Major paper recycler Smurfit Kappa has said that it expects the price of corrugated cardboard to increase in the second half of 2013.
In its Q1 results, Smurfit Kappa also announced its intention to close two existing paper machines at Townsend Hook in Kent and replace it with a new machine by the fourth quarter of 2014.
On reporting earnings before tax of €241 million, Smurfit Kappa Group (SKG) chief executive Gary McGann said: “SKG’s performance reflects the previously guided margin compression in Europe following OCC and recycled paper price increases which are not yet reflected in corrugated pricing.
“A €40 per tonne recycled paper price increase in Europe during the quarter supports corrugated pricing. Input costs including OCC continue to move upwards. Paper price increases and a good inventory position across Europe are creating an environment for corrugated price recovery in the second half of 2013…
“…As part of our previously announced strategic investment in the Townsend Hook mill in the UK, we are accelerating the closure of the two existing paper machines at the mill. They have a combined capacity of 250,000 tonnes and are expected to close on 1 July 2013, after the completion of a consultation process with all employees, instead of 2014 as originally planned.
“We are bringing forward the closure in order to extend the training period for our workforce, advance the start-up of the new paper machine and increase the pace of the expected ramp up.
“The approximate £100 million investment involves the rebuilding of the machine acquired from the Cadidavid liquidator in 2011 into one 250,000 tonne modern lightweight machine which will now be operational by the fourth quarter of 2014 rather than the first quarter of 2015. This investment will significantly increase productivity and lower costs in our UK business.”
In its results, Smurfit Kappa said that European corrugated prices were flat through the first quarter but fell 1 per cent compared to the underlying price in the fourth quarter of 2012, and over 2 per cent compared to the average price for the year for 2012.
It said this decline was because of volatile and falling OCC and paper prices over the period.
However, it expects successful paper price increases in the first quarter will again act as a catalyst for further corrugated price recovery in the second half of the year.
It also noted that OCC prices have risen steadily since September 2012 with a €25 per tonne or 33 per cent index. The company also expects that with Europe remaining net long by approximately 1.5 million tonnes of OCC, and increasing Chinese demand and one million tonnes of extra capacity expected to be added in the US in 2013, that this will underpin global OCC prices over the long term.
