Rising energy costs and closures push up corrugated materials prices

Buyers of corrugated cases and trays are being faced with price increases of between five and 12% as costs in the energy-intensive paper industry spiral upwards.

As the Confederation of Paper Industries (CPI) points out, it is the paper producers, rather than the packaging converters they supply, that are being pinched hardest by energy costs. Corrugated sector manager Andrew Barnetson estimates that while energy costs can now represent 25% of turnover for paper mills, the figure is closer to 3% for corrugated plants.

So while no corrugated plants have had to cease production in recent months, closures have been announced for at least five paper mills since October. The most recent of these, David S Smith's Sudbrook Mill, has been making annual operating losses of around £3m. Some closures have been triggered by post-merger rationalisation, others by escalating cost problems.

According to Peter Aubusson, group communications manager at David S Smith, energy cost pressures are being felt across the entire European paper industry, but the UK is particularly badly affected. Price increases are still under negotiation, he says, but some could be up to 10 or even 12%.

"In the past year, UK mills making paper for corrugated have seen a 10% decrease in demand," says the CPI's Barnetson. "Companies are increasingly importing these materials."

Those producing corrugated board and cases are trying to pass on their suppliers' energy cost increases, as well as their own, says Aubusson at David S Smith. As the larger groups have moved to shut down loss-making mills, this has had the effect of tightening supply in paper. "So the price increases have by-and-large been sticking," he says.

According to the CPI, consolidation means that the four main players in the corrugated industry now account for around 80% of the UK market, with the remainder split between a large number of smaller suppliers.