Paperboard Mills

SIC 2631

Industry report:

This industry consists of establishments primarily engaged in manufacturing paperboard from wood pulp and other fiber pulp. Paperboard mills may also manufacture converted paperboard products. Establishments primarily engaged in integrated pulp production and paperboard manufacturing are included in this industry if they ship mostly paperboard or paperboard products. Establishments primarily engaged in manufacturing converted paperboard products from purchased paperboard are classified in Industry Group 265 or 267. Establishments primarily engaged in manufacturing insulation board and other reconstituted wood fiberboard are classified in SIC 2493: Reconstituted Wood Products.

Industry Snapshot

U.S. paperboard producers manufacture the vast majority of paperboard used in the United States. In addition to dominating the domestic market, they also hold a strong position in the international market. U.S. paperboard mill shipments were valued at $25.3 billion in 2007, according to the U.S. Census Bureau. The largest category was unbleached kraft packaging and industrial converting paperboard, followed by recycled paperboard, bleached packaging and industrial converting paperboard, semichemical paperboard, and wet machine board.

Two grades of paperboard, corrugating medium and linerboard, are used to make corrugated shipping containers. These two grades account for the majority of paperboard produced in the United States. A third grade, solid bleached sulfate (SBS), used for folding cartons such as those used in retail stores, accounts for a large share of the remaining production. Paperboard grades also are distinguished between folding and non-folding grades. Folding grades have to be flexible enough so that when the board is folded to make a box, such as a cereal box, the surface will not split or crack.

Paperboard production typically is about 88 percent to 98 percent of total capacity, depending on economic conditions. A survey from the American Forest & Paper Association (AF&PA) indicated that in 2008 18 U.S. paperboard mills were permanently closed. However, the capacity for linerboard and bleached paperboard rose by 1.2 percent and 0.6 percent, respectively. Recycled linerboard capacity increased 434,000 tons, and unbleached kraft linerboard capacity rose by 105,000 tons. The AF&PA predicted that Pratt Industries' launch of a new recycled linerboard machine would help increase linerboard capacity by 0.8 percent in 2009, 0.7 percent in 2010, and 0.5 percent in 2011. Capacity for corrugated medium was relatively stable at 10.5 million tons in 2008, and the AF&PA expected this figure to increase slightly in 2010 and 2011.

Organization and Structure

Paperboard production in the United States is divided into four major categories. Unbleached kraft paperboard is made from pulp containing not less than 80 percent wood fibers produced by the sulfate (kraft) process. Since it is unbleached, this type of paperboard retains a brown color. Recycled paperboard is manufactured from a combination of recycled fibers from various grades of paper stock, with the larger portion of the pulp being recycled fibers and the lesser amount being virgin fibers. Recycled paperboard that contains no virgin fibers is commonly called 100 percent recycled paperboard. Semichemical paperboard is made from pulp containing not less than 75 percent virgin wood fibers, the majority of which is produced by a semichemical process. Solid bleached packaging paperboard is used in packaging and made from pulp containing not less than 80 percent bleached virgin wood fibers. This paperboard is white and is used for higher-end packaging applications, such as milk cartons and frozen food packaging.

More paper and paperboard is used to make packaging than in any other single application. While most paperboard is still made from virgin fibers (trees), paperboard mills have traditionally used a large percentage of recycled fiber because of favorable economics. The use of recycled fiber in paperboard production is growing quickly, especially in products in which the reclaimed pulp does not need to be cleaned. Combination boxboard, for example, is used in cereal cartons where two white outside layers mask a recycled, gray inner layer.

Paperboard produced on cylinder board machines has commonly been made from recycled fibers. Cylinder machines form the paperboard web in separate layers, which are then pressed together. This process makes it possible to hide a layer of recycled board, which can have poor appearance and lower strength between two outside layers of virgin material.

Fourdrinier paperboard machines, which traditionally have made paperboard in a single web, are generally used to make virgin paperboard since it makes a superior web from one fiber source. Newer paperboard machines, however, include machinery that allows the formation of a single web from different fiber sources.

