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US Industrial Outlook

Paper and allied products

Paper and allied products – 1991 U.S. Industrial Outlook

Gary L. Stanley

Paper and Allied Products

Before reading this chapter, please see “How to Get the Most Out of This Book” on page 1. It will clarify questions you may have concerning data collection precedures, factors affecting trade data, forecasting methodology, the use of constant dollars, the difference between industry and product data, sources and references, and the Standard Industrial Classification system (SIC). For other topics related to this chapter, see chapters 26 (Printing and Publishing), 33 (Food and Beverages), and 20 (Industrial Machinery).

Within SIC 26, a total of 17 separate manufacturing industries have been defined in the Standard Industrial Classification Manual for 1987. These four-digit SIC industries include pulp, paper, and paperboard mills – three large, capital-intensive, primary manufacturing sectors that process wood fibers from their own timberlands or from purchased virgin and recycled fibers. These sectors produce commodities such as woodpulp, printing and writing papers, sanitary tissue, industrial-type papers, containerboard, and boxboard.

The primary group of industries operated 526 establishments with a total of 195,600 employees in 1987. The remaining 14 industries within SIC 26 are converting operations; i.e., industries that purchase paper and paperboard from the primary producers, and convert that material into tens of thousands of finished products (stationery and office supplies, containers and boxes, bags, wallcoverings, gift wrappings, sanitary paper products, etc.). The more labor-intensive converting group of industries operated 5,768 establishments with a combined labor force of 415,700 in 1987.

The primary sector is relocating its mills into the South, close to major forest resources, although its major plant concentrations remain in the North Central and Northeast regions of the country. The largest proportion of converting establishments is in the more populous states, usually within or near large urban centers. The domestic paper and allied products industry ranks about tenth among all manufacturing industries in sales and gross investment. This industry is among the leaders in average employee compensation, and ranks fifth in energy consumption, more than one-half of which is self-generated.

Environmental issues significantly affected the industry. Legislation on waste reduction has been enacted in more than 20 states and in numerous municipalities. Meanwhile, the industry made progress in making many of its products recyclable and biodegradable, and is expected to make more such changes during the rest of the decade.

Aggregate current dollar shipments of the paper and allied products industry were estimated to have slightly exceeded $132 billion in 1990, gaining less than 1 percent over the 1989 shipments total. Weak demand from many of the industry’s principal domestic markets, in combination with newly added production capacity, resulted in some paper oversupply and soft prices during 1990.

Profits, which began to taper off in 1989 after reaching high levels in 1988, were estimated to have plummeted by 15 to 20 percent in 1990 from 1989. Sanitary tissue products (SIC 2676), and coated and laminated paper products (SIC 2672) represented some of the industry’s few bright spots, while higher prices for wood products in the Pacific Northwest helped bolster profits of some paper companies with integrated woodworking operations in that region.

Industry profitability was further eroded by slowly rising material and labor costs, and rapidly escalating employee health insurance costs. The industry was generally successful in holding down wage increases to an average 2.9 percent during 1990, slightly higher than in 1989. Major bargaining issues centered on eliminating excessive premium pay, controlling soaring health insurance costs, and improving worker productivity. There were some regional labor disputes and a few work stoppages, but generally, 1990 was a relatively calm year for worker-management relationships.

Paper industry capital spending for new plants and equipment remained fairly strong in 1990 – a carryover from the 1988-89 period of heavy spending, totaling about $17.2 billion, 10 percent more than in 1989. Over the 1988-89 period, capital expenditures soared about 38 percent, to $15.7 billion. Sizable investments by the industry over the past few years raised production capacity by an estimated 7.5 percent in the primary paper and paperboard grades, to over 77 million metric tons, although utilization levels were down in 1990.

While the pace of company mergers and takeovers in the paper and allied products industry slowed appreciably in 1990, that year marked the single largest merger action ever affecting the industry, a $4 billion deal that created the world’s largest forest products firm, with sales of about $14 billion, about 30 percent greater than its closest competitors.

Environmental Issues

The industry has always been among the leaders in expenditures on antipollution technology, especially during the 1970s. Its spending for environmental improvements exceeded $1.25 billion during the 1989-91 period – about 7 percent of total environmental outlays. Spending included almost $700 million for improving water quality, about $500 million for cleaner air, and about $60 million for handling solid waste.

The industry committed itself to attaining a 40 percent wastepaper recovery rate for domestic recycling and for export by 1995, in response to growing public pressure to reduce solid waste in municipal landfills and to conserve natural wood resources by utilizing a greater proportion of recycled fibers in its products. This will probably result in an almost 50 percent increase in wastepaper consumption by the industry during the next few years, beyond the estimated 22 million tons consumed in 1990.

An estimated one-third of the primary paper and board mills in operation during 1990 used wastepaper as their principal fiber component, while another 50 percent used between 10 and 50 percent waste materials in their paper-making process. At least 37 planned expansions of mills that will use recycled paper and board were announced in 1990.

Although similar data on the large and diverse group of converting operations was not available, a growing number of these manufacturers of packaging, household, and office products took advantage of the growing trend toward recycled fibers by advertising and promoting their “environmentally friendly” products through appropriate graphics and symbols on their labels.

Legal Protection

More legislation related to recycling is being actively considered throughout the nation. Some proposals require consumers of newsprint to use recycled fiber newsprint for a certain portion of their inputs, these include paper procurement policies favoring recycled materials; others mandate separation of newspapers from other household refuse.

Growing resistance from localities selected as sites for new landfills limit solid waste disposal alternatives. Currently, 84 percent of all municipal solid waste is disposed of in landfills, 75 percent of which are scheduled to be closed within the next 15 years. Because paper and board products constitute nearly half of most municipal solid waste, the most effective solution is to reduce the amount of wastepaper consigned to trash.

The Environmental Protection Agency (EPA) announced plans to develop regulations requiring reduction of dioxin contamination in rivers, streams, and soils, caused by chlorine bleaching of pulp and paper. In addition, the EPA announced that it will work with the Food and Drug Administration (FDA) to ensure that risks posed by dioxin in food packaging (especially paper milk cartons) and other consumer-type paper products, including coffee filters, baby diapers, and sanitary tissue products, will be further reduced.

EPA expects to have its announced guidelines drafted as proposed regulations by 1993, with final regulations projected for 1995. According to industry estimates, it will cost about $20 million at each pulp and paper bleaching plant to install the equipment necessary to reduce dioxin contamination. At the same time, EPA has concluded that there are only miniscule cancer-causing risks associated with paper and paperboard products.

INTERNATIONAL COMPETITIVENESS

The U.S. paper and allied products industry – including wastepaper – historically has had a significant deficit in foreign trade; this imbalance totaled an estimated $2.3 billion in 1990, compared to $3.3 billion in 1989 (data include wastepaper). The deficit is mainly the result of large U.S. purchases of Canadian newsprint amounting to about $4.4 billion in 1989 and 1990. Canada supplies nearly 60 percent of annual U.S. newsprint requirements.

U.S. exports of paper and allied products, which had an estimated value of $9.2 billion in 1990, have grown at a significantly faster pace than similar imports over the past few years. As a result, the industry’s trade deficit has narrowed by about 28 percent over the 1989-90 period. This was largely due to increased competitiveness of U.S. products in foreign markets, resulting from the lower value of the dollar relative to other foreign currencies, and also by growing world demand for quality paper products like those manufactured in the United States.

The European Community (EC) remained the principal regional export market for U.S. paper and allied products, accounting for about 18 percent of the industry’s exports in 1990. The proportion of goods sold to the EC throughout the years has gradually declined.

Japan was the leading importer of U.S. paper goods in 1990, accounting for more than 18 percent of the total value of these exports. The rapid growth of the Japanese market is attributed not only to favorable exchange rates, which have made U.S. products less costly in Japan, but also to significant tariff and nontariff concessions obtained by the United States in the recently concluded U.S.-Japanese Market Oriented Sector Specific (MOSS) talks.

Recent tariff and nontariff concessions made by Mexico upon its entry into the General Agreement on Tariffs and Trade (GATT) facilitated U.S. paper goods exports to Mexico; they now exceed those to Canada. In 1990 each nation accounted for 11.5 percent of total exports. The Pacific Rim area (excluding Japan) has also been a robust market for U.S. paper exporters. Led by South Korea, Taiwan, the People’s Republic of China, and Hong Kong, this expanding Southeast Asian market accounted for about 16 percent of the value of 1990 overseas deliveries.

The bulk of U.S. paper and allied products exports consists of generally lower valued papermaking fibers and packaging mediums. These primary materials have increased from 83 percent of total exports in 1980 to 85 percent in 1990.

U.S. companies still focus on the domestic market – exports accounted for only about 6.5 percent of all paper and allied products shipments in 1990. However, some of these firms are major world suppliers of market pulp, packaging board, and printing/writing papers. An increasing amount of the industry’s strategic planning and resources is spent on analyzing and gaining entry to international paper markets. The unification of the EC market in 1992 will establish common tariffs, standards, and business practices among the member countries. A number of U.S. firms are preparing to meet the pending regulations, so they can participate actively in the massive EC market. The U.S.-Canada Free Trade Agreement will eliminate tariffs on the products of the two countries’ paper industries by 1993.

Imports, which comprised about 8.5 percent of the domestic consumption of paper and allied products (current value basis) in 1990, totaled an estimated $11.5 billion, an estimated 2.6 percent decline from the 1989 level. Principal suppliers to the U.S. market include Canada, Finland, West Germany, Mexico, and Brazil. Major U.S. purchases include newsprint, woodpulp, printing and writing papers, and converted office and school-type paper products. The 1989-90 drop in the value of imported paper products is due to the weaker U.S. dollar, which made foreign products more expensive in U.S. markets, and also to the sluggish domestic demand for woodpulp and communications-type papers during the period.

