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What Drives the Containerboard Industry?

Four forces will change the containerboard industry, says Rodney Fisher, president, Fisher International, a 20-year-old paper industry information services firm based in South Norwalk, Conn. In a recent Deutsche Bank conference call he said that the following forces will make some containerboard players more profitable:

•Cost of fiber
•Aging assets
•Consolidation and market leadership
•Asian growth

Starting with the cost of fiber, he notes that old corrugated containers (OCC) are already 72 percent of containerboard furnish.

“If recycled fiber lasts about five turns, the sustainable maximum content is 80 percent,” he says. “Integrated virgin producers (see chart) will have an advantage in the future.”

He believes that recycled containerboard producers tend to be at the greatest risk today.

Turning to aging assets, he points out that 47 percent of the world’s capacity is older than usually considered competitive. According to his company’s research, Georgia-Pacific (now owned by Koch Industries) leads the way with close to 80 percent of its total capacity produced on machinery that’s less than 40 years old. Packaging Corp. of America and Norampac follow it.

Consolidation needs to be discussed (yet again), he says, because until recently there really hasn’t been any. In addition, when a single company achieves about 30 percent share of a sector, it gains the ability to exercise market leadership.

“If the share leader exercises its market leadership, all companies in its sector tend to become more profitable,” he states. He defines market leadership as the tendency of a company with sufficient market share to introduce efficiencies and discipline in a marketplace in ways that benefit all players in the sector. Unfortunately, the containerboard industry doesn’t have a player capable of exercising market leadership (see chart), he adds.

Finally, he observes that rapid Asian economic growth creates export opportunities for U.S. containerboard producers. China’s growth also supports appreciation of the yuan against the very weak U.S. dollar. Combined with a low dollar and potentially higher OCC prices, North American virgin pulp integrated producers may have unusually good opportunities.

For more information on this report, call 203-854-5390 or email rfisher@fisheri.com.OBM

Callout: Recycled containerboard producers tend to be at the greatest risk today.