Kraft softwood has been the preferred pulp for making paperboard because of its superior strength characteristics. While most paperboard is unbleached, retaining the characteristic brown color of the pulp, bleached grades are often used where the consumer is likely to see the box, such as gift boxes and food and beverage packages. Besides food applications, cosmetics and other high-profit products use the more expensive bleached board.

Paperboard comes in a wide variety of styles and qualities but can be divided into two categories based on its use: containerboard, which includes all the materials used for making corrugated boxes, and boxboard, which includes all the materials used for making non-corrugated packaging such as food containers and department store boxes. Containerboard is divided further into two subcategories: corrugating medium, the inner fluted part of the box; and linerboard, which makes up the outer faces, or layers, of the box. Corrugating medium, or "medium," as it is often called in the trade, is made from both semichemical pulp and recycled fiber.

Boxboard is divided into three subcategories: folding boxboard, set-up boxboard, and milk carton/food service boxboard. Most paperboard can be coated with a pigment such as clay to improve printing properties. Most grades of paperboard can also be made impermeable to air and liquids by using plastic coating and laminating, which is essential for products such as milk carton stock.

Corrugated Boxes.
The universal use of corrugated containers for shipping manufactured goods by truck, train, or ship makes this grade one of the largest in the paper and board industry. Many converting plants located throughout the country use corrugating medium and linerboard, which are glued together to make boxes. These converting plants are located close to users of the containers and are often owned by the same company that manufactures the linerboard and medium.

The main raw material used in making corrugating medium is semichemical hardwood pulp. Hardwood pulp, which is made from deciduous trees such as oak and maple, is used rather than softwood pulp made from conifers such as southern pine. Hardwoods are used because they are less costly and help to make the corrugating medium stiff, since they are less flexible than softwood fibers.

Unlike the pulp used in other types of paper and paperboard, the pulp used for making medium still contains some lignin, the chemical "glue" that holds fibers together in the tree. The lignin is present because medium pulp is not washed as intensively as pulps used in making other grades. As a result, the lignin and other wood by-products are left in the pulp and formed into the web of paperboard. When the paperboard web goes through the corrugator, the remaining wood by-products help form the rigid fluted shape.

Growth of Recycling.
Like other predominantly virgin paper and paperboard grades, semichemical medium has seen its share of total capacity decline as a result of increased production of recycled products. Semichemical medium's share of total medium production declined to 60.4 percent in 1998, compared with 79 percent in 1980, while recycled medium's share grew to 39.6 percent. Much of that change occurred in the 1990s, when many paperboard mills expanded their capacity to produce recycled medium.

While there are many basis weights for both semichemical and recycled medium (including 22, 26, 33, 36, and 40 pound), the standard weight is 26 pound. It accounts for nearly 80 percent of all production.

Medium production is directly related to U.S. corrugated box shipments. In the late 1980s and early 1990s, box shipments grew faster than the general economy. Through the rest of the 1990s, growth in box shipments tracked more closely with growth in the general economy. In 2000 and 2001, rising competition from imports and the migration of production to countries like Mexico caused box shipments to fall 6 percent. According to Pulp & Paper, this drop represented the first two-year decline in 26 years.

Unlike medium, linerboard is made mostly from softwood fibers. However, linerboard may contain up to 20 percent hardwood pulp or recycled fiber. The recycled fiber may be made from cuttings from corrugating plants or other recovered corrugated material. Softwood is needed to give linerboard adequate strength. Most softwood pulp for linerboard is produced using the kraft pulping process. To suit the varied packaging needs of box consumers, bleached kraft linerboard is made in many different basis weights. The standard variety is 42 pound, but other major grades include 26 pound, 33 pound, and 69 pound. While production of recycled linerboard is significantly less than virgin linerboard, 100 percent recycled linerboard grew very fast in the United States from the late 1980s through the 1990s.

Solid Bleached Sulfate.
Solid bleached sulfate (SBS) is a top-quality paperboard made from pulp that includes at least 80 percent bleached virgin fiber. Most U.S. produced SBS is coated with a clay solution to improve its surface for printing. SBS used as linerboard, folding boxboard, and for food packaging, such as milk carton stock, and is often coated with polyethylene. Basis weights for SBS range from 40 to 100 pounds. SBS also is used for products such as disposable cups and plates and as linerboard for corrugated boxes and displays that need an outside surface for high-quality, four-color printing.

