NEW YORK (Reuters) - Industry consolidation, improved efficiencies and a slowdown in the U.S. economy are likely to drive further U.S. box plant closures in the months ahead, top industry executives told the Reuters Paper Summit.
The containerboard industry has been battling with falling domestic demand and a sharp escalation in costs, bruising stocks in the sector over the last few months.
"I think we will be in a position later this year to start talking about where some of the box plant rationalizations might take place," said Tim Nicholls, chief financial officer of International Paper IP.N.
Memphis, Tennessee-based International Paper just completed its $6 billion acquisition of Weyerhaeuser Co's WY.N packaging assets, a deal that made International Paper the largest North American containerboard maker, ahead of rival Smurfit-Stone Container Corp SSCC.O.
Nicholls said the company intends to close 10 to 13 box plants during the first phase of reductions, but not all these closures would be announced at the same time.
Latest statistics indicate that year-to-date box shipments in the U.S. are down about 1.8 percent, while containerboard inventory levels are at historic lows.
Containerboard is a type of thick paper that is used to make corrugated boxes. Containerboard is manufactured at mills, which supply box plants that convert containerboard into corrugated boxes.
Steven Klinger, president and chief operating officer of Smurfit-Stone, said the company, which now has about 110 box plants, will have about 100 plants by early 2009.
“We’ll have some lingering effects with one or two plant (closures) in the second quarter of next year, but most of it will be done by the end of March,” said Klinger.
The company has closed more than 30 box plants and cut about 5,700 jobs since it announced its restructuring program in 2005. It has also closed a few of its containerboard mills.
Since 2005, major companies in the sector have shuttered over 3 percent of global containerboard capacity.
International Paper, Smurfit-Stone and their peers have recently implemented a $55 per ton price increase in containerboard prices. The companies are at present in the process of implementing a similar increase on box products.
Longbow Research in a recent survey of the industry noted that a majority of respondents believe that the current box price increases will not fully offset the higher costs and expect an additional price increase in 2008.
International Paper and Smurfit-Stone declined to comment directly on whether they would push for further containerboard price increases over the next few months.
“We are very focused on the $55 and the subsequent increase on the box side. If inventories remain at levels that they are at; if people are still experiencing cost inflation and if there’s some sort of bump in demand -- then obviously there will be additional price restoration,” Klinger said.
The sector has benefited from a weak U.S. dollar, which has spurred containerboard exports, helped the companies implement price increases and kept systemwide operating rates in the upper 90 percent range.
However, volatility in costs and slowing U.S. and European economies remain a concern and International Paper expects the latter half of 2008 to continue to be as volatile as the first-half of the year.
Editing by Phil Berlowitz
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