Bleached paperboard: SBS mills increase production this year; prices move higher

Pulp & Paper, Oct 2004

ANALYSIS OF BLEACHED PAPERBOARD

INDUSTRY STRUCTURE. Bleached paperboard, also known as solid bleached sulfate (SBS) board, is a premium paperboard grade produced from a furnish containing at least 80% virgin-bleached wood pulp. Major markets for SBS are folding cartons, milk and juice cartons, and disposable foodservice products. Lightweight bleached board grades not primarily intended for packaging are classified as bleached bristols. Coated bristols are used for paperback book covers, greeting cards, postcards, and advertising cards, etc. Uncoated bristols are used for tickets, tags, file folders, etc. Most companies report the combined capacity and production of SBS and bristols.

For 2004, total bleached packaging paperboard capacity is estimated at 5.9 million tons, and bleached bristols account for an additional 1.4 million tons. In the packaging segment, folding cartonboard represents about 54.4% of the total; milk carton and foodservice products, 40.7%; and linerboard, 2.3%.

The industry is undergoing significant restructuring, and a series of mergers and assets sales has consolidated market share for fewer producers, with the largest five producersInternational Paper Co. (IP), MeadWestvaco Corp., Potlatch Corp., Georgia-Pacific Corp. (G-P), and Smurfit-Stone Container Corp. (SSCC)-now accounting for more than 75% of industry capacity. MeadWestvaco purchased Temple-Inland Inc.'s bleached board mill in 1999, adding 670,000 tpy of production capacity. Blue Ridge Paper LLC purchased the former Champion International Inc. bleached board mill in Canton, N.C., and its DairyPak packaging business. Blue Ridge also purchased MeadWestvaco's liquid packaging business in 2000. G-P purchased Fort lames Corp. in 2000, acquiring the Dixie line of foodservice disposable, as well as a 225,000-tpy bleached board mill in Naheola, Ala.

PRODUCTION/CAPACITY. Most of the con sumer packaging markets served by bleached board are mature, and growth has been very slow the past few years. During this period, bleached board lost market share to flexible packaging materials and plastic containers, as well as recycled and unbleached kraft paperboard. SBS producers have withdrawn older, high-cost capacity in response to these highly competitive market conditions. As a result, total SBS production has been relatively flat over the past three years. But during the first quarter of 2004, SBS production was 1.37 million tons, an increase of 3.4% from production in the first three months of 2003. And major producers announced two price increases on SBS in the first nine months of 2004.

Industry capacity declined by 200,000 tpy in June 2001 when IP closed its aging bleached board mill in Moss Point, Miss. This was the first permanent shutdown of a bleached board machine in more than 25 years. At the same time, the former Gilman Paper mill in St. Marys, Ga., was idled. No new SBS machine has been constructed since 1995, and none are planned.

Exports represent about 20% of industry production and have offset some of the decline in domestic markets. U.S. producers have historically been competitive with producers in Sweden and Finland and have gained market share in Europe, Latin America, and Asia. The strong U.S. dollar hurt the U.S. competitive position for the past two years. However, U.S. exports this year of SBS were up 6.2% for the first half of 2004, thanks in part to a weakening dollar.

OUTLOOK. SBS producers pushed through a $40/ton price increase for folding carton grades in July 2002, following a successful price increase of $50/ton for cup and plate stock. After the price hikes, mill backlogs started increasing, rising to an average of four weeks of unmade orders last September. Another price hike was attempted in June 2003 but failed as market demand slowed midyear. This year, major SBS producers announced $40-$50/ton increases in August, following a $50/ton price hike earlier this year. Producers were able to raise bleached folding cartonboard prices by $20-$30/ton in April and May.