Materials
Smurfit Kappa forecasts more corrugated price rises
Smurfit Kappa is to introduce further corrugated price increases over the next year to recover rises in input costs.
The group has experienced pressure on margins in its corrugated business, which increasingly specialises in retail-ready packaging, because box prices do not yet fully reflect higher input prices.
According to results published today (15 August), Smurfit Kappa's profits for the first six months of 2007, before exceptional items and share-based payments, increased by 28.4% on the same period last year to £348m (€514m), while sales rose 4% to £2.45bn.
However, pre-tax profit after exceptional items was £318,300, compared with a £33m loss this time last year.
Corrugated demand growth has remained strong in Europe, especially in the UK, Benelux and Germany, and Smurfit Kappa achieved a 3.7% rise in recovered paper and containerboard prices in the first half of 2007.
The group's kraftliner profits suffered in the first half of 2007 after it was unable to sustain anticipated price increases due to increased imports into the European market and higher wood costs.
The company has also reduced its net debt by a quarter since December 2006 to £2.4bn, mainly through a £1bn initial public offering.
Smurfit Kappa announced the closure of its Alaincourt containerboard mill in France during the first quarter of 2007. It will transfer the mill's machine to another of its plants, resulting in a net annual capacity reduction of 50,000 tonnes.
Smurfit Kappa said more than 1.5 million tonnes of higher-cost capacity had been removed from the European recycled containerboard market over the past 18 months, representing close to 8% of available industry capacity.
Smurfit Kappa: retail-ready specialist
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Comments
Packaging Buyer - 15 August 2007
The market is neither ready for a another price hike this year, neither for continuing the situation we've seen in the last 1.5 years.
SmurfitKappa should be very conscentious in what they are trying to do.
Kieran Delaney - 16 August 2007
Markets are never 'ready' for price increases and yet they are inevitable. There is one due in September and more a certain to materilise in the coming months.
One of the biggest problems that corrugated manufacturers face is the expectations of modern Buyers. Obviously, Buyers are incentivised to reduce costs and supplier-margins which has reduced the effectiviness of business to business relationships - its all about the money! That fact coupled with the rising of UK-wide material and energy costs forced the industry into a 'tight margin' corner from which many did not survive.
Despite the short term challenges of implementing the price increases, the long term benefits of industry cleansing, lower capacity and market consolidation mean that the increases will only help the corrugated industry which has been slowly recovering for the last couple of years. The signs are looking good at the moment and the increases have played there part. There will, however, be more casualties to come before the market recovers.
Packaging Buyer - 16 August 2007
End the end of the day consumers in the supermarkets will not pay the bill for increased costs of finished goods.
This leads to the fact that producers of those goods cannot implement higher prices for what they are selling. Therefore they will try to keep their costs of finished goods under control. Looking at corrugated material as a low value added commodity, that will be one of the areas where strong leveraging activities will take place.
Looking back 15-20 years these price hikes come and go. At the end of the day they were never sustainable for more than 2-3 years. New capacities will be thrown onto the market, supply and demand will balance out, next are overcapacities, retiring of such, ... the whole story starts again. Only difference is that this time some market players are on the edge with their behaviour, moving to a situation that will not be accepted. Looking at Kraftliner on the continent we are seeing first signs of that.
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