Examining the effects of upcoming containerboard capacity

With approximately 2 million tons of recycled containerboard capacity expected to come online over the course of the year, questions remain about what overcapacity will do to an already soft mixed paper and old corrugated container (OCC) market.

Mixed paper has started to recover, albeit slightly, averaging $5 per ton in the U.S. in March after dipping below zero in October 2022 and staying there through January. Meanwhile, OCC has remained essentially flat since late last year.

“Let’s face it: Sales are down in containerboard, price is down in containerboard, shipments are down, the operating was down,” said industry veteran Chaz Miller of Miller Recycling Associates. “It’s simply too much capacity chasing a much smaller market than anticipated.”

Miller spoke during a panel discussion Feb. 27 at the Southeast Recycling Conference in Orlando that examined current recovered commodity markets and emphasized the state of the containerboard market compared with the e-commerce boom of 2020 that saw box production skyrocket.

“Something I think people are overlooking to their peril is e-commerce [isn’t] what it was supposed to be,” Miller said, referencing what often is dubbed the “Amazon effect.”

He noted that, as a percent of retail sales, e-commerce peaked in the third quarter of 2020 and has trended downward as retail stores reopened and “people went back to where they could see other people.”

In its most recent sustainability report, Amazon reports a 38 percent decrease in per-shipment packaging weight since 2015 and has eliminated more than 1.5 million tons of packaging. Over the past five years, Amazon has reduced its use of corrugated boxes by more than 35 percent.

“If you read the Amazon sustainability report, you’ll discover how much less paper they’re using in their packaging, you’ll discover how there’s machines out there that can make the packs so tight around the product and you’ll discover their shift to plastic or mixed plastic and paper or paper-flexible packaging,” Miller said. “It’s simple, folks: It’s lightweighting. The e-commerce people have figured this out; they don’t want to pay to ship bigger [so] they’re going to make those boxes as tight as possible. They’re going to use something flexible if they can.”

Fellow industry veteran Bill Moore of Atlanta-based Moore & Associates said the story of U.S. paper production still is a good one. “Even in the declining overall paper and board usage, recycled fiber use has been going up, and the percentages have gone up steadily,” he said during the discussion.

However, Moore characterized last year’s pricing as “a tale of two half years.” When asked where the OCC and containerboard markets are headed, he said, “It’s probably not going to be pretty.”

Moore said the softening in the corrugated box business, which was down 3.8 percent in 2022 compared with 2021, has been the main culprit in upending markets. Box shipments were up 5.7 percent in 2020—the fastest growth in 27 years, he said, but the decline last year wiped out two-thirds of that growth. It was the worst corrugated box decline since the Great Recession in 2009.

In his presentation, Moore said although box demand should start to grow again, he expects low containerboard operating rates for a while and containerboard overcapacity to persist through 2023 as more projects start to come online.

“The new containerboard machines will run—they’re large, they use the newest technology at the lowest cost,” he said. “The problem is closures of high-cost mills and small containerboard mills. You have to be careful you don’t get your receivables too high to mills that might not be around in the second half of 2023.”

“We all know that paper mills have excess capacity; we all know about the downtime with those mills,” Miller added. “We know that all this new capacity is competing with existing capacity—older, less efficient capacity—for those raw materials.”

In terms of mixed paper and OCC pricing, Moore said he expects the markets to stay toward the bottom of the cycle longer because no matter what the price is, MRFs keep “cranking out” OCC and mixed paper.

“Even though the markets are soft right now, we are going to need more recovered paper going forward with all this new capacity,” he added