The three giants of International Paper Industry, West Rock, and PCA have announced plans to discontinue production in a row!
May 24, 2023
This week, the United States experienced the third reduction in cardboard machines, with the US Packaging Company (PCA) temporarily closing its 560000 ton/year Vallula factory until later this year.
The week before PCA's announcement, Visilok announced that it would permanently close its unbleached kraft veneer and packaging paperboard factory in North Charleston, South Carolina on August 31st, with an annual production capacity of 320000 tons. Cascades announced that it would close its smaller 90000 ton/year corrugated paper machine number 2 located in Niagara Falls, New York. The machine has been in a discontinued state since November 2022. The machine shutdowns in North Charleston and Niagara Falls are permanent, while the shutdowns in Vallula are not.
According to the Washington State Herald, the PCA stated that the closure was due to "economic conditions". We expect the factory to resume operations later this year, "PCA said in a statement to local newspapers. The company stated that their corrugated paper processing facilities in Richland and Vallula, Washington have not been affected and remain open.
A report submitted to Fastmarkets' PPI Pulp and Paper Weekly at the end of April stated that the Vallula factory may close as it was reported that the company had indefinitely stopped purchasing cork chips for wall board production on April 1st. At the same time, it is said that corrugated paper production will continue to use old corrugated cardboard boxes (OCC) and sawdust pulp. The closure of the PCA Vallula factory seems to indicate that demand is still weak, so the reported improvement or rebound in demand for cardboard boxes in April may not be as strong.
During a earnings conference call with analysts, major cardboard/box manufacturers such as International Paper, Visa Rock, and PCA reported an improvement in cardboard shipments in April compared to the weak month in March. In the first quarter, the actual shipment volume of cardboard boxes in the United States decreased by 8.5% year-on-year, especially for some of the largest manufacturers. The shipment volume of the international paper industry in this quarter decreased by 8.5% year-on-year, while the shipment volume of Visilok decreased by 9.4%, and the shipment volume of PCA decreased by 12.7%.
These latest production capacity shutdowns also occurred when some contacts reported to P&PW that the prices of cardboard on the North American open market were once again under pressure this week. This is after the pricing of paperboard, according to P&PW's pricing survey, it increased by $220/ton in the 17 months from November 2020 to March 2023. Then, from November 2022 to February 2023, the price of 42 pounds of unbleached kraft paper paperboard on the North American open market decreased by $70/ton. Due to the launch of new production capacity, many paper mills are providing paper, so manufacturers must maintain flexibility in pricing to avoid losing business.
As of this week, four production capacity expansion machines in North America are operating, with a total annual production capacity of nearly 2 million tons, equivalent to an increase of about 5% of production capacity. Domtar, Atlantic Packaging, Cascades, and ND Paper have started their new and renovated recycling cardboard units.
These began because North American cardboard box manufacturers were not aware of the continuous demand for their boxes. A national cardboard box manufacturer told P&PW that customers may be "very cautious" in a low-key tone.
When asked if the demand for corrugated cardboard boxes will increase in the next 30-60 days after the low shipment volume in March improved compared to April, the contact person said, "The demand has slightly improved. But I don't know what will happen in 60-90 days. This is a difficult decision, and we are currently reviewing our budget
Since then, the paper mill has been heavily shut down in an attempt to balance supply amidst weak demand. According to market insiders, all of this began in September last year, when the North American market was severely imbalanced in supply and demand. The destocking on the supply chain has slowed down the business of cardboard and corrugated boxes.
Overall, International Paper, Visa Rock, and PCA ceased production of approximately 796000 tons in the first quarter of 2023, followed closely by the fourth quarter (approximately 1.1 million tons) and third quarter (approximately 814000 tons), "Truist Securities analyst Michael Roxland reported in an investor report this week.
PCA's Vallula announcement this week indicates that there are still some challenges, as it is managing its order structure and focusing on maintaining prices. We view the current closure as a way for PCA to further balance supply and demand and minimize any potential future price erosion, "Michael Rox told investors on May 10th.
According to P&PW's estimation, the 2.71 million tons of discontinued production capacity caused by International Paper, Visilok, and PCA accounted for 8% of North American cardboard production capacity in the three quarters. On average, the capacity utilization rate of US paper mills in these three quarters was 85.0%.