Another product made by some mills that produce SBS is bleached bristol. This product, usually a lightweight grade, is used for greeting cards, paperback book covers, and telephone directories, among other products. Bristol is usually classified under paper production, rather than paperboard.

Background and Development

Since the majority of paperboard capacity is used to make materials for corrugated boxes, the background and development of paperboard mills tends to mirror growth in the use of these boxes.

Wooden crates and boxes were the preferred method for domestic and international shipping before corrugated containers became the accepted standard. However, this began to change dramatically after the U.S. Federal Trade Commission (FTC), in the 1914 Pridham decision, legalized the use of corrugated packaging in shipping. Furthermore, during World War I, the U.S. military spurred research and development of corrugated packaging to ship military supplies.

As new methods helped improve the strength and durability of corrugated containers, their use in the general economy increased dramatically. For example, between 1935 and 1942, 29 new paperboard machines came on line. Collectively, these machines produced 15,545 tons per day. During World War II, military needs fostered improvements in corrugated shipping containers, including water and temperature resistance. In the postwar years, the growth of corrugated containers more than kept pace with the general economy, which also was growing rapidly. In addition, the development of more disposable containers for products such as food and beverages caused notable increases in the production of SBS board. In 1988 paperboard accounted for 52.6 percent of overall U.S. paper and paperboard production.

Like other sectors of the U.S. pulp and paper industry, the 1990s were volatile for U.S. paperboard mills. The industry experienced depressed conditions in the early 1990s, booming demand and huge price increases in 1994 and 1995, and falling prices in 1996. For example, year-end transaction prices for 42-pound kraft linerboard were $315 per ton in 1993 before shooting up to $430 per ton in 1994 and $480 per ton in 1995. However, this run-up was followed by a huge drop in 1996 to $360 per ton. Prices remained at those depressed levels for the remainder of the 1990s but began a cyclical recovery in 1999. One of the reasons prices for linerboard and other paperboard grades plummeted in 1996 was that capacity increases far outpaced product demand, which was in some cases falling as customers worked off large amounts of inventory they had purchased in anticipation of future price increases.

In the late 1990s, the U.S. paperboard industry made only modest increases in capacity. In addition, many mills took extensive downtime to reduce excess inventories of paperboard. Furthermore, some paperboard companies went as far as closing some aging mills that contributed to excess capacity. For example, in 1998 Smurfit-Stone Container Corp. announced the closure of four mills that produced about 1.1 million tons of containerboard. The move followed the creation of Smurfit-Stone Container by the merger of Jefferson Smurfit Corporation and Stone Container Corporation in November 1998.

The total capacity of U.S. mills to make paperboard reached 53.9 million tons in 1998, just a 1.3 percent increase over the previous year. Within the overall paperboard category, containerboard grades were up 1.6 percent in capacity during 1998, an increase of 600,000 tons, and boxboard capacity was up 1 percent in 1998, an increase of 100,000 tons.

In 1998 the dollar value of U.S. production of paperboard commodities increased nearly 3 percent due to strong domestic and export performances by U.S. containerboard mills. U.S. producers of containerboard had noticeably higher sales to export markets, domestic corrugated and solid fiber box plants, and non-packaging containerboard end-use markets. In the mid- to late 1990s, U.S. paperboard mills, particularly the containerboard segment, had record sales opportunities for many of their products in corrugated box, shipping container, and carton plants in southeast Asia, Europe, and Latin America, which led to a significant increase in paperboard exports.

While capacity, demand, and prices are the key elements determining the status of the U.S. paperboard industry, other factors also have come into play. U.S. linerboard is recognized worldwide as being the highest quality and best performing linerboard for most packaging applications. One of the major changes in linerboard occurred in the early 1990s when "Rule 41, Item 22" of the freight classifications was changed to emphasize "ring crush," which measures resistance to compression instead of bursting strength. This change allowed U.S. manufacturers to begin making more "high performance" linerboard, which is lighter in weight than traditional liner but still useful for shipping. As a result, U.S. producers have developed a number of high performance bleached and unbleached linerboard grades.

