Packaging / Advertising & Office

Import and export data shows that the profit margin of North American pulp and paper companies decreased to 4.2% in the first quarter of 2023, far lower than the 10% profit margin in the first quarter of 2022 and the 8% profit margin in the first quarter of 2021. At that time, both pulp and paper company paper prices hit high levels. The industry profit margin of the epidemic was 4.9% in the first quarter of 2020 and 6% in the first quarter of 2019. According to Fastmarkets' Pulp and Paper Weekly, the lowest profit margins in the first quarter of the past decade were 3.5% in 2012, 4% in 2011, and 1.7% in 2010, respectively.

The total revenue of the 21 largest pulp and paper companies in North America surveyed by Pulp and Paper Weekly decreased by 59.4% in the first quarter of 2023 compared to revenue in the first quarter of 2022, to $1.17 billion. Import and export data shows that the industry's profit margin in the first quarter was also 18.9% lower than in the fourth quarter. In addition, industry revenue decreased by 8.3% year-on-year to $27.95 billion, which is consistent with sales in the fourth quarter of 2022.

01. The pulp and paper industry's "difficult" quarter

During the first quarter financial report conference call, pulp and paper industry executives stated that declining product demand, high inflation, and changes in consumer spending were the driving factors for the "difficult" and "challenging" quarter.

Mark Kowlzan, CEO of Packaging Company (PCA) in the United States, stated during a company earnings conference call at the end of April that demand from its packaging department was lower than expected for the current quarter. Consumer spending continues to be negatively affected by higher interest rates, sustained inflation, and consumers' preference for services over durable and non durable goods.

David Sewell, CEO of Wislock, stated on the company's May 4th earnings conference call that the corrugated packaging and global paper industry sectors are still affected by declining demand, high inflation, and shifts in consumer spending. Although we faced difficult year-on-year comparisons this quarter, we performed well in a challenging environment, "Sewell said.

Visilok ranked first in revenue for the first quarter among the 21 listed companies on the Pulp and Paper Weekly list. Weishiluo's sales in the first quarter of 2023 totaled $5.22 billion, a decrease of 2.9% compared to the same period last year.

According to import and export data, the international paper industry ranked second in revenue this quarter, with sales of 5.02 billion US dollars, a year-on-year decrease of 4.1%. It was followed by Graphic Packaging International with sales of 2.43 billion US dollars, US packaging sales of 1.98 billion US dollars, and Sonoco sales of 1.73 billion US dollars

Mark Sutton, CEO of International Paper Industry, stated on April 27th during a company earnings conference call: As our customers and the broader supply chain respond by increasing product inventory, we will continue to cope with a challenging demand environment. Affected by inflationary pressures, rising interest rates, and commodity pull during the pandemic, services, as well as non discretionary goods. Profit margins are also under pressure from the price decline of our product portfolio, partially offset by the additional benefits of lower input costs

02. Factory Closure and Shutdown

Most paper companies extended their maintenance schedules in the first quarter in an attempt to adjust production according to demand and avoid a decrease in product prices, thereby pushing industry operating rates to low levels. Due to the shutdown, the cost of most factories has increased this quarter, putting pressure on their profit margins.

The company stated that inventory destocking in North America is still ongoing in the first quarter and is expected to enter the second quarter. In addition, several paper companies have announced the closure of inefficient factories or machines, while some companies have started new production capacity, especially for cardboard.

Sewell mentioned that Visilok is closing four "less efficient processing plants" in the field of corrugated packaging and consumer goods. Through these measures, we are integrating our production into other more efficient facilities and increasing our production, enabling us to better serve our customers

In terms of factories, Sewell pointed out that last year, Visilok closed its kraft paper veneer and pulp mill in Panama City, Florida, and cancelled corrugated base paper production in S ã o Paulo, Minnesota. Earlier, we announced the closure of our (cardboard, cardboard, and kraft paper) factories in North Charleston, South Carolina. We plan to continue evaluating these factories, with a focus on using our most efficient assets to drive growth

On May 2nd, Michael Doss, CEO of Graphics Packaging International, told analysts that the company will shut down its coating recycling cardboard machine located in Domo, Iowa in the second quarter due to increased production at the Karamazu factory in Michigan and high operating costs in Domo.

Doss pointed out that in a challenging macroeconomic context, Graphics Packaging International can drive sustained organic net sales growth and profit margin expansion in the first quarter. This performance demonstrates the resilience of our business model and the strong and growing demand from consumers for renewable and recyclable fiber packaging, "Doss said. The first quarter revenue of Graphic Packaging International increased by 8.6% to 2.43 billion US dollars, and the profit increased by 59.1% to 237 million US dollars.

Pactiv Evergreen has decided to close its low profit 620000 ton/year cardboard and double adhesive paper (UFS) paper mill in Canton, North Carolina before June to ensure the company remains competitive. The company will also close a processing plant in Omstead Falls, Ohio, and look for strategic alternatives for its cardboard plant in Pinebluff, Arkansas, and its processing plant in Weinsville, North Carolina.

03. Printing and writing paper continues to be affected by inventory destocking

Import and export data shows that in terms of printing and writing paper, due to weak demand, manufacturers achieved a operating rate of 76% in the first quarter. John Sims, Chief Financial Officer of Sylvamo, a UFS manufacturer, stated in a financial conference call on May 9th that the company's paper volume in the first quarter reflected "ongoing inventory destocking and a worse than expected seasonal slowdown in demand in Latin America

According to production capacity, Sylvamo is the second largest double adhesive paper manufacturer in North America, after Domtar. In the first quarter of 2023, Sylvamo's UFS sales in North America remained unchanged from the same period last year at $505 million, while operating profit increased by 56.5% to $97 million.

04. Wood products face demand challenges

Import and export data shows that in terms of wood products, West Fraser Timber reported another decline in sales for the quarter, reaching $1.63 billion and a net loss of $42 million. In the first quarter of 2023, we faced a challenging demand market, partly due to seasonal impacts and higher mortgage rates continuing to suppress new home construction activity in the United States, "West Fraser CEO Ray Ferris said in the company's earnings report.

Canfor, which is involved in the timber market and the pulp and paper market, also reported a 41.4% decrease in sales in the first quarter and a net loss of $107 million. For our timber business, this is another challenging quarter, "Canfor CEO Don Kayne said in the company's earnings report, In addition, we have announced and begun restructuring the timber business in British Columbia to better align manufacturing capacity with the available long-term fiber supply. Despite improvements in revenue, it has been a difficult quarter for our pulp business due to the shutdown of the pulp production line at Prince George Pulp and Paper Mill