It’s a predictably quiet Friday for UK stock market company news yet UK packaging firm Smurfitt Kappa (SKG) is one of the FTSE 100’s biggest risers despite having nothing new to tell investors. Shares in the £5.2bn-plus company are up well over 2% at £22.54.
UK listed peers DS Smith (SMDS) and Mondi (MNDI) are also seeing demand from investors with the share prices of both also positive - about 1.5% and 1% higher respectively at 341.3p and £18.555.
These are global players in virtually everything paper-based in packaging solutions. This includes fruit juice containers to product displays, plus the cardboard padding that protects the books, CDs, clothes and thousands of other products bought online.
MOODY MARKETS
These typically cyclical companies have been sold off heavily as investors became increasingly worried about global growth.
Most recent data from RISI, the packaging industry market intelligence firm, seems to back that view up. They report falling prices of paper-based and cardboard packing materials in January, with analysts estimating Kraftliner and recycled containerboard grades in Europe down €30 to €40 per tonne since October.
Yet things might be about to turn for the better thanks to a little-known industry trend in the US - downtime. That’s because as demand weakened, customer inventories built up, meaning lower new orders.
All three of the major US packing firms - International Paper, WestRock and Packaging Corporation of America - have reported shipment volumes bouncing so far in 2019 from little or no growth in 2018's last quarter.
PROTECTING PRICES
Traditionally, US producers maintain domestic pricing through a combination of lower export pricing and downtime. While export prices have been declining in recent months, 'it now appears that the industry is set to increase the amount of downtime to reduce inventories,' says Barry Dixon of stock broker Davy Research.
This means, in theory, just as demand is starting to increase in the US the local players are taking their feet off the manufacturing accelerator to allow packaging stockpiles to reduce.
That provides opportunity to fill order gaps by the UK trio, while also capping the pressure of US imports into Europe.
Read more about the UK packaging industry by clicking through to our article archives:
