters along with CPG (consumer packaged goods) companies holding less box inventory into the New Year and being careful looking ahead under a potential recessionary cloud.

“Box demand is really-really weak” in Europe, said one veteran industry producer contact early this week.

The contact called out low old corrugated container (OCC) as a key benefit for recycled containerboard mills in Europe today. The contact said that even with linerboard price declines that companies were gaining a “good margin.”

“The key is what level box demand comes back at,” the contact said.

One Wall Street analyst this week, speaking of US corrugated box demand, expected that demand would return to a pace in 2023 that would be better than the pre-pandemic shipment pace. The analyst expected flat to slightly down US actual box shipments in 2023, following what is expected to be about a 2.5%-2.9% drop in 2022, compared with 2021. This comes after US box shipments increased in two years by almost 6% on an actual basis in 2020 and 2021.

The analyst added that “clearly, demand is not good” for US corrugated boxes, similar to conditions in Europe and other parts of the world, and “demand came off much harder (in 2022) than (US major integrated companies) expected.”

In Europe, contacts told of continued downward stress on domestic prices this month for brown kraft linerboard and recycled linerboard, based on buyer and seller discussions, one contact said.

Capacity growth expected in 2023

Additionally, as a key supply/demand factor in both North America and Europe this year, about two to three million tonnes of additional containerboard capacity is expected in 2023 in Europe, with most of the new capacity being recycled containerboard. SCA in late November did start up a new 725,000 tonnes/yr kraft linerboard machine at its Obbola mill in Sweden. The 725,000 tonnes/yr PM replaced a 450,000 tonnes/yr unit. In first-half 2023, Ilim in Russia is to start a new 600,000 tonnes/yr kraft linerboard machine, according to PPI Europe.

US containerboard capacity is to expand by about 2.7 million tons this year. Contacts this week said that Domtar started up a 600,000 tons/yr recycled containerboard machine in Kingsport, TN, and that the PM was not back down. Five other machines are expected to add capacity between now and September in the US and Canada.

In Mexico, the largest export destination for US kraft linerboard, one contact said that the Mexican peso remained steady, at US$1 equaling about 19 pesos – and that containerboard and corrugated box demand was down now from last year.

“(Industry players and mills) are taking it slowly to see what the market is going to do” at the start of the New Year, in first quarter, and and in the first half of 2023, the packaging contact said.

“There’s a little uncertainty and everyone is being a little cautious,” the contact stated.

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