Outlook for 1991

Shipments of all paper and allied products classified under SIC 26 are projected to increase about 2 percent, in real terms, in 1991. This forecast is based on an anticipated slight increase in the domestic demand for paper goods and growth in U.S. exports of papermaking fibers (woodpulp and wastepaper) and packaging mediums (linerboard and bleached paperboard). Paper demand will depend largely on economic stability, supported by adequate and affordable energy supplies. Although the industry’s immediate concerns will be about the state of the economy in 1991, environmental issues will bear heavily on the industry’s production and marketing strategies during the year.

Long-Term Prospects

The 1991-95 period promises to be as dynamic as the 1980s for the U.S. paper and allied products industry. Significant new technological, structural, and organizational approaches should make the industry even more competitive in both domestic and international markets.

Several U.S. multinational firms will shift significant capital resources and marketing efforts to the consolidated European market and to the Pacific Rim and Caribbean regions in 1992 and beyond. The U.S. multinational companies will not only be direct participants in these emerging market areas, but will increasingly supply particular paper grades to the domestic market from lower-cost foreign-based production facilities and affiliates.

Historically, the U.S. paper industry has created new products for evolving domestic and foreign markets. An example is the increasingly popular aseptic containers used for such shelved products as fruit juices that would normally be refrigerated. The containers are constructed of several alternating layers of paper, plastic film, foil, and other materials. However, a few states are considering legislation to ban the sale of aseptic containers because they are difficult to recycle. Restrictive legislation could significantly reduce the growth rate for aseptics across the nation during the next few years. As this instance demonstrates, the industry will be increasingly affected by environmental considerations dictating the use of recycled fibers in its papermaking materials to reduce the increasing proportion of paper waste entering and remaining in municipal landfills. The industry will spend more on paper recycling facilities and equipment, as well as on reducing air and water emissions. Increased investments also will be directed to decreasing elemental chlorine bleaching processes to further reduce dioxin levels in paper products and in waste water, and conversion to more environmentally acceptable alkaline paper production from the acid-based paper production will continue. – Leonard S. Smith, Office of Forest Products and Domestic Construction, (202) 377-0375, September 1990.

PULP MILLS

After four consecutive years of record sales and prices, domestic shipments of market pulp (SIC 2611) declined slightly in 1990. Based on annualized six-month data, U.S. market pulp product shipments decreased from 7.75 million metric tons in 1989 to 7.64 million metric tons, representing a nearly 1.4 percent decline. Domestic and export market pulp shipments, excluding domestic transfer shipments to affiliated paper or paperboard mills, account for 12 to 15 percent of total U.S. pulp production annually. This industry is comprised of establishments primarily engaged in manufacturing pulp that is sold on the open market. Using either traditional chemical-based processes or newer mechanical or grinding techniques, the pulp is derived from softwoods, hardwoods, or other fibrous raw materials, including wastepaper, rags, cotton linters, bagasse, kenaf, or straw.

Chemical paper-grade market pulp made with sulfate (or kraft) and sulfite cooking processes is the primary output of this industry. This commodity grouping accounted for about 84 percent of all U.S. market pulp shipments in 1990. Domestic and export shipments of bleached and unbleached kraft pulp dominated the industry’s sales, comprising about 79 percent of the 1990 shipments total. Product shipments of bleached and unbleached sulfite pulp totaled nearly 382,000 metric tons and represented only about 5 percent of all U.S. market pulp shipments last year.

Currently, more domestic pulping capacity exists for kraft pulp than for any other chemical or mechanical pulping process. Both softwood and hardwood kraft pulps have distinct advantages over these other pulps, including greater physical strength properties, valuable and economically retrievable pulping by-products such as tall oil and turpentine, and higher yields and lower environmental pollution control costs than other chemical pulping processes.

In 1990, shipments of dissolving and special alpha wood pulps are estimated to have decreased 8 percent, from 1.25 million metric tons to 1.15 million metric tons, and representing 15 percent of all U.S. market pulp shipments.

These high value-added pulps are specialty grades of chemical-based pulps produced from either alpha cellulose, wood, or cotton linters. They are used to produce regenerated cellulose, cellulose derivatives, explosives, textiles, photographic paper, and other high-value specialty papers.

The remaining portion of SIC 2611 sales in 1990 was comprised of shipments of mechanical grades, neutral sulfite semichemical (NSSC), and groundwood pulps. Last year, domestic producers of these pulps shipped about 76,400 metric tons to domestic and foreign papermakers.

The price of northern bleached softwood kraft (NBSK) pulp remained flat for the first two quarters of 1990, after more than doubling from $400 to $830 per metric ton in only three years (1986-89). However, recent reports indicate that the prices of most grades of pulp have started to weaken, followed by heavy discounting of $25 or more. In the first two quarters of 1990, prices of southern bleached softwood kraft (SBSK) declined as much as $50-75 per metric ton. In an attempt to stabilize pulp prices, U.S. market pulp producers lowered their capacity utilization rates in 1990 to ensure that inventory levels would not rise too quickly, thus precipitating a fall in prices. For the first seven months of 1990, U.S. market pulp producers operated at 95 percent of capacity, a 4 percent drop from 1989. These reduced operating rates were primarily the result of lower domestic and foreign pulp demand, especially from Western European and Pacific Rim producers of printing and writing papers.

Another negative factor influencing U.S. market pulp producers is the sizeable increase in their pulp inventory levels. In July 1990, U.S. market pulp producer inventories stood at 456,000 metric tons – equivalent to a 25-day supply – which is more than 58 percent above the July 1989 level. On a positive note, the 25-day supply was still below the 30-day supply level of 550,000 metric tons considered to be the norm for the domestic market pulp industry.

About 30 countries produce market pulp, but North American and Scandinavian (NORSCAN) producers account for nearly 70 percent of the world pulpmaking capacity. Additionally, the capacity of producers in South America – specifically Brazil, Chile, and Argentina – to make chemical paper-grade market pulp has risen sharply over the past several years and increased from only 4 percent in 1988 to more than 9 percent in 1990. These countries, which enjoy a fast-growing, abundant raw material supply base, benefit from low solid wood input costs and comparatively low labor and operating costs. These factors have increased pressure on U.S. and other NORSCAN market pulp producers to keep input and operating costs down while maintaining efficient production levels.

New Technology

U.S. market pulp producers are also competing against the world mechanical pulp sector. Mechanical pulps are produced by a grinding, refining, or other mechanical process rather than the traditional chemical-based cooking process. They are called “alphabet pulps” because of the wide variety of acronyms for the various mechanical pulping processes. They include chemi-thermomechanical pulp (CTMP), stone groundwood (SGW), refiner mechanical pulp (RMP), and pressurized groundwood (PGW). Recent technological advances in these processes have made it possible to produce a high yield (90-95 percent compared to 45-50 percent for the kraft process), high quality, uniform pulp, which can utilize a wide range of hardwoods and softwoods. Also, because of lower chemical, water, environmental, and energy (excluding electricity) requirements per unit of output, mechanical pulps are cheaper – usually more than $100 per metric ton less than chemical pulps.

About 99 percent of the world’s current mechanical pulping capacity is located in only eight countries. Canada has about 41 percent of the world’s mechanical pulping capacity, followed by Sweden (24 percent), New Zealand (14 percent), Norway (10 percent), Mexico (3 percent), Brazil (3 percent), Finland (3 percent), and Spain (1 percent). The U.S. mechanical market pulp capacity has lagged behind that of the other NORSCAN producers, but the United States had several mechanical pulp mills scheduled for start-up by the end of 1990.

Production Strategies

During the past several years – in direct response to the growing municipal solid waste (MSW) problem and shrinking U.S. landfill capacity – state, regional, and municipal governments have implemented a number of mandatory source separation initiatives. Domestic and foreign papermakers have increased their secondary fiber utilization, thus reducing their dependance on virgin fiber.

The United States has traditionally exported and imported large quantities of market pulp, primarily bleached and semibleached kraft pulp. In 1990, more than 74 percent of U.S. pulp exports and nearly 80 percent of U.S. imports were composed of this particular grade. A more stable U.S. dollar and moderate worldwide demand led to increased exports by domestic market pulp producers during the year. The United States was the world’s leading pulp producer and the second largest exporter of market pulp – behind Canada – in 1990. Based on six-month data, U.S. market pulp exports are estimated to have decreased nearly 6.4 percent from 5.76 million metric tons to 5.39 million metric tons, accounting for almost 71 percent of the total volume of U.S. market pulp shipments. The value of these exports declined 4.7 percent from $3.64 billion to $3.44 billion. In 1990, the United States exported pulp to 99 countries. Five of them imported more than 50 percent of all U.S. pulp shipments (by volume): Japan (18 percent, after a 24 percent market share in 1989); South Korea (10 percent); West Germany (8 percent); Italy (8 percent); and the Netherlands (7 percent).

In 1990, U.S. imports of market pulp fell from 4.64 million metric tons to 4.42 million metric tons. Due to price hikes, the value of these imports fell only 1.7 percent, from about $3.1 billion in 1989 to $3.0 billion in 1990. The United States imported pulp from 19 countries in 1990, but three supplied about 99 percent of the total: Canada (90 percent), Brazil (7 percent), and South Africa (2 percent).

Outlook for 1991

Product shipments by the domestic market pulp industry are forecast to increase 1.0 percent next year, reaching an estimated 7.72 million metric tons. Slightly higher demand by U.S. and foreign papermakers (especially printing and writing paper manufacturers) for high quality pulp will result in increased sales for U.S. market pulp suppliers. International trade in market pulp is expected to remain very competitive with currency fluctuations determining who will be in the strongest worldwide trade position at any particular time. Exports and imports of market pulp are expected to increase 2 and 1.5 percent, respectively. A stable U.S. dollar would contribute to an improved trading position for U.S. market pulp suppliers.

