US kraft linerboard export prices set to decline with lacking demand

The absence of expected pickup in demand for KLB results in gloomy October price outlook

US unbleached kraft linerboard (KLB) export prices looked set to decline again in some regions, with suppliers reporting that an expected October pickup in demand was hardly occurring.

Contacts around the world largely told the same story: board and corrugated box demand is down compared with last year; inflation is starting to negatively impact consumer spending; and costs for old corrugated containers (OCC) are plummeting yet energy and specifically natural gas, and chemical costs remain high.

Concerns for Latin America as demand drops

“Everyone has been hopeful for better (box volume),” said a contact for a company in Mexico referring to a holiday demand pickup, “but because of inflation, everyone is … concerned – and unsure. There’s a drop in demand and folks are not very optimistic.”

“Demand is slow,” a US kraft linerboard exporter to Latin America added. “We thought that in October, the markets could regain (normal demand) traction. But I think the fourth quarter will be slower than expected.”

“Ecuador (is) dead (in terms of gaining orders),” the contact claimed at mid-week. “Banana season is expected to be regular and, with the high (containerboard) inventories now, I don’t see opportunities this fourth quarter. Chile … expects a good agricultural season (and) hopefully (corrugated box plant containerboard) inventories go down and we can start business again.”

One boxmaker in South America told of getting back “with normal orders” in two months.

Demand is dropping a lot. I think it’s a mixture of inflation, low demand of consumer goods and high inventories of linerboard.

In Europe, reports were that both domestic and imported prices remained under downward pressure or were already dropping. In China, domestic containerboard mills still struggled with high costs and reduced demand. A contact in China told Fastmarkets’s PPI Pulp & Paper Week of no change by the Chinese government on its zero-tolerance Covid-19 policy that he blamed for “deeply damaging” consumer spending demand for at least the past six months.

US export kraft linerboard prices for the first time in more than two years began falling in July. In the three months through mid-September, US levels declined by $85/tonne to China; $60/ton to South/Central America (via the Savannah, GA, FAS port price); 50 Euros per tonne to southern Europe (Italy and Spain); and slid $20/tonne to Mexico, based on P&PW’s price survey.

If US export prices do fall again this month, it would be the fourth month in a row of declines in some to all four major export destinations.

Since a March price increase, domestic North American open market prices remained flat through September. Contacts again this week continued to tell of a similar supply/demand story as with export, with box demand flagging and OCC prices plummeting, yet manufacturing costs including for energy continuing to be high or rising. Some also reported lower pricing for linerboard on the open domestic market or expecting lower prices.

Box plants have “high inventory and are not receiving any big orders. They’re struggling to get orders – as of Oct. 12,” a contact on the West Coast said, emphasizing the date.

West Coast box demand has been called weaker or slower than in other parts of the USA, contacts have said the last few months.

Export tons available from integrated producers

All told, contacts also said that they were seeing more tons offered for export from major integrated producers.

“Yes, definitely,” one exporter said. “All the big players have volumes to offer. Demand in the US has slowed down and I expect it to be slower. I think first quarter of 2023 will be a challenge.”

Another exporter told of mills “that normally don’t participate in the (export linerboard) market, those ‘new’ players are being super aggressive on price,” especially into Mexico.

Demand in North America has basically fallen off a cliff - many more mills are needing to export than we have seen in quite some time.

The contact expected “more downtime will occur to alleviate the softness” in North American supply and demand but “that doesn’t appear to be happening fast enough.”

In another example, a buyer in China claimed a low offer price from a small integrated US mill that was almost $200/tonne under the market price, based on P&PW’s pricing survey last month.

US unbleached kraft linerboard exports increased somewhat in August but not in a large way as some expected, based on the latest trade report from the US government and the American Forest & Paper Association (AF&PA).

Contacts have continued to claim that major integrateds who export would move more kraft linerboard offshore as US domestic demand has dropped off since the second quarter. Instead, though, contacts have pointed to US mills that have been taking downtime since September. This all occurs as June US box plant and mill inventory of containerboard was at its highest level in 20 years. The next report on US box shipments and containerboard supply is to be released on Oct. 28 by the Fibre Box Association and the AF&PA.

This article was first published in PPI Pulp & Paper Week, the industry’s most trusted pulp and paper market news and prices for North America. Access a free copy here to see what the newsletter looks like, or speak to our team to find out more and subscribe to our newsletters.

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