U.S. kraft linerboard jumps $95/ton; box demand rebounds on 2% growth

GRADE STRUCTURE. Linerboard is used as the inner and outer portions of domestic corrugated containers. The board is made in a range of basis weights, and the standard is 42-lb/1000 ft^sup 2^. However, for the first time in 2001, U.S. output of high-performance 34- to 37-lb linerboard exceeded output of the standard 42-lb, as producers continued their move to lighter basis weights that were strong and had higher recycled content.

U.S. kraft and recycled Iinerboard production in 2004 was on track to total 23.69 million tons, up 4.4% from 2003's output, and including an estimated 2.76 million tons of export Iinerboard.

PRODUCTION/CAPACITY. U.S. producers were on track to make an additional nearly 1 million tons of regular kraft Iinerboard, white top Iinerboard, recycled Iinerboard, and export Iinerboard in 2004, compared with 2003. Through October, U.S. Iinerboard mills ran at an average of 95.5%, up from 91.5% in 2003 through October. A decline in box demand since 2001 ceased in 2004, with actual box shipments through October on track to increase 2%-3% over 2003's total.

From 2000-2003, North American producers permanently or indefinitely shut 2.179 million tons of Iinerboard capacity. In 2003, producers shut 255,000 tons of recycled and kraft linerboard. But as an American Forest & Paper Assn. capacity report illustrates, while producers shut machines, there also is a significant build in creep capacity that almost equals the tonnage taken out permanently or indefinitely.

U.S. kraft and recycled Iinerboard capacity in 2000 was 26.41 million tons. Capacity in 2004 was 25.35 million tons. The 1.OS-million ton decline was 674,000 tons in recycled Iinerboard, where capacity dropped from 5.22 million tons in 2001 to 4.61 million tons in 2004, and a drop of 383,000 tons on kraft Iinerboard.

The only major Iinerboard capacity projects in North America in 2005-06 were Atlantic Packaging's plan for a recycled Containerboard machine at its Scarborough, Ont., mill, and Weyerhaeuser Co.'s creep capacity build from a boiler project at the Valliant, Okla., complex. The exact capacity additions were unclear on the projects.

PRICING. The benchmark 42-lb unbleached kraft linerboard in the U.S. East was $350-$360/ton in December 2003 on a transaction level before volume discount, down $30/ton from January's level of $380-$390/ton. The two price increases in 2004 raised December 2004's year-end level for 42-lb kraft linerboard to $445-$455/ton-its highest level in four years.

To try to hold prices on the domestic market, several producers said they expected to increase exports in November 2003 through January 2004, helped along by a weaker U.S. dollar. There also continued to be talk of a possible new kraft linerboard increase in first quarter 2005 in the U.S., but various producers were waiting to gauge market demand, and no announcements were made as of Dec. 13,2004. In the last five years, the average price of U.S. 42-lb kraft linerboard-$416/ton-ran 3.7% higher and $15/ton more than in the previous five-year period.

OUTLOOK. U.S. producers in first half 2005 are focused on holding up linerboard prices that rose $95/ton from February through July in possibly the fastest run-up in linerboard prices ever in the U.S. Economists expect a second-half slowdown in U.S. real gross domestic product growth, as well as continuing large trade deficit, which are forecast to slow U.S. box demand.

A key factor impacting U.S. box demand is a growing trade deficit, which has grown from $375 billion in 2000 to an estimated $608 billion in 2004-and was expected to total $615 billion in 2005, according to RISI. Actual box shipments in the U.S. peaked at 405.08 billion ft^sup 2^ in 1999 and decreased year-over-year each year through 2002 before gaining slightly in 2003 with total actual shipments of 379.9 billion ft^sup 2^. In 2004, actual shipments were on track to total 388 to 390 billion ft^sup 2^.