Rising linerboard prices in the US are good news for the paper and packaging industry and for the Smurfit-Stone Group in which Jefferson Smurfit Group has a 33 per cent stake. The $50 (€45.86) per ton increase which came into effect this month appears to be holding and with further downtime and reasonable box shipment numbers (demand) industry analysts are pencilling in a further price rise later in the year. But prices at $370 to $375 per ton are still well off their previous peak of $520.
Because the industry is highly capital intensive, price increases tend to feed directly into profits and pricing is the biggest single determinant of share prices. With the price rise, analysts are now positive on paper stocks with recent upgrades in earnings forecasts for Georgia-Pacific and International Paper.
Price rises in the US should eventually filter into Europe where prices fell back last year with some weakness in demand and loose supply conditions. Analysts say demand and supply conditions are not yet tight enough to push prices ahead but see possible price rises in three to six months. Smurfit may help the rationalisation of the European industry if it bids for the paper and packaging operations in Britain and Denmark which have come on the market following the merger of European foods groups, Danisco and Cultor.
However, the positive price news is industry-based rather than specific to Smurfit where some evidence of movement on its $2.2 billion assets disposal plan is awaited. At the end of the first quarter there has been very little evidence of progress on the plan and the blocking by the Australian Competition and Consumer Commission of the proposed acquisition of Stone Container Australia by Visy Industries was a setback.
Smurfit-Stone will be a seller of newsprint assets and the disposal of forests expected to raise $800 million to $1 billion is not expected to take place before mid-year. With the tightening of the Jefferson Smurfit Group grip on the management of the US operation resulting from the exit of Roger Stone and his son-in-law, Matthew Kaplan, at the end of this month, the asset sale programme may gather pace. For real improvement in its share price the group will need to add disposals to the industry price rise.