By the early 2000s, weak global and domestic economic conditions plagued paper and paperboard producers. In addition, the industry faced overcapacity and slack demand. Production of paperboard dropped from 51.1 million tons in 1999 to 46.8 million tons in 2001. According to the American Forest & Paper Association (AF&PA), by spring of 2002 an overvalued U.S. dollar had a negative impact on exports and effectively handed larger shares of the domestic market to international competitors. In particular, kraft linerboard exports suffered. Once a leading export category, kraft linerboard exports declined sharply to 2.7 million tons in 2002 from levels of 4.5 million tons in 1997. Shipment values for U.S. paperboard mills, which climbed to $23.4 billion in 2000 from $21.3 billion in 1999, were likely impacted by the industry's challenging climate in 2001 and 2002.

Consolidation was taking the containerboard segment of the industry by storm in the early 2000s. According to Official Board Markets, by late 2002 the Association of Independent Corrugated Converters (AICC) was concerned that more than 71 percent of the North American market was controlled by the five leading producers. This statistic marked a significant increase from 1995, when the five leading firms controlled almost 44 percent of the market. Worldwide, the ten leading containerboard manufacturers controlled 40 percent of the industry's total capacity in 2002. While some analysts noted that industry consolidation had a stabilizing effect on prices, the AICC argued that it provided "containerboard producers inordinate power to influence the price of raw material with no relation to demand for corrugated boxes."

Consolidation and the industry's difficulties on the trade front led to a number of mill closures. Over a five-year period, domestic paper and paperboard companies shuttered around 72 mills, leading to a workforce reduction of about 32,000. This amounted to 5.8 million tons of shuttered capacity by 2004.

At the same time, the industry experienced a modest rebound. With increased capacity came increased sales for some of the companies. In 2004 Georgia-Pacific, International Paper, and Weyerhaeuser recorded sales increases of 2 to 7 percent. Industry-wide, shipments grew from 32.6 million tons in 2003 to 34.3 million tons in 2004. Containerboard reported an increase in consumption of 5.6 percent, and inventory levels were 2.3 percent higher than the year before. Rigid box billed sales reached a sales value of $9.4 million in the first quarter of 2004, compared to $9.1 million in the same period of 2003.

By 2006, the U.S. paperboard mill industry had revenues of nearly $21.2 billion, according to Supplier Relations U.S. LLC. This figure represented constrictions in the industry from increased energy costs, an influx of imports from China, and declines in production due to such natural disasters as hurricanes and forest fires. The American Forest & Paper Association reported that paperboard mills produced 4,283 1000-short tons through May 2007, a 0.3 percent decrease over the same period in the previous year. Bleached paperboard saw the greatest increase during that time, an increase of 2.5 percent, while unbleached kraft linerboard saw the greatest decline, of 2.3 percent. The semichemical and recycled segments remained relatively flat.

Current Conditions

The U.S. Census Bureau reported that 187 paperboard mills operated in the United States in 2007, down from 210 in 2005. Employment had also dropped, from about 38,800 workers in 2005 to 36,641 in 2007. According to Dun and Bradstreet's (D&B) 2009 Industry Reports, Illinois was home to the largest number of employees in this industry, followed by South Carolina, Wisconsin, Virginia, and Alabama. Illinois also ranked number one in terms of revenue, according to D&B figures. Other top states in terms of sales were Virginia, Georgia, and South Carolina. In 2008 the U.S. paperboard mill industry generated revenues of $27.2 billion, according to Supplier Relations US LLC.

The Bureau of Labor Statistics cited the paper, pulp, and paperboard mills industry as one of the most rapidly declining in terms of employment in the late 2000s and predicted that employment in the sector would decrease an average of 3.6 percent annually between 2006 and 2016. Total employment in the industry was 127,450 in 2008, and about 52 percent of employees were production workers.

The demand for paperboard products stagnated in the late 2000s due to a slow economy. International Paper Company's CFO Timothy Nicholls commented in August 2009, "I don't think we've seen anything that could be called a trend other than the flat market." On a positive note, Nicholls expected almost double shipments to China in 2010.