Long-Term Prospects

Slow, continued growth is expected for the U.S. market pulp industry through 1995, with pulp shipments increasing 2 percent annually over the 5-year period. A number of anticipated economic factors will have a positive effect on U.S. pulp producers’ market share and profitability. They include: higher domestic and foreign pulp paper and board demand; and a stable U.S. dollar relative to other supplier currencies. Capacity utilization rates will range from 90 to 95 percent; and pulp producers’ will maintain a 20- to 25-day supply in inventory.

U.S. market pulp producers will continue to face stiff competition from many low-cost foreign producers, especially those in Brazil, Chile, Argentina, Portugal, Spain, and New Zealand, which are developing into world-class chemical and mechanical pulping industries. Due to their production advantages resulting from less costly raw material, energy, and labor, these foreign producers will attempt to make inroads on the U.S. share of the world fiber market. U.S. chemical-grade market pulp producers must also compete with pulp produced by additional domestic and foreign mechanical pulp capacity expected to come on line by 1995. Current estimates indicate that in five years total capacity for the wide range of alphabet pulps will exceed 27 million metric tons.

World consumers of market pulp will continue to substitute lower-priced alphabet pulps for high-priced chemical pulps. Fiber consumers are increasing their use of wastepaper, deinked pulp substitutes, and chemical fillers (kaolin, clay, and alkalines) as a percentage of the overall papermaking fiber mix for many paper and board products. The abundant supply of wastepaper that mandatory collection laws will elicit will probably keep wastepaper prices down. Pulp consumers attempting to keep their fiber costs down will find wastepaper a satisfactory lower priced alternative for virgin market pulp, thus spurring greater demand for wastepaper throughout the forecast period.

The U.S. pulp industry is expected to make further technical advances in its pulpmaking and bleaching capabilities. Pulping technologies need to be developed to increase pulp yield and quality, and to meet tougher guidelines. Energy requirements for pulp production must be reduced to keep production costs down and profitability at acceptable levels. – Gary L. Stanley, Office of Forest Products and Domestic Construction, (202) 377-0375, September 1990.

PAPER AND PAPERBOARD MILLS

Primarily due to the falling U.S. dollar and strong foreign demand for primary paper and paperboard commodities (SIC 262, 263), U.S. paper and board product shipments increased 2 percent in 1990. This increase came despite a decline in the rate of consumption by domestic paper and board converters and reduced growth in the U.S. economy.

Softer domestic demand and new capacity contributed to lower capacity utilization rates for domestic producers. At mid-year, U.S. paper mills were operating at around 92.5 percent capacity, down from 94.5 percent in 1989, and U.S. paperboard mills were operating at 93 percent, down from 95.2 percent in 1989. In 1990, total paper and paperboard production reached 70.94 million metric tons, which was almost evenly split between paper products and paperboard products.

In the domestic paper industry, the largest single commodity grouping (29 percent of all paper shipments in 1990) is uncoated free sheet paper. This commodity contains at least 90 percent sulfate (or kraft) fiber and is used in the manufacture of stationery, business, and other office papers, reprographic paper, tablets, form bond, and envelopes. Domestic output of uncoated free sheet was about 10.23 million metric tons, representing a 2.3 percent increase over the 1989 level. The latest trend involving the production of uncoated free sheet paper is the shift by domestic producers from acid sizing to alkaline sizing (i.e., utlitizing precipitated calcium carbonate instead of clay or titanium dioxide). Current estimates indicate that more than one-half of all U.S. uncoated free sheet mills have converted to alkaline sizing that degrades papermaking fibers more slowly and prolongs the life span of papers for archival, reference or other publishing applications.

Coated Paper

Unexpectedly strong demand by commercial printers, magazines, catalogs, and other high-end printing and publishing areas resulted in a 3.5 percent increase in the quantity of coated paper product shipments. Coated paper accounts for nearly 20 percent (quantity basis) of all paper shipments. It is one of the higher value-added printing and writing papers. In 1990, newsprint production grew faster than any other paper grades, helping to sustain the rate of paper production at record-high levels. U.S. production of newsprint (representing 17 percent of all domestic paper shipments) reached 6.1 million metric tons in 1990, 10 percent above the 1989 level. With newsprint consumption remaining essentially flat and domestic newsprint inventories stabilized, the data suggest that more was being utilized in nonnewspaper end-uses.

Based on first-half 1990 results, domestic production of paperboard increased about 1 percent, due primarily to a strong foreign demand for U.S. containerboard. In 1990, production of containerboard increased about 1.5 percent to 24.33 million metric tons. Of that total, production of linerboard was 14.88 million metric tons (about 61 percent of all containerboard production).

Production of corrugating material was nearly 6.75 million metric tons, representing almost 28 percent of total U.S. containerboard production last year. Containerboard exports supported overall paperboard production levels in 1990. U.S. containerboard production for export (more than 9.5 percent of total U.S. containerboard production) rose 9 percent last year as both Asian and Latin American corrugated boxmakers as well as traditional West European converters relied heavily on U.S. containerboard as a principal source of raw materials for their manufacturing plants.

Boxboard Production

Domestic production of boxboard, which represents about 31 percent of total U.S. paperboard production, was essentially flat in 1990 remaining at 10.92 million metric tons. Production of recycled paperboard fell slightly, partially because of limited demand for construction-related gypsum wallboard liner and panelboard. Larger boxboard exports allowed total boxboard production to remain at its 1989 level. In 1990, exports of boxboard (accounting for more than 7 percent of total U.S. boxboard production) increased from 783,120 metric tons in 1989 to 947,580 metric tons in 1990 – a 21 percent increase from year-to-year.

The industry in 1990 added about 2.27 million metric tons of paper and board making capacity. The combination of higher capacity, weaker demand, and consumer inventory reductions resulted in lower prices for many paper and board grades and the deferral of announced price increases for others. The bulk of the capacity additions came from paper machine capacity expansions and modernization projects, as opposed to new paper and board machines or greenfield mills. Coupled with lower capacity utilization rates, higher material and labor costs, and higher fixed operating and energy costs, the softening in prices led to lower overall profitability for most domestic paper and board manufacturers. To prevent substantial increases in producer inventories many paper and board producers either lowered production rates even further or allowed significant amounts of mill or machine down-time.

Outlook for 1991

Domestic product shipments of paper and paperboard are expected to increase by 2.5 percent in 1991. Although production is expected to increase next year, the anticipated surge in capacity will outstrip the demand, especially in newsprint, coated papers, and uncoated free sheet paper. This occurrence will probably result in even lower operating rates and profitability and will place pressure on producers to maintain or lower prices to increase sales. Capital spending by domestic producers will remain high, but will fall substantially from the levels of 1988-90. The U.S. industry is usually focused on the domestic market, however, much of the additional tonnage brought on-line over the next year will be destined for overseas markets, especially Southeast Asia and Latin America.

The strength of the U.S. dollar will prove to be a pivotal factor affecting the outlook for both paper and paperboard. A stronger dollar relative to foreign currencies would inhibit producers’ ability to sell surplus output in foreign markets by raising the price of these goods abroad. Growth in U.S. exports of paper and paperboard will again depend largely upon demand by Asian and Latin American boxmakers and converters. The U.S. dollar had shown signs of weakening even further in the last half of 1990, which will translate into higher paper and board exports and lower imports. This should mean higher demand for U.S. paper and paperboard in 1991.

Long-Term Prospects

Expansion in domestic and foreign demand for paper and paperboard is expected over the 1991-95 period, but growth will be at a more moderate pace. Sales of paper and paperboard will increase roughly 2.3 percent per year over the forecast period, depending on several economic variables. Unless burdened by a stronger U.S. dollar, domestic manufacturers are cost competitive worldwide and are expected to maintain their share of worldwide paper and board sales. Many forecasts indicate that the long-term growth rate for world paper and board consumption should average between 2.5 and 2.9 percent per year through 1995, which should translate into higher sales for U.S. paper and board manufacturers.

The projected slow growth for the nation’s GNP over the next five years will affect the paper and paperboard sectors, which traditionally correlate closely with the performance of the domestic economy. U.S. paper and board companies have increased their international competitiveness by lowering operating and input costs dramatically over the past five years, making the United States one of the lowest-cost paper producers in the world.

Recycling

The industry will utilize even greater quantities of secondary fiber as a result of consumer awareness, legislative requirements, and product preferences. This is especially true in the production of newsprint. Although annual consumption of newsprint is expected to be flat over the next five years and profit margins will be small, consumer and environmental concerns will impel the U.S. paper industry to either retrofit existing paper machinery or purchase new equipment to utilize old newsprint in its papermaking fiber mix.

As the single largest component (about 40-45 percent) of domestic MSW, paper and paperboard has been the target of most recycling initiatives or legislation. Unfortunately, the supply of collected waste paper and board has far outstripped demand (especially for waste newsprint, old corrugated containers, and mixed unsorted wastepaper). This has led to the disruption of the established market and a rapid reduction in wastepaper prices, factors that have encouraged world paper and board producers to explore new avenues for utilizing secondary fiber as a papermaking raw material. Although the use of waste-based fiber can significantly reduce fiber input costs, savings could be partially offset by increased paper machine maintenance, higher operating costs, and quality-control problems. For example, the production of alkaline printing and writing papers increases the pH level of pulp and upsets the balance required in traditional acid-based papermaking operations.

The major shift toward the alkaline papermaking process in the manufacturing of printing and writing papers will continue, based on the increased availability of both on-site and off-site calcium carbonate facilities required for conversion of fine paper mills from the standard acid system to the alkaline system. The continued development and improvement of this particular papermaking process will create new end-uses for alkaline printing and writing papers.

As in the past decade, the paper and paperboard market will remain dynamic. To take advantage of expanding market opportunities and to remain competitive, producers will need to adopt new technologies, management styles, and marketing strategies. Although reports indicate that the computer, facsimile machine, or other electronic printing devices will supplant paper in business, the opposite appears to be happening. Such electronic equipment has, in fact, stimulated the demand for paper by opening up new avenues of business.

The new marketing vision for paper and paperboard products will center around customer needs and specifications rather than overall productive capacity. State-of-the-art producers are already tailoring traditional commodity grades to individual customer designs and specifications. Specialized production capabilities will increase the demand for U.S. paper and paperboard by creating new domestic and overseas customers. – Gary L. Stanley, Office of Forest Products and Domestic Construction, (202) 377-0375, September 1990.

CORRUGATED AND SOLID FIBER BOXES

Constant dollar shipments of corrugated and solid fiber boxes in 1990 increased an estimated 1 percent, compared to almost 2 percent in 1989. This sector’s slow rate of growth is related to the national economic slowdown that adversely affected demand for durable and nondurable goods shipped in paperboard containers. The volume gain in 1990 marked the fifth consecutive year of real growth for corrugated products – the preferred medium for shipping more than 90 percent of all goods that require some form of protective container for transport. Corrugated and solid fiber box shipments, which reached a record of about 316.5 billion square feet in volume in 1990, now represent about 60 percent of the combined sales (totaling about $31 billion) of all domestic paper packaging sectors. By comparison, the European Community (EC), led by West Germany, shipped an estimated 225 billion square feet of corrugated products in 1990, up about 5 percent over the 1989 level. Collectively, the EC countries now represent the world’s second largest producer of corrugated shipping containers, second only to the United States.

Although the domestic corrugated industry recorded a small increase in growth during 1990, average prices for its products – about 70 percent of which were in the form of shipping containers – were under heavy pressure from endusers. Announced price increases in early 1990 for containerboard, the principal raw material used in corrugated products manufacture, were subsequently cancelled, and prices actually declined as the result of frequent regional discounting. The lower prices on containerboard translated into lower prices for corrugated products, an estimated 3 percent decline in 1990. Another round of price increases in the range of $30 to $40 a ton for linerboard was announced by several major U.S. producers for October 1990, but it is uncertain whether such increases will be viable in a period of economic slowdown.

Industry Trends

Corrugated products not only include shipping containers, but also retail displays, packaging for consumer goods, pallets, slipsheets, prefabricated structures, pouches, tubes, sleeves, auto window sunscreens, cushioning, and pads. In 1990, corrugated products accounted for about 28 percent of the combined value of all domestic paper and nonpaper packaging sales, second only to metal containers as a packaging medium (see chapter 11, Cans and Containers).

About 91 percent of the corrugated board products manufactured over the 1989-90 period consisted of single-wall board; virtually all of the remainder was double-wall board, except for a very small quantity (less than one-half of 1 percent) of triple-wall board. While corrugated products gained substantial market share in recent years at the expense of wooden containers and pallets and metal drums, they faced increased competition in 1990 from rigid plastic containers and from heavy duty plastic shrink/stretch film wraps for bundling palletized loads.

Despite competition from plastic alternatives, corrugated products have easily retained their dominant share of the shipping container market. Corrugated products have a reputation for being highly recyclable, compared to more durable, but hard-to-dispose-of plastics. Industry sources estimate that domestic per capita consumption of corrugated containers totaled 74 kilograms, or about 125 boxes per person. Domestic per capita box consumption is about 16 percent higher than in Japan (about 64 kilograms per person) and more than double EC consumption.

Although tight supplies of containerboard have become evident recently, this was not a problem over the 1989-90 period, when additional production capacity satisfied domestic demand and provided increased tonnage for export. The shifting of some output from kraft packaging papers (consumption has declined in recent years under market pressure from plastic films) has helped to increase domestic containerboard capacity. In 1990, containerboard manufacturers operated at about 92.5 percent of capacity, compared to about 94.5 percent in 1989.

Further upgrades and additions of “swing” machines capable of producing kraft packaging papers or containerboard have enabled containerboard producers to support inventory levels averaging more than five and one-half weeks’ supply through the first-half of 1990. The growing implementation of highly automated manufacturing and distribution procedures has largely done away with the need for maintaining unwieldy containerboard stocks, lessening industry concerns over inventory levels.

Exports

In 1990, U.S. linerboard exports, representing about 12 percent of the total value of all U.S. paper and allied products, totaled about 2.6 million short tons valued at about $1.1 billion, up about 9 percent and 6 percent, respectively, over 1989 levels. Principal foreign buyers for U.S. kraft linerboard, the second leading paper industry export after bleached sulfate woodpulp (value basis), included the EC, especially the United Kingdom and West Germany; the Pacific Rim, especially Japan, the People’s Republic of China, and Hong Kong; and Latin America, especially Mexico, Ecuador, and Costa Rica.

While linerboard has emerged as one of the U.S. paper industry’s major exports in recent years, corrugated products (primarily boxes) exports have climbed at an even faster rate, rising an estimated 30 percent in quantity and more than 30 percent in value over the 1989-90 period. Part of the growth in exports may be attributable to more complete reporting of U.S. exports to Canada. (See “How to Get the Most Out of This Book” for an explanation of the reporting change.) Mexico, Canada, and the Caribbean region were the principal U.S. markets.

Exports of corrugated boxes are constrained by their bulkiness and relatively high transport costs, which limit viable export markets to nearby countries. Mexico and Canada together account for almost 85 percent of the total 1990 value of U.S. corrugated product exports.

Markets for Corrugated Boxes

At the start of 1990, the U.S. corrugating industry contained an estimated 1,568 plants, including 926 sheeting facilities (plants that manufacture boxes and other products from purchased board) and 642 corrugated plants (larger scale, integrated facilities that produce containerboard and also manufacture boxes and similar products). Corrugated plants accounted for about 86 percent of the industry’s total shipments volume in 1990, with sheeting plants accounting for the remainder. By comparison, an estimated 534 corrugated plants operated in the EC in 1990, with the United Kingdom, West Germany, and Spain accounting for the largest number.

In 1989 (the latest year for which such information is available), about 75 percent of the corrugating industry’s shipments were directed to nondurable goods markets, slightly greater than the 1988 proportion (74 percent). Food and beverages continued to account for the largest share of corrugated products – about 39 percent in 1989. Other significant nondurables markets included paper and printing, 20 percent; chemicals, 7 percent; rubber and plastics, 6 percent; and textiles and apparel, 3 percent.

Among durables markets, which accounted for about 25 percent of 1989 corrugated shipments, the stone, clay, and glass products industries purchased a combined 7 percent of the total; machinery, 5 percent; lumber and furniture, 4 percent; and metals, 3 percent. Miscellaneous manufactures such as toys, amusements, and sporting and athletic goods, accounted for the largest portion of durable goods purchases, representing about 6 percent of the total (see chapters 6, Wood Products; 11, Cans and Containers; 15, Metals; 20, Industrial Machinery; and 38, Household Consumer Durables).

Markets for corrugated products, especially slipsheets, dunnage, separators, liners, and wrap-arounds, continued to grow in 1990, although at a slower rate than in the previous year. The market for preprinted, as well as postprinted, linerboard expanded further in 1990, as corrugated boxes and similar products continued their evolution from mere shipping mediums to eye-catching marketing tools used for retail displays and promotions.

Outlook for 1991

The value of shipments of corrugated and solid fiber products is projected to increase about 2 percent in 1991, double the estimated rate of increase for 1990, but falling short of the industry’s long-term compound annual growth rate of about 2.5 percent during the 1970-90 period. As in the past, corrugated product shipments, especially shipping containers, will provide an excellent barometer of U.S. business activity in the short-term, narrowly preceding GNP movements that are expected to change little from the sluggish 1990 economic performance.

Corrugated product exports will likely continue to show some significant growth, especially to neighboring country markets, while containerboard exports will also continue to grow, but at a much slower pace. The Pacific Rim will likely be the foreign market area of greatest potential for U.S. containerboard sales in 1991, with companies within Latin America also making larger purchases. This projection is largely contingent upon continuing economic and political stability worldwide.

Long-Term Prospects

The corrugating industry is expected to grow at an annual rate of 2.2 percent in 1991-95. Preprinted corrugated shipping containers and similar products, with more colors and graphics, will continue to find new applications, especially in consumer-related products. Product development efforts will concentrate on laminates, coatings, adhesives, and inks; further emphasis will be placed on the use of E-Flute board in shipping containers so that they can also serve as point-of-purchase displays. Computerization and automation in all phases of box plant operations will increase and modifications of existing box specifications from burst strength to compression and edge crush will continue.

Corrugated products will continue to compete for market share against flexible plastics, especially shrink and stretch films used to consolidate palletized loads; nevertheless, environmental pressures to limit or ban plastic packaging should constrain use of such plastic films. Principal growth markets are expected to be shipping and packaging paper and allied products, and fresh produce and meats.

U.S. exports of corrugated products are forecast to increase fairly significantly over the 5-year period, led by sales to the Pacific Rim and Latin American nations. The corrugated industry will capitalize on the increased concerns about solid waste disposal and environmental issues, pointing out how its products are readily biodegradable and recyclable. The industry will use more recycled board in its corrugated products and will try to increase the already high recycling rate of its shipping containers by improving its waste collection and distribution systems. At the same time, the industry will continue to oppose new packaging and energy taxes on its manufactures that would put them at a disadvantage with other packaging and shipping mediums.

The corrugated industry will continue to improve the strength, printability, moisture, and flame retardance of its board products. The goal is to decrease the present level of board flammability by about 60 percent from current levels. The U.S. industry is a world leader in this area of research and development. – Leonard Smith, Office of Forest Products and Domestic Construction, (202) 377-0375, September 1990.

FOLDING PAPERBOARD BOXES

Shipments of folding paperboard boxes and cartons were estimated to have increased about 1 percent in volume in 1990, slightly up from the industry’s virtually flat performance in 1989. This marked the fifth consecutive year in which tonnage shipments either equalled or exceeded the previous year’s level. The shipments growth matched the industry’s long-term compound annual growth rate for the 1972-89 period.

In 1990, folding carton shipments reached a record 3.1 million short tons, while prices for those products increased an average 6 percent. Higher costs for labor and raw materials, especially solid bleached sulfate (SBS) board, have been the main cause of higher folding box prices over the past few years. Over the 1988-90 period, the domestic industry earned an estimated annual 4 percent profit after taxes, and reported an after tax return on equity of about 15 percent. By comparison, the combined Western European folding carton industry – second in the world in size after its U.S. counterpart – averaged only about 3 percent profit after taxes and had an after tax return of about 10 percent on equity.

As part of the 1987 revision of the Standard Industrial Classification (SIC) system, the former code for folding paperboard boxes, 2651, was eliminated. A new SIC, 2657, for folding paperboard boxes was added and the industry definition was expanded to include sanitary containers for frozen foods, butter, and other moist or oily foods, formerly grouped under SIC 2654 (now SIC 2656). The addition of this large food container category, with shipments estimated at about $1.1 billion in 1990, expanded the current dollar value of folding box shipments under the 1987 definition by about 16 to 18 percent annually over the 1987-90 period. During that time, real growth in this added commodity grouping was estimated to have been about 2.5 percent annually, spurred by an increasing consumer preference for packaged convenience foods and ready-to-cook meals. Under the 1987 SIC revision, folding paperboard milk cartons are included in Sanitary Food Containers (SIC 2656). (The narrative section on SIC 2656 is being omitted in the 1991 Outlook). To ensure full coverage of paperboard carton activities, milk cartons are included in this discussion of SIC 2657.

Growth in the folding carton industry during the past few years was due to the demand for packaging materials by the domestic food and beverage industry. In 1989, this market purchased about 65 percent of the folding carton tonnage shipped (59 percent in 1979) and 59 percent of the total value of such deliveries (53 percent in 1979).

Market Expansion

In 1990, tonnage shipments of folding cartons to several end-use markets were estimated to have increased significantly. These markets included cosmetics, beverage carriers, sporting goods and toys, hardware, and wet and dry foods. Purchases for use in packaging tobacco, medicinal products, beverages, and paper products declined. On a dollar value basis, materials used for packaging sporting goods and toys and wet foods grew fastest in 1990, while those used for beverages and medicinal products declined the most. During the past decade, folding cartons for retail and laundry use and for beverage carriers achieved the largest tonnage gains, while those used for medicinal products and beverages recorded the steepest declines.

During the past several years, competition from plastics alternatives, especially flexible bags and wraps and rigid carriers and containers, has limited folding paperboard carton sales growth. Corrugated board products and clamshell and carded blister packs have also been used in place of paperboard cartons. Nevertheless, folding carton sales have grown steadily but slowly, bolstered by expanding end-use applications, especially in food-related packaging, and because of better, more attractively-designed boxes.

Shipments of paperboard milk cartons were estimated to have increased slightly in volume over the 1989-90 period, totaling about 502,000 tons and numbering about 18 billion units in 1990. Milk cartons of all sizes had an estimated combined value of about $625 million (about one-fourth the total value of SIC 2656 shipments) in 1990. Units of one quart or larger grew at the expense of plastic containers of similar size. A highly successful promotional campaign conducted by the industry in the early 1980s, which cited studies showing that milk packaged in paperboard cartons retained its nutritional value while milk in plastic containers lost vitamins, was instrumental in reversing the steady decline in sales of paperboard milk cartons during the 1970s. However, the advantage regained by the paperboard carton narrowed over the 1989-90 period, when it was discovered that milk cartons contained trace amounts of highly toxic dioxins. Additional studies on the dioxin problem are being conducted by both the industry and the U.S. Government, and the paperboard industry is striving to reduce dioxin levels further.

Folding Cartons

In 1990 the folding carton industry consumed an estimated 3.5 million metric tons of boxboard, slightly above the 1989 level. Fluctuations in the mix of boxboard used by the folding carton industry in recent years have been largely determined by changing costs and supplies of materials and by shifting demand patterns within end-user markets, as well as by environmental pressures to recover, recycle, and conserve raw materials. While complying with environmental pressures to use more recycled board in their product mix, the industry’s preferred boxmaking materials remain the so-called virgin grades. This is evidenced by the estimated 51 percent share of total boxboard consumption held by SBS and kraft board (both nonrecyclable grades) in 1990. This proportion compared with a 53 percent share held by the virgin grades in 1980.

Solid bleached sulfate has traditionally been the principal grade of boxboard used by the industry, preferred by many boxmakers because of its strength and relative purity for packaging wet foods, cosmetics, and medicinal-type products. Clay-coated board, a recycled grade, is the second largest type of board consumed by the industry; consumption of this type of boxboard has grown faster than any other during the past 10 years.

At the start of 1990, an estimated 490 folding carton plants were in operation, about the same number as in early 1989. About 16 percent of the plants were integrated with board mills. The largest concentrations of mills were in the Great Lakes and Middle Atlantic regions. By comparison, the large but highly fragmented, less-efficient West European folding carton industry consisted of slightly more than 900 plants; yet, per capita folding carton consumption in Western Europe, at about 9 kilograms per person, was only slightly more than one-half that of the United States (more than 17 kilograms per person).

Foreign trade has not been a major factor in the folding carton industry, accounting for less than 1 percent of total shipments. The high cost of transporting bulky, relatively low-valued boxes over long distances has precluded any serious industry attempts to increase exports significantly, except to adjacent markets in Mexico and Canada, which together accounted for close to 85 percent of the total value of folding carton exports in 1990. Although imports (as reported by the Bureau of the Census) comprise less than 1 percent of the total U.S. supply of folding cartons, the domestic industry has been concerned over what are believed to be large quantities of unreported boxes that are used to prepackage foreign-made consumer goods flowing into the United States. This practice precludes the need for further packaging in the United States and results in the loss of potentially significant folding carton sales. Data on the quantity and value of foreign prepackaging are not available and cannot be determined under present U.S. Customs reporting procedures.

Outlook for 1991

Shipments of folding paperboard boxes are forecast to rise slightly in 1991, increasing less than 2 percent in real terms. This cautious projection is based on uncertainties affecting the growth of the U.S. economy in 1991. This growth could be affected by a worsening budget deficit and by disruptions in the supply and price of petroleum. These and other economic factors would probably have a constraining influence on the level of business activity, consumer purchases, and ultimately, packaging demand.

Long-Term Prospects

During the 1991-95 period, folding carton shipments are projected to increase about 1.2 percent, compounded annually, as consumer nondurables markets continue their slow growth. The apparently small annual rise in the value of the industry’s shipments in past and future years is not a true indication of the industry’s real growth, because steadily improving technology has enabled the folding carton sector to produce lower density, lighter weight, stronger cartons, using less boxboard.

The industry is expected to continue to improve packaging design and graphics, coatings, inks, and other aspects of boxmaking. Competition in end-user markets will continue to be strong, coming mostly from plastic alternatives. Pressures by environmental concerns to severely restrict nonbiodegradable plastic products could be a boon for the folding paperboard box industry, which will increasingly stress the biodegradability of its paper-based products. Similarly, the industry is also likely to employ an increasing proportion of recycled board into its raw material product mix over the five-year period.

Folding cartons for fast and convenience foods are projected to be one of the industry’s principal growth areas during the next five years. Greater consumption of packaged single portion meals is expected due to an expanding senior adult population and the increasing proportion of working family members in the average U.S. household. – Leonard S. Smith, Office of Forest Products and Domestic Construction, (202) 377-0375, September 1990.

SANITARY PAPER PRODUCTS

The constant dollar value of domestic sanitary paper products shipments achieved an estimated 2.5 percent rate of growth in 1990, or a slightly larger increase than in the 1988-89 period, despite the low growth rate of the U.S. economy and less consumer spending. Several of the industry’s major product lines are considered nondiscretionary, and have become near-recession proof, as evidenced by their historical sales patterns. These products, which are now an integral part of everyday domestic life, include toilet tissue, toweling, and feminine hygiene products; it can be increasingly argued that disposable diapers fall into the same category. Although there has been some substitution of generic, less expensive products for brand name items when business activity and/or consumer spending declined, the industry has been able to attain moderate real growth during the past several years. It is also the most dynamic, highly competitive, technologically-advanced, domestic paper manufacturing sector.

Sanitary tissue (including toilet tissue, toweling, facial tissue, and napkins) accounted for about 56 percent of the total value of 1990 shipments of sanitary paper products. The proportion of sanitary tissue shipments to total shipments has slowly declined during the past few years, as sales of disposable baby diapers, feminine hygiene products, and geriatric and other products have increased their relative market shares. In 1990, sanitary tissue product shipments included an estimated 10.5 billion rolls of bathroom tissue, of which over two-thirds were single-ply; 2.8 billion rolls of household toweling; and 192 billion two-ply facial tissues. Disposable baby diaper sales, which comprised about 26 percent of total shipments (value basis) in 1990, included an estimated 16.1 billion units; while feminine products totaled about 11.5 billion napkins and pads, and 5.4 billion tampons.

The industry’s large proportion of nondiscretionary consumer-directed products has been a major source of its long-term growth and profitability. More recently, discretionary products (including adult disposable diapers, liners, pads, and apparel) have become the growth leaders. In 1990, it is estimated that incontinence, health, and hospital-type disposable paper goods accounted for more than $550 million in combined sales, 20 percent more than the 1989 current dollar level, totaling about 1.5 billion units.

Competition for market share among brand name, generic, and private label products has been intense in recent years. Changes in the size, appearance, and texture of many sanitary paper products are frequent and heavily publicized. The industry has outspent all other domestic paper manufacturing sectors combined in advertising and promoting its products during the past several years. Although prices increased over the past few years (7 percent in 1990), there has been deep discounting on various product lines as profits were sacrificed to maintain market share.

The U.S. production of sanitary tissue stock, the sector’s principal raw material, reached an estimated 5.7 million tons in 1990, up almost 2.5 percent from the 1989 level. Tissue producers operated at about 95 percent of capacity in 1990, down from an estimated 98 percent in 1989. Despite some yearly sales fluctuations, growth in domestic tissue output has been slow, partly because the major end-use markets, bathroom tissue and toweling, are at near saturation levels. In 1990, some sanitary tissue producers increased the proportion of recycled fiber in their tissue paper, and publicized the fact in response to environmental concerns and public preference.

Disposable Diapers

Disposable baby diapers regained some of their earlier growth momentum. The number of units sold increased 3 percent during the past two years, after a relatively flat sales period that began in 1985 – the end of the most recent baby boom. The small but real growth in this sector only served to sharpen competition for market share among the three major producers, which account for about 90 percent of the entire U.S. disposable baby diaper market. This intense competition has spawned technological improvements in the design, construction, absorbency, quality, and appearance of the baby diaper. Although sales of new diaper products have increased, they did so at the expense of other diapers within the same manufacturer’s product line. In 1990, the top diaper producers further expanded some of their recent product offering by including disposable training pants and diapers especially designed to fit each gender.

The nonbiodegradability of the disposable baby diapers became a more visible issue in 1990 as environmental groups focused on the problem these diapers cause in municipal landfills. The growing environmental fervor was utilized to advantage by cloth diaper manufacturers and diaper services, which had seen its share of the baby diaper market shrink from 100 percent before 1961 (the year the disposable diaper was introduced) to 10 to 15 percent in 1990. As a result, there was renewed interest in reusable cloth diapers, and diaper services reported sharply increased orders and inquiries concerning their product.

Tampons

The major domestic consumer shift back to sanitary napkins and pads from tampons in the early 1980s, as a result of the toxic shock syndrome, continued into 1990. Napkins and pads retained about 65 percent of total feminine hygiene product sales in that year. At the end of 1989, the FDA released final rules that require tampon manufacturers to label their products to reflect newly adopted standardized terms to describe tampon absorbency, a characteristic associated with toxic shock syndrome. Tampon producers were required to adhere to the new FDA guidelines by March 1, 1990.

Exports of sanitary paper products, account for about 2 percent of product shipments. Shipments were estimated to have climbed sharply in both tonnage and value in 1990, up about 10 percent and 47 percent, respectively, over 1989 levels. An estimated 130,000 tons of sanitary paper goods were exported, mostly to Mexico and Canada. Imports of sanitary paper products in 1990 – mostly from Mexico, Canada, and the Dominican Republic – were estimated at about 75,000 tons, a sharp drop from the 1989 level. Major imports included toilet tissue and disposable medical and hospital supplies, while principal exports included paper towels, baby diapers, and disposable medical and hospital supplies.

Outlook for 1991

The value of shipments of sanitary paper products in 1987 dollars is projected to increase about 2.5 percent in 1991, about the same rate of increase as in 1990. The fastest growth area will continue to be geriatric-type disposable goods. Tissue products, disposable baby diapers, and feminine hygiene products will approximate their more moderate 1990 rate of growth. Recyclability and biodegradability will continue to be important issues in 1991, with emphasis on increasing the waste fiber content in the sanitary tissue products. Further studies will be made on improving the recyclability of disposable baby diapers and developing a truly biodegradable product.

Long-Term Prospects

Shipments of sanitary paper products are forecast to rise about 2.8 percent annually during the 1991-95 period. Domestic and foreign markets for more sophisticated, higher value disposable diapers and other personal medical and hospital disposable paper goods will likely show the fastest growth. “His and her” baby diapers and training pants will continue to expand their market niche. At the same time, research on creating a more absorbent, thinner baby diaper will continue. The goal being the production of a less bulky product that consumes less fluff pulp, the relatively costly raw material used in manufacturing disposable diapers. Limited supplies of the chemicals used to manufacture superabsorbent polymers may limit the availability of products dependent on them. Manufacturers may limit the use of those substances in personal hygiene products due to the relationship found between toxic shock syndrome and the use of high-absorbency tampons.

Pressure will mount for the development of environmentally acceptable methods for disposing of or recycling baby diapers. The leading disposable diapers producers will likely introduce what will be claimed as an environmentally friendly diaper – either totally or partly biodegradable. New technology will be developed to more efficiently collect, dispose, or recycle the diaper product.

Foreign trade in sanitary paper products will continue to expand, and imports will probably equal exports by 1992. Markets for sanitary tissue and other sanitary products will likely expand in Latin America and the Pacific Rim, as well as in Canada, while suppliers in Mexico and the Caribbean region will increase their tissue product sales to the United States. – Leonard S. Smith, Office of Forest Products and Domestic Construction, (202) 377-0375, September 1990.

FLEXIBLE PACKAGING MATERIALS

This new packaging category, created for the 1991 U.S. Industrial Outlook, comprises SIC 2671 (Packaging Paper and Plastics Film, Coated and Laminated); SIC 2673 (Plastics, Foil, and Coated Paper Bags); and SIC 2674 (Uncoated Paper and Multiwall Bags). This flexible packaging materials grouping includes wrapping materials in single or multiple web forms, made of combinations of laminates of paper, plastic film, metal foil, and similar materials (excluding textiles); and also includes coated and uncoated bags and sacks made from those same materials. Under the 1987 revision of the SIC system, the products grouped in this flexible packaging materials category were formerly a segment of SIC 2641 (Paper Coating and Glazing) and all of SIC 2643 (Bags, Except Textile Bags). This section presents Department of Commerce data on the three flexible packaging industries when appropriate, and will generally treat each sector on an individual basis, while recognizing their commonality.

The value of shipments of packaging paper and plastics film (SIC 2671) was estimated to have increased by about 1.5 percent,in real terms, in 1990. The recent growth in the plastics packaging film segment of this industry has been the driving force in its overall sales growth over the past several years, accounting for almost 80 percent of the 1990 value of shipments, compared to about 60 percent in 1982.

Two major commodity groups within this sector are responsible for more then 70 percent of the industry’s sales. They include multiweb laminated rolls and sheets of plastic film, and single-web plastic film. Multiweb films are used to package cigarette cartons and packs, snacks and dry foods, pet foods, sandwiches, dairy products, frozen foods, and other products that require protection from moisture and temperature changes. The rapidly increasing number of end-uses for multiweb films, especially plastic-to-plastic laminations, is responsible for rapid growth for this industry over the past several years.

Shrink and Stretch Film

Single web films, in coated rolls and sheets, consist primarily of shrink and stretch films, which represent the fastest growing industry commodity. These coated films are generally used to palletize and wrap corrugated boxes and other shipping containers, applications that require product protection and maintenance of the integrity of the bundled products.

Over the past few years, shrink and stretch films have penetrated into the corrugated shipping container area, but still account for a relatively small portion of that very large market. Nevertheless, the recent increase in the use of these coated single-web packaging mediums for items such as lumber, mail, firewood, paper roll stock, toys, and pharmaceuticals, has displaced more traditional wrappings such as rope, twine, metal strapping, tape, and string.

Although both shrink and stretch films have similar applications, they differ in manufacture, method of use, and product characteristics. Shrink films are prestretched and are heated to closely adhere to the item being packaged, such as beverage bottles and cans. Stretch film competes directly with shrink film, and does not require the additional equipment and energy needed to apply the latter. Stretch film can tightly wrap a crate, bundle, pallet, or stack, forming a protective barrier that bonds to the product by surface tension. It has less moisture and puncture resistance than shrink film, but it can be more easily applied, either manually or through a conveyor-type operation, and is generally about one-third as costly as shrink film.

Paper and Plastic Bags

In 1990, the combined real value of shipments of paper and plastic bags (SIC 2673 and 2674) gained an estimated 1 percent, spurred by moderate sales growth of plastic bags in SIC 2673 (up about 2 percent) and despite a similar decline in uncoated paper bags and multiwall shipping sacks and bags. Plastic bags comprised more than 60 percent of the combined value of shipments of the two bag industries in 1990. This product sector consists primarily of specialty bags and liners constructed of polyethylene and other plastic films, which together account for almost 75 percent of the current value of its shipments.

Plastic bags and liners supplied about 60 percent of the current value of combined paper and plastic bag shipments estimated for 1990, while paper bags and sacks and small quantities of foil bags accounted for the remainder. The proportion of plastic to paper in total bag and liner shipments had been shifting dramatically toward plastics for more than 15 years, a swing that has slowed significantly during the past two years under environmentally targeted legislation designed to eliminate or sharply curtail sales of plastic packaging.

Markets in which plastic films have gained dominance over paper include variety merchandise, refuse bags, produce, textiles and apparel, and household food storage. Paper still dominates the grocery bag and sack market, but plastics have made deep inroads, especially in larger retail grocery chain stores. Many supermarket chains still offer both paper and plastic bagging at their checkout counters, partly under pressure from environmental groups, and legislation. Industry sources estimate that paper still held almost two-thirds of the 30-billion unit grocery bag market in 1990, almost the same proportion as in 1989, due to its environmental and economic advantages.

The domestic production of unbleached kraft paper was expected to continue its long downslide, totaling about 2.4 million tons in 1990, about 10 percent below the 1989 level of output. About 60 percent of the production of this material goes into bags and sacks, another 25 percent is used in multiwall shipping sacks, and the remainder is used for wrapping and other converting purposes. Some of the apparent decline in kraft wrapping paper production may have been due to the shifting of some production capacity to kraft linerboard, which has been in greater demand both domestically and for export during the past several years.

A number of factors have contributed to the rapid influx of plastic packaging films, bags, and liners into markets previously dominated by paper. Lower cost is a consideration, but flexible plastic materials also have the advantages of convenience in storage capability, superior moisture resistance, reusability, strength, and easy printability. The strength and durability of plastic packaging have environmental disadvantages, however, and numerous efforts are underway to eliminate these bags from the retail market or, at the least, develop better disposal and collection methods. In 1990, the plastic film industry accelerated its efforts to develop and market plastic packaging that will self-destruct, either by biodegradation, photodegradation, or other means.

Trade

In recent years, the United States has had a foreign trade deficit in flexible packaging materials, especially plastic bags. Nevertheless, based on incomplete 1990 data, an estimated 43,000 tons of plastic sacks and bags, valued at about $132 million, were exported, up sharply from 1989 levels. Principal markets included Mexico and Canada. Paper bag and sack exports were estimated to have totaled about 40,000 tons, valued at $47 million, considerably higher than 1989 levels. Principal bag and sack markets were Canada and Mexico. Part of the growth in exports may be attributable to more complete reporting of U.S. exports to Canada (See “How to Get the Most Out of This Book” for an explanation of the reporting change). The combined imports of plastic and paper bags climed about 8 percent in value in 1990. Plastic bag imports totaled an estimated 135,000 tons, while purchases of paper bags and multiwall sacks totaled an estimated 20,000 tons. Principal suppliers of plastic bags included Taiwan, Canada, West Germany, Sweden, and the People’s Republic of China. Canada, Mexico, and South Korea were the principal suppliers of paper bags and sacks.

Outlook for 1991

The value of shipments of packaging paper and plastic film is projected to increase about 1.2 percent in 1991, about the same rate as in 1990. Continued growth in this industry will be spurred by increasing use of shrink and stretch films, instead of corrugated shipping containers. Shipments of coated bag products categorized under SIC 2673 are forecast to increase by 2.5 percent in 1991, a higher rate of growth than in 1990. Industry growth was led by sales of coated plastic bags, which will probably show a small real-term sales gain because of increasing pressure to restrict their use from environmental and legislative groups. The volume of paper bag shipments will continue to decline, but the slide will moderate to some extent (down 1.5 percent in 1991 compared to 2 percent in 1990). Paper packaging will regain a small portion of its lost market share as a result of public preference for the more biodegradable, recyclable, paper medium.

Long-Term Prospects

Over the 1991-95 period, shipments of packaging paper and plastics films are projected to increase at about 2.5 percent a year. The fastest growth will be in coated single-web packaging film, especially shrink and stretch wraps. Because stretch film is less expensive, it will likely surpass shrink film in usage. A significant turnaround is forecast in the growth patterns for packaging paper and plastic film, as well as bag products. Although plastics are still likely to account for the largest proportion of flexible packaging material shipments by 1995, they will lose a significant share to more environmentally acceptable paper, in both wrappers and bag form. The plastic film product mix will shift and consist of a much larger percentage of what the plastics industry currently identifies as biodegradable plastic products over the five-year period. This definition will be increasingly challenged as to its authenticity, in both public and scientific forums. A recent industry study estimates that by 1994, sales of degradable plastic films will exceed $300 million and could reach $1.8 billion.

As a result of this expected swing back to more environmentally friendly packaging products, shipments of plastics, foil, and coated paper bags (mostly plastic-based) will experience a period of constrained growth of about 1.5 to 2 percent annually during 1991-95. Shipments of uncoated paper bags and sacks will pick up the slack, ending their sustained slide of the past several years. Paper-based packaging shipments are projected to be level or to grow less than 1 percent over the five-year period. A similar projection applies to uncoated paper and multiwall bag shipments during 1991-95.

Increasing legislative and consumer pressures to promote a cleaner, safer environment are expected to occur both in the United States and in other developed nations over the next few years. It is estimated that U.S. exports of flexible packaging materials will show a greater proportion of paper products being shipped to those regions, while plastic film products will be directed to the lesser developed countries, where regulations concerning the use of such packaging materials are less stringent or nonexistent. – Leonard S. Smith, Office of Forest Products and Domestic Construction, (202) 377-0375, September 1990.

PAPER COATING AND LAMINATING

In 1990, U.S. manufacturers of nonpackaging coated and laminated paper products (SIC 2672) enjoyed their fifth consecutive year of strong growth, as the constant dollar value of product shipments increased 3.5 percent. Because this industry produces many industrial, retail, and consumer products, its growth is closely linked to that of the economy at large. Over the past five years, however, this industry’s real growth has far exceeded that of real GNP growth. An expanding U.S. economy, a stable U.S. dollar, and strong foreign demand have contributed to increased domestic and export sales for this industry last year. Establishments in this industry produce coated, laminated, or processed paper and films for applications other than for packaging. Also included in this industry sector are those manufacturers and converters that produce off-machine coated and gummed paper products and pressure-sensitive paper and tape with any backing except for rubber.

Pressure-sensitive products are the leading output of this industry, accounting for more than 60 percent of the value of all its sales in 1990, amounting to $4.48 billion. Pressure-sensitive products include pressure-sensitive paper (for unprinted labels), sheets, strips, tapes, and all unprinted pressure-sensitive base stock. Tapes provided about 70 percent (or $3.14 billion) of the total value of all pressure-sensitive products shipments last year.

The United States is the world’s leading producer of pressure-sensitive tapes, manufacturing many varieties of single-faced tapes (including paper, film, foil, masking, and woven and nonwoven fabrics tapes) and double-faced tapes. The largest and fastest growing market for these tapes is forming and sealing corrugated boxes and other shipping containers. Pressure-sensitive tapes have a number of advantages over the other two methods of case sealing (hot-melt and cold-press adhesives). These include ease of operation, convenience, application at high speeds, lower equipment requirements, and lower energy and chemical requirements.

The single-faced pressure-sensitive tape used to form, protect, and seal boxes, cartons, and containers may be paper-backed, plastic- and plastic film-backed, or cloth backed. Tapes with plastic and plastic film backings accounted for about 55 percent of all pressure-sensitive tape shipments in 1990 and exhibited the highest rate of growth last year. Paper-backed tapes hold about 35 percent of the market, and cloth-backed tapes, the remaining 10 percent.

An alternative tape for use in shipping and packaging is the more traditional water-activated gummed tape. Gummed tape has several advantages over its pressure-sensitive counterpart, including secure closure, lengthy storage capabilities, remoistenable adhesives, dust protection, and recyclability. Pressure-sensitive tapes are known for their high-speed operation and application, lower energy, equipment, and chemical costs, and ease of portability. The increased use of pressure-sensitive tapes over the past decade has been at the expense of the gummed tape products, which historically have dominated the shipping/packaging market.

The current-dollar value of shipments of gummed products has fluctuated over the past five years, but in 1990 it equaled its all-time high of about $290 million. The gummed products sector primarily produces packaging materials such as gummed sealing tape, corrugator’s box tape, and gummed postage and stock labels. Sales of gummed sealing tape accounted for nearly 60 percent of all gummed products shipments last year.

In 1990, sales of unprinted pressure-sensitive paper, labels, and label base stock (also referred to as self-adhesive labeling) were valued at $1.34 billion and accounted for nearly 30 percent of all pressure-sensitive materials sales. The packaging sector is the largest consumer of pressure-sensitive labels. The use of these labels has increased dramatically during the past eight years, often replacing wet-glue labels and water-activated labels, which require additional equipment, processing time, and energy. Much of the success of pressure-sensitive labels has been the result of plastic containers displacing glass and composite materials. A large variety of adhesive capabilities has positioned pressure-sensitive labels favorably against both wet-glue and water-activated labels for use in decorating plastic substrates (ketchup, margarine and other squeezable containers). The use of pressure-sensitive labels is also encouraged by the greater degree of segmentation by consumer-goods companies. Pressure-sensitive labels will continue to be well suited for applications geared toward specific end-user groups and frequent market tests, as well as for glass bottles and jars and other food packages, tubes, tubs, boxes and containers.

New Technology

Technological advances and new processing and product adaptations have improved operating efficiencies in label application, die-cutting, coating, printing, and fastening/ transferring. These improvements have led to broader markets for pressure-sensitive labels, and, since 1982, this sector has expanded at a rate of more than 10 percent a year. One of the fastest growing end-use applications for pressure-sensitive labels is in Universal Product Code (UPC) labeling and bar-code labeling systems. UPC labels are now used by grocery and department stores and many other retail sales operations utilizing high-speed product spanning equipment.

Driven by retail, wholesale, and manufacturing demand for increased productivity and improved operating efficiencies, bar-code labeling has been implemented for creating production lists and data entry systems, tracking and locating specific products and shipments, monitoring physical inventory, and categorizing new orders and completed receipts. Innovative procedures for using UPC labels are now being utilized by hospitals, pharmaceutical companies, automobile parts suppliers, business and home computer firms, and video cassette rental stores, thus creating a strong demand for pressure-sensitive labels.

International Trade

International trade in nonpackaging coated and laminated paper products, especially pressure-sensitive materials, has grown substantially and become increasingly competitive in recent years. Exports, which consisted primarily of pressure-sensitive materials, gummed products, and coated adhesive paper, increased by 4 percent in value in 1990. Principal export markets for this industry’s high value-added products last year were Canada, Mexico, the Netherlands, Japan, and South Korea. In 1990, U.S. imports of these commodities were up 3 percent from the 1989 level, and were dominated by sales of pressure-sensitive plastic tapes, which accounted for almost 52 percent of all industry imports. Other imports included rolls of electrical tape (10.5 percent), cut-to-size articles of coated paper and paperboard (9 percent), and rolls and strips of pressure-sensitive gummed/ adhesive paper (7.5 percent). The leading suppliers were Canada, Switzerland, Japan, and West Germany.

Outlook for 1991

After a strong sales performance last year, the nonpackaging coated and laminated paper products industry should expand further in 1991 as established markets experience growth and new end-use applications are developed, especially for pressure-sensitive tapes and labels. The inflation-adjusted value of product shipments should increase 4 percent, surpassing GNP growth. International trade in these commodities will also increase; exports will rise by 6 percent and imports by 4 percent.

Long-Term Prospects

During the 1991-95 forecast period, shipments of non-packaging coated and laminated paper products are forecast to increase 3.5 percent per year. Because pressure-sensitive tapes and labels are rapidly becoming the most popular and widely accepted materials for their specific end-uses, this industry will experience strong sales for at least the next five years. Competition between pressure-sensitive products and wet-glue and water-activated gummed packaging materials should increase as both sectors attempt to maintain current market share and develop new commercial, industrial, wholesale, and retail applications. However, it is estimated that pressure-sensitive materials will continue to erode the market share of the other materials.

Effect of Environmental Issues

This industry will be closely monitoring the recyclability and biodegradability of its major product lines over the next five years. Environmental pressures concerning the growing problems of domestic municipal solid waste and shrinking landfill capacity will have a definite impact on domestic converters of nonpackaging coated and laminated paper products. As their customers demand that converters take a more active role in the area of solid waste management and the promotion of commodities containing recycled fibers, manufacturers will develop new, recycled/recyclable materials. Converters will have to work very closely with producers of adhesives, glues and inks to ensure that the industry’s commodities, especially the gummed and pressure-sensitive tapes and labels, are integrated into today’s recycling processes. Many of today’s tapes and labels utilize a form of adhesive or glue that is not water soluble and therefore prevents or limits its recyclability. Future adhesive development will likely focus on specialty applications in response to specific market opportunities and to better compete against alternative packaging, sealing, and decorating methods. These specialty application methods will include wet-stick, wash-away, repositionable, and hot-fill adhesives.

The use of pressure-sensitive tapes in carton sealing and packaging will continue to expand because of their convenience, ease, speed of application, and their performance characteristics. Transparent plastic and film-backed tapes will experience the strongest growth. Additional markets for pressure-sensitive tapes, including fasteners for baby diapers, tapes for decorative and insulative purposes, and easy-open tapes on canned juices and noncarbonated liquids, will increase domestic and international demand.

The growth of exports and imports will accelerate during the forecast period as domestic and foreign converters find new overseas markets and develop new product niches for pressure-sensitive materials. Improvements in production and processing technologies will be essential to keep operating, material, and energy costs down.

The present trend toward industry consolidation through company buyouts, mergers, takeovers, and acquisitions is likely to continue during the next five years as companies attempt to further concentrate sales and stabilize earnings to accomodate the cyclical sensitivity of the primary paper and paperboard producing sector to the cyclical changes in demand for coated and laminated products. – Gary L. Stanley, Office of Forest Products and Domestic Construction, (202) 377-0375, September 1990.

ENVELOPES

Following a disappointing sales performance in 1989, U.S. envelope manufacturers (SIC 2677) experienced increased domestic and foreign demand and higher sales in 1990. Product shipments of all types of envelopes increased 2.0 percent last year, paralleling the growth of GNP and slightly exceeding gains in general U.S. business activity and consumer disposable income. Sales of envelopes rose last year despite increased use of facsimile machines, electronic mail transfer and message systems, and other electronic hardcopy transfer systems, as well as consumer resistance to third-class direct-mail advertising and high domestic postal and shipping rates. Domestic producers of envelopes lost sales when some of their largest end-users (i.e., banks, insurance companies, and other financial institutions) switched to electronic wire information exchange services, electronic funds transfer operations, and the Electronic Data Interchange (EDI) system.

The U.S. envelope industry manufactures a wide range of products made from a variety of raw materials; including paper, plastic and plastic resins, nylon, and paper/plastic laminations. Manufactured envelopes are of three basic types: white, kraft (or brown), and colored commercial and business stationery envelopes (manufactured primarily from bleached, unbleached, and colored uncoated free sheet base stock); heavy-duty padded shipping envelopes and mailers; and clasp and string-and-button envelopes.

Direct-Mail and Industry Growth

In 1990, 71 percent of the industry’s envelope shipments were business and commercial stationery envelopes, which were valued at $2.17 billion. One of the leading uses for these envelopes is in direct-mail advertising, which continues to show strong growth. Despite much consumer opposition to this form of advertising and high domestic postal rates, direct-mail remains competitive with other promotional activities. One of the leading reasons for the popularity of third-class mail advertising is that if effectively puts manufacturers’ product descriptions, coupons, or other promotional literature directly into consumers’ hands. It also allows companies to target discrete market segments better than does the use of newspapers, magazines, radio, television, or other mass media. Although third class mail volume has traditionally declined or leveled off immediately after a postal rate hike before returning to a positive growth pattern about six months later, its volume has remained essentially level since the April 1988 postage rate increase.

Plastic Film Envelopes

Because of higher mailing and shipping costs resulting from postal rate increases, many envelope users are looking for envelopes which are stronger and lighter. This has led to higher sales of both plastic film and Tyvek (or spunbonded olefin) envelopes over the past five years. These product lines offer a variety of advantages over traditional paper envelopes, including better water, moisture, and chemical resistance; high physical strength properties; tamper evidence; a bright surface finish for easy printability; and reduced weight (contributing to lower overall shipping costs). Tyvek envelopes have made significant inroads in the paper envelope end-user market, including overnight express mail and delivery services, floppy disk sleeves, coin and booklet envelopes, and interoffice/interplant correspondence.

Sales of heavy-duty and padded shipping envelopes were valued at $520 million in 1990 and accounted for 17 percent of all U.S. envelope sales. These more expensive and heavier envelopes are used by the mail-order industry, for parcel post and other commercial or consumer applications that require strong, durable, protective, cushioned envelopes. These envelopes are available in a wide range of sizes and shapes and are constructed from a variety of base materials, including paper, plastic, latex, plastic resins, or similar substances. The cushioning material usually consists of shredded or macerated scrap paper and paperboard, plastic air bubble cushioning, nylon, foam rubber, or plastic. It protects the envelope contents from damage during shipping and handling. Cushioned or padded envelopes are primarily of a single, open-end construction and can be rapidly filled and sealed (by stapling, taping, or tear perforation).

The continued growth of “shop-at-home” services and the direct mail order industry have contributed to strong growth in shipping envelopes since the mid-1980s. With more and more U.S. households becoming two income families, there has been a wider acceptance of toll-free telephone shopping, credit card phone and charge networks, and direct-mail advertisement and product solicitation. This trend continued in 1990 and contributed to higher sales of padded shippers and mailers. The two envelope types that have experienced the strongest growth over the past several years have been the kraft paper envelope lined with macerated waste paper and board and the kraft paper envelope lined with polyethylene bubble cushioning.

Clasp and string-and-button envelope sales last year were valued at $308 million and accounted for 10 percent of the value of all envelope shipments. These durable envelopes can be opened and closed many times and are widely used by Federal and state government agencies, banks, insurance firms, retail outlets, investment firms, and other business firms for either in-house mailing or filing purposes.

Trade Competition

International trade in the envelope industry is still small, but it has expanded during the past several years. U.S. envelope exports increased 87 percent in 1990. Primary U.S. export markets last year were Canada (70 percent), Mexico (7 percent), West Germany (6 percent), and the United Kingdom (6 percent). Part of the export expansion may be due to more complete reporting of exports to Canada. (See “How to Get the Most Out of This Book” for an explanation of this reporting change.) U.S. imports of envelopes fell nearly 6 percent in 1990. Major U.S. envelope suppliers include Canada (38 percent), Mexico (12 percent), West Germany (11 percent), Israel (8 percent), and Sweden (7 percent). The gradual removal of all tariff barriers between the United States and Canada under the 1989 U.S.-Canada Free Trade Agreement (FTA) has opened up a number of trading opportunities for U.S. envelope manufacturers. Since 1988, U.S. envelope shipments to Canada have increased more than 250 percent. The ability of the U.S. envelope converters to offer a wide range of envelope shapes, sizes, and base materials, in combination with a lower valued U.S. dollar, has also improved the U.S. envelope industry’s trade performance over the past several years.

Outlook for 1991

The U.S. envelope industry should continue its expansion in 1991 with a 2.5 percent increase in the value of product shipments. This forecast is dependent upon continued expansion of U.S. business activity leading to increases in consumer disposable income, which is expected to lead to increases in third-class direct-mail advertising. Manufacturers of envelopes constructed of paper, plastic, and spunbonded olefin base materials will intensify their efforts to gain market share in both standard and specialty envelope categories. Exports and imports, while still relatively small, should increase 6.4 percent and 2.1 percent, respectively.

A postage rate increase is likely early in 1991, but it is not expected to have a prolonged negative impact on sales of envelopes. Envelope sales may slow in the first half of the year, but should rebound moderately in the second half.

Long-Term Prospects

Domestic product shipments of envelopes should continue to grow over the 1991-95 forecast period at a rate of 2.5 percent (in real terms) per year as established markets expand and new end-use applications and product lines develop. The standard business envelope segment of the domestic envelope industry is recognized as a mature market; therefore, future growth will depend upon expansion of the specialty envelope sector. The U.S. envelope industry in recent years has developed unique products designed to fit customer specifications utilizing unique shapes, sizes, and new base construction materials. Competition among manufacturers of paper, plastic, nylon, and spunbonded olefin envelopes will continue to intensify as each sector attempts to protect its market share and expand into new areas. Envelope manufacturers will promote their distinct characteristics and advantages of their specific products in an attempt to secure new end-users.

Environmental pressures concerning the growing problems of domestic municipal solid waste (MSW) and shrinking landfill capacity will have a definite impact on domestic manufacturers and converters of envelopes. As their customers demand that envelope producers take a more active role in the area of MSW management, manufacturers will develop and promote the use of new recycled/recyclable envelopes and mailers. Over the past couple of years, domestic converters have noted an increase in demand for certain types of envelopes containing recycled or recyclable fibers, including padded shipping envelopes lined with shredded waste paper and board. This trend will likely continue throughout the forecast period. The minimum fiber content guidelines developed by the U.S. Environmental Protection Agency currently require, to the extent possible, that envelopes contain at least 50 percent recycled fiber (both preconsumer and postconsumer). In an attempt to reduce the volume of paper in domestic MSW, stricter guidelines on minimum secondary fiber content are expected.

Also, competition from alternate sources of communication and information transfer is expected throughout the forecast period. The utilization of facsimile machines and other hard copy transfer systems