Producers of corrugated containers are keeping a close eye on shipment figures for April, a historically strong month for the industry. An increase, they say, could indicate a trend toward growing demand for the remainder of 2002.

The early part of the year, which typically is weak for corrugated, provided little help in forecasting the months ahead. For Smurfit-Stone Container Corp., the world's largest producer, there was no significant pickup in demand for corrugated containers during January or February. That's after two consecutive years of decline. For the industry as a whole, corrugated shipments were down 2.7% through the end of February.

"A number of factors are influencing this demand environment," says Meg Gallagher, manager, communications, Smurfit- Stone. "Due to the strong dollar, products made and packaged in the U.S. are less competitive than products made and packaged abroad. Manufacturers have been affected by the current recession more profoundly and for a longer period of time compared to companies in other sectors, and these manufacturers are our chief customers."

Sales of corrugated boxes are strongly tied to U.S. economic conditions: About 90% of manufacturers' shipments are contained in corrugated boxes at some point.

Long-term forecast is somewhat brighter. A new report published by The Freedonia Group, Cleveland, shows corrugated and solid fiber box shipments climbing 2% annually through 2005 to $27.1 billion. The market research firm sees competition heating up from reusable plastic shipping containers. At the same time, however, corrugated and solid fiber boxes could benefit from an ongoing shift away from glass and metal packaging toward plastic alternatives, which will stimulate increased requirements for sturdier exterior packaging.

Corrugated boxes are manufactured from containerboard, which consists of fluted corrugating medium bonded between two smooth sheets of linerboard facing. These materials are available in a number of thicknesses and corrugating medium is produced in several flute sizes. The inner sheet offers rigidity, while the linerboard facings provide strength.

Corrugated capacity leaders in 2000 were Smurfit-Stone, Weyerhaeuser, Georgia-Pacific, International Paper, Temple-Inland, and Packaging Corp. of America. These six producers, also the top producers of corrugated boxes, accounted for 62% of total U.S. corrugated capacity in 2000.

With manufacturing barely edging up so far this year, linerboard buyers at boxmaking plants are comfortable sourcing only what they need for actual monthly needs. Inventory is stable and below historical levels. In 2001, producers shut a number of machines either permanently or indefinitely due to weak market conditions.

In January 2002 International Paper announced it would shut its Oswego, N.Y., plant, which makes lightweight recycled linerboard, corrugating medium and kraft paper.

As such, the industry seems to be successfully producing to meet demand. At the end of 2001, the industry's inventory levels were below 2.8 million tons, according to figures provided by Smurfit-Stone. In January, inventories increased a meager 54,000 tons, compared to a five-year average increase of 224,000 tons. This is the second best inventory performance in January over the past 15 years. At the end of February 2000, inventory levels were 2.7 million tons. In contrast, inventory levels were at 3 million tons in February 2001.

Slow growth and excess capacity limits ability of producers to raise prices.

Linerboard prices are the major factor driving corrugated box prices (and many box contracts are tied, through various formulas, to published linerboard prices). Benchmark 42-lb unbleached kraft linerboard in the East fell from a lengthy 2000 plateau of $455/ton to $380 at the end of 2001. Prices have fallen further in 2002; at present, liner is selling for an average $350. If demand picks up, buyers can expect modest price increases toward the end of the year into 2003.

Smurfit-Stone has recently redesigned its Internet site in response to customer input. "We have included far more information about our product offerings, and we have created a comprehensive Web-tracking system to quickly and effectively respond to customer needs and questions," says Gallagher. Through www.ssccboardsales.com, buyers can access detailed specifications for all the company's containerboard products, from white-top to kraft.