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CRB Market Share Shifts
July 19, 2008 Official Board MarketsThe pending sale of two coated recycled boxboard (CRB) mills of Graphic Packaging International (GPI) to a Sun Capital Partners, Inc. affiliate (see p. 9) has brought attention to a paperboard sector that the U.S. Justice Department (DOJ) determined has the potential for price manipulation, reports Forestweb.
After merging with Altivity Packaging, last March GPI signed a consent decree with the DOJ to sell these two mills or else the government would tell it what to sell. The Altivity mills being sold are in Philadelphia (125,000 tons per year) and Wabash, Ind. (159,000 tons per year). Combined, they account for about 11 percent of total North American CRB capacity.
The DOJ said that without the divestiture, the combination of GPI and Altivity (27 percent) would control 42 percent of total North American CRB supply. The market would have only three major competitors—including No. 2 Cascades (23 percent) and No. 3 Rock-Tenn (22 percent)—controlling a collective market share of 86 percent.
“Because of this condition and the fact that the proposed merger would substantially increase the capacity upon which the merged firm would benefit from a price increase, the merger would create incentives for a combined Graphic-Altivity to close one or more CRB mills or to otherwise reduce CRB production capacity or output,” the DOJ says. “As a result, North American CRB market would likely experience higher CRB prices than would have prevailed absent the merger.”
It noted that CRB typically is the single largest cost component of relatively low cost folding carton applications that include dry foods, accounting for as much as 65 percent of the cost of the folding carton. It said that even where another substrate can provide acceptable performance at a similar price, “few customers will switch from their existing substrate to an alternative substrate because doing so is time consuming, costly, and risky.”
The DOJ also said CRB customers likely would not switch to other types of carton packaging substitutes “in response to a small but significant and non-transitory increase in CRB prices to an extent that would make such a price increase unprofitable.”
The principal reasons behind the latest announcements, however, are the rising production and delivery coasts associated with oil and natural gas. And that is despite efforts to cut costs by investing in energy conservation, savings initiatives, productivity increases, and high-cost mill closures.
There have been more announcements of nearly 500,000 tons of North American recycled boxboard that will soon be shuttered, most of it uncoated recycled board.
The total annual volume of CRB supplied to the packaging industry in North America is valued at about $1.6 billion, according to the DOJ. Even after GPI sells the Philadelphia and Wabash properties, GPI will retain most of the $1.17 billion in North American sales of CRB and CRB folding cartons it would have had without the divestures. It didn’t have to sell any of its 47 carton plants.