Industry Leaders

Major paper companies produce large quantities of both paper and paperboard, so the industry leaders are many of the same companies listed under SIC 2621: Paper Mills. However, some large companies have much larger interests in paperboard than other companies in the industry.
Smurfit-Stone Container Corporation.
Chicago-based Smurfit-Stone Container Corporation was one of the world's largest paper-based packaging companies, supplying about 11 percent of the world's containerboard. The company was formed on November 18, 1998, following the merger of Jefferson Smurfit Corp. and Stone Container Corp. Core products include corrugated containers, folding cartons, and specialty and bag packaging, supported by an integrated mill system and major fiber resources. Although its overall capacity declined 1.8 million tons following the merger, by 2002 Smurfit-Stone's containerboard capacity totaled nearly 7.8 million tons. The company's capacity in the area of coated and uncoated boxboard amounted to 602,000 tons, followed by approximately 323,000 tons of solid bleached sulfate (SBS) capacity. Smurfit-Stone operated more than 300 facilities worldwide and had 2008 sales of $7.0 billion. The company filed for Chapter 11 bankruptcy in early 2009.

Packaging Corporation of America.
Packaging Corporation of America (PCA) was a leading manufacturer of corrugated packaging and containerboard. In 2008 the company made 2.4 million tons of containerboard. Based in Lake Forest, Illinois, PCA also operated linerboard mills, corrugating medium mills, and dozens of corrugated products plants. In 2008 PCA's sales totaled $2.3 billion.

International Paper Company.
Founded in 1898 by the merger of 18 northeastern pulp and paper companies, International Paper Company (IP) of Memphis, Tennessee, was the world's largest paper company in the late 2000s. In 2008, IP had total sales of $24.8 billion, two-thirds of which came from the paper and packaging markets combined. IP was one of the industry's largest producers of kraft paper and packaging, containerboard and corrugated boxes, and folding boxboard.

Georgia-Pacific Corporation.
Atlanta-based Georgia-Pacific Corporation (GP) had major interests in building products, pulp and paper, and paper chemicals. GP produced containerboard and packaging, communications papers, market pulp, and packaging products at more than 80 facilities in the United States and Canada. In January 2006, Koch Industries Inc. purchased GP for $21 billion.

MeadWestvaco Corp.
Glen Allen, Virginia-based MeadWestvaco Corp. was a forest products company with offices and operations in 30 countries in the late 2000s. The result of a merger between Westvaco and Mead, the company had total sales of $6.6 billion in 2008, mostly from packaging operations, including folding cartons, corrugated boxes, and printed plastics. It also was a leading manufacturer and distributor of school supplies in the United States and Canada. In 2005 MeadWestvaco exited the paper business by selling those paper operations to Cerberus Capital Management, an investment firm, for $2.3 billion.

America and the World

Supplier Relations US LLC reported that U.S. imports of paperboard skyrocketed 42.1 percent between 2005 and 2006 to $122 million. By 2008 imports had reached $129.4 million. Exports by the United States were $110.7 million in 2008, up from $75.3 million in 2006.

Paperboard, particularly linerboard, is one of the strongest export products for the U.S. pulp and paper industry. U.S. linerboard mills, mostly in the South, have traditionally been among the world's lowest-cost producers. However, by the mid-2000s, other nations, particularly China, were vying for increasing shares of the world market. According to Pulp & Paper, after the United States, China was the second largest containerboard producer in 2003. On the consumption side, it also was the fastest growing global market for containerboard.

Linerboard exports tended to increase and decrease sharply due to global economic trends, although the long-term trend has been upward. Prospects for paperboard exports remain strong but are subject to currency and price fluctuation.

Research and Technology

Many of the research trends affecting paperboard mills are shared by paper mills (see SIC 2621: Paper Mills). However, there is some interest in using new concepts such as stratification in making paperboard. Stratification involves using a special headbox that can produce three or more layers simultaneously from different fiber sources. In this way, a layer of recycled fiber or some other lesser quality fiber source can be sandwiched between layers of better quality fiber. With newer model headboxes, these layers can be extremely thin.
Like other grades, much of the effort in research and technology in paperboard is to create machines that will produce a wider web of paperboard at higher speeds. In this way, paperboard mills can run their mills more productively. In addition, as in other grades, mill processes are becoming more automated and less subject to product variation. This shift, combined with continual improvements in paperboard quality, are the main reasons that U.S. paperboard mills can continue to lead the world in both price and product quality.

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