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Investing.com -- Shares of International Paper (NYSE:IP) climbed 2%, Packaging Corp (NYSE:PKG) gained 1.6%, Smurfit Westrock (NYSE:SW) increased by 0.4%, and Greif (NYSE:GEF) edged up 0.5% following the announcement that Georgia-Pacific, a major containerboard producer, will permanently shut down its Cedar Springs, GA containerboard mill, effectively reducing North American capacity by approximately 2.5%.
The closure, set to take effect on August 1, comes as Georgia-Pacific expressed concerns that the mill would not be able to competitively meet long-term customer demands. The company plans to continue operations for a brief period to complete existing orders. This decision is seen as a strategic move to align supply with demand within the industry.
Truist analyst Michael Roxland commented on the impact of the closure, stating, "Overall, we view the closure as positive for North American containerboard supply/demand dynamics and believe it could be supportive of pricing." The reduction in capacity follows a series of similar announcements within the industry, including closures by Smurfit Westrock, International Paper, and Greif, which together account for a significant reduction in North American containerboard capacity.
The consolidation of supply in the containerboard market may lead to improved pricing power for the remaining producers. These developments align with the analyst’s view that the industry is taking rational steps to manage supply in accordance with demand levels.
Additionally, the United States is currently negotiating trade agreements with several countries, including China. Any permanent trade resolutions could boost consumer confidence and, consequently, demand for containerboard. This increase in demand, coupled with the recent capacity reductions, could potentially lead to further price increases for containerboard products before the end of the year, particularly in light of the seasonally stronger demand expected in late summer and early fall.
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