August 7, 2017
U.S. independent boxmakers have a choice of furnish for the corrugated containers and related products they make. They can choose virgin unbleached kraft linerboard, semichemical medium, recycled linerboard, or recycled medium. Over the past decade, shifting domestic boxmaker preferences and pressures to supply overseas demand for virgin unbleached kraft linerboard have combined to produce a substantial shift in the aggregate supply of containerboard by U.S. mills to U.S. corrugated producers. The table on Page 6 lists in thousands of tons the amount of virgin containerboard (unbleached kraft linerboard plus semichemical medium) and recycled containerboard (recycled linerboard and recycled medium) supplied to U.S. corrugated converters in 2006 and 2016.
Over that 10-year period, the annual domestic supply was virtually unchanged, declining by only 2.4 percent. What does stand out, however, is the growing use of recycled grades by U.S. converters. In 2006, recycled containerboard grades made up 25 percent of the total containerboard supply. Last year, that share had grown to 37 percent, a 48 percent increase. A shift in the medium grades was responsible for much of the difference. In 2006, recycled medium already commanded 40 percent of the U.S. supply of medium products. By last year the balance had shifted strongly, and recycled medium made up 58 percent of all medium produced in the U.S. Over that 10-year period, total U.S. medium production had grown by only 4.5 percent.
Many factors contributed to the shift from virgin grades to recycled grades of containerboard. Among them were better technology for processing recovered OCC, relatively lower capital costs to install recycled containerboard capacity, and improved performance of recycled grades in corrugated applications. In addition to these supply side factors, the growing overseas demand for virgin grades of containerboard has also been a major contributing cause of this dramatic shift to recycled grades in the domestic market.
Virgin grades account for almost all of the containerboard made by U.S. mills for export. Last year, of the 5.09 million tons of containerboard produced for export, 95.7 percent was unbleached kraft linerboard or semichem medium. Exports of recycled grades totaled only 0.22 million tons. Unbleached kraft linerboard accounts for the lion’s share of containerboard exports. Last year, it amounted to 4.53 million tons, or 89 percent of all containerboard exports.
Since 2012, unbleached kraft linerboard exports have been rising steadily. In 2012, about 16 percent of U.S. production was earmarked for export. By the beginning of this year, exports of this grade crossed the 20 percent threshold for the first time, as foreign demand for virgin linerboard held up even as the U.S. dollar continued to strengthen.
Comparing the growth rates of various portions of containerboard production for last year helps put this shift in perspective. Overall U.S. containerboard production rose by 1.2 percent last year. Concurrently, containerboard made for export rose by 4.8 percent during 2016, and recycled containerboard grades grew by a healthy 4.0 percent. At the same time, U.S. production of virgin containerboard destined for U.S. mills contracted by 1.0 percent, as additional supply was shifted into export markets.
At the same time that U.S. boxmakers are using more recycled grades, export pressures on the supply of OCC, the principal source of fiber used to make recycled containerboard grades, have been severe. They have siphoned off much of the growth in recovery of old corrugated containers, which has grown from 73.6 percent of U.S. containerboard supply in 2006 to 92.7 percent of supply last year. Since 2006, recovery of OCC has risen from 25.2 million tons to 31.6 million tons last year—a 25 percent increase. Over the same period, the amount of OCC used in the manufacture of all grades of paper and paperboard
has grown by a total of only 6.4 percent, to reach 21.2 million tons last year—67 percent of total OCC recovered.
Over the same period, the amount of OCC exported has nearly doubled. It rose from 5.2 million tons in 2006 to 10.3 million tons last year, a 98 percent increase. Most of this growth has gone to China and other Asian countries that are experiencing rapid economic growth and the resulting explosion of demand for locally produced containerboard. Last year the trend continued, with domestic consumption of OCC growing by only 0.3 percent compared to 1.7 percent export growth.
Concerns about sufficient availability of OCC to supply U.S. boxmakers with an adequate and competitive supply of recycled containerboard extend beyond the appetites of foreign countries for U.S.-sourced OCC and U.S.-made virgin containerboard.
As online sales of goods continue to soar at the expense of goods purchased in big-box and grocery stores, a larger percentage of the corrugated containers used to package these goods ends up at consumers’ homes instead of at the back end of stores. Over the years, traditional retailers have developed into reliable sources of OCC supply for U.S. mills, with of packing, quality control, and infrastructure having settled into patterns that supply U.S. mills well. Now and in the years ahead, though, an increasing fraction of used boxes will end up in municipal waste collection programs as they are disposed of by retail consumers. Very few of these programs collect source-separated materials any longer, which means that the quality of the OCC removed from the mixed waste stream will be of lower quality and some of it potentially not usable in recovered paper production processes.
In summary, expectations for continuing strong export demand and the rapidly growing preference for online shopping are two reasons that independent boxmakers need to keep a watchful eye on developing trends in containerboard and OCC markets.
Dick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.
