The Consolidation Effect

Thursday, July 01, 2010

Consolidation in the corrugated industry seems to be nearing its logical conclusion, a few large companies are holding all the cards on linerboard supply and pricing. When International Paper completed the purchase of Weyerhaeuser a couple years ago, at a cost greater than the value of IP’s own container division, one of the last major feasible mergers in the paper business was completed. Weyerhaeuser as it was constituted was the result of a 2002 merger with Willamette who had acquired Boise Cascade’s box business early in the 90’s.

The history of other paper companies has even more tentacles than IP’s. Smurfit-Stone can follow its genealogy back to Hoerner Waldorf, Champion Paper, Alton Box, National Container, and Container Corporation of America. While that may make your head spin, it is only a small part of the list of mergers and consolidation in the paper industry. All of this activity has positioned a small group of companies to affect the market by eliminating capacity and keeping the linerboard market tight. It also means that each company is highly motivated to keep the market price in a firm position. Finished box pricing is a secondary consideration to the integrated paper companies whose profits are driven by mill revenue, but is a must for Independent box makers to survive.

The Association of Independent Corrugated Converters has questioned the pace of increases in the linerboard market with no avail. The result of consolidation is that only 3-4 producers have to begin moving prices up to move the paper market. Even though the finished box market has a large number of participants and should keep the packaging market competitive, finished box prices are driven most directly by paper costs generated at the mill level.

While we will never be able to control paper costs, Innovative Packaging will always focus on opportunities to optimize packaging from both cost & performance perspectives. Let us know how we can help you in this tough market.