Fundamental Fault in the FBB market

The major ingredient in folding boxboard is mechanically produced pulp, which gives this kind of paperboard a stiffness making it suitable for many packaging applications.

15/09/06 “Prices have stayed at the same level for a number of years whilst variable costs have increased dramatically,” says Björn Kvick, President of Iggesund Paperboard. “Something is wrong with the FBB market in Europe – and if this trend continues FBB producers will be put out of business.”

The major ingredient in folding boxboard is mechanically produced pulp, which gives this kind of paperboard a stiffness making it suitable for many packaging applications. Mechanical pulp provides an excellent yield per cubic metre of timber but the pulping process requires a great deal of electricity. Rapidly rising energy prices have now put FBB producers in a difficult cost squeeze.

“Most European producers have extremely narrow margins,” Kvick explains. “This is due not only to energy prices but also to cost increases in a number of other areas. The paradox is that the price situation in Europe is stable and inflation is low – but the prices of our input goods are still rising sharply. This has led to an untenable situation.”

The cost of producing a tonne of FBB has changed radically in the past few years. Electricity and oil prices have doubled in the last two years for Scandinavian producers. The cost of the chemicals used in paperboard manufacture follows the movement of energy prices – in both cases now upwards. Oil prices also affect shipping costs regardless of whether the shipping is done by boat, train or road.

As well, there is increasing competition for forest products. The prices of both chemical pulp – which is also used to make FBB – and sawn timber have increased greatly, making matters even worse.

“The cost increases are affecting all the European producers more or less equally,” Kvick says. “Both demand and shipments are high, which is a classic situation for price increases – and they have to come now.”