International Paper sees better bulk box demand in Q2

Houston — International Paper saw strong demand for products used to make bathroom tissue, paper towels and corrugated packaging used for moving food in bulk in the three months that ended June 30, but printing paper demand saw declines worldwide as offices remain shut and schools delay reopening amid the coronavirus pandemic.

"Our North America box shipments were flat in the second quarter compared to last year, and we saw continued strong demand for fluff pulp," CEO Mark Sutton said during the company's second-quarter earnings call July 30. "However, we've seen a substantial decline in demand for printing papers across all geographic regions due to work-from-home and school disruptions."

The company reported a quarterly profit of $266 million, down 8.9% from $292 million in the year-ago period.

Sutton said the company was starting to see some recovery in markets it serves as economies reopen from widespread shutdowns in Asia in the first quarter and the US, Europe and other regions in April and into May.

"Having said that, uncertainty regarding the duration and magnitude of the economic impact of COVID-19 persists," he said.

Caustic soda a key feedstock for pulp and paper

The pulp and paper industry is a key market for caustic soda, a byproduct of chlorine production used heavily for industrial manufacturing.

US caustic soda prices were under pressure for much of 2019 as industrial manufacturing slowed. However, US export caustic soda prices doubled to a 2020 peak of $400/mt FOB USG by mid-June from $200/mt FOB in January as chlor-alkali producers slashed rates on low chlorine demand, tightening caustic soda supply. At the same time, prices in Europe and Asia fell, prompting buyers in the US and Latin America to seek cheaper cargoes from those markets.

Market sources expected the US supply-driven price boost to be temporary, and export prices have retreated 25% to last be assessed July 28 at $300/mt FOB, S&P Global Platts data showed.

International Paper Chief Financial Officer Timothy Nicholls said July 30 that demand for corrugated packaging and fluff pulp was resilient, though lower than during an initial surge in the latter half of the first quarter of the year as the pandemic began spreading worldwide.

Corrugated packaging saw demand decline initially when widespread shutdowns forced closures of restaurants that receive bulk food deliveries. Brief closures of meat processing plants because of positive novel coronavirus tests among workers also slowed demand for boxes designed to move such products in bulk.

However, that demand improved as restaurants began reopening and meat plants resumed operations.

"Consumer demand for beef, pork and poultry is strong and processing plants are returning to normal capacity," Nicholls said. "We're seeing modest improvement in fresh produce and beverage as restaurants and food service activity slowly reopened."

The initial surge in demand for market pulp to make bathroom tissue and paper towels has normalized, with some destocking seen in the latter half of the second quarter as customers work through high inventories, he said.

"We continue to operate in a challenging and uncertain environment as economies around the world reopen and consumers adjust their purchasing and consumption behaviors," Nicholls said. "As we move into the third quarter, we see resilient demand for packaging, which should benefit from food service reopenings, although still at a modest pace. Underlying consumer demand for absorbent hygiene products remains solid, but we do expect some inventory destocking for fluff pulp as supply chains normalize."

As for printing paper, he said the company has seen early signs of an improvement from "severely depressed levels" as office and school closures crushed demand.

Sutton said a demand recovery for paper depends on the status of novel coronavirus therapeutics and treatments as well as comfort levels when it comes to returning to offices and schools.

"People are bringing some of their employees back in a very careful way, and we're seeing a correlation to printing paper demand with that," he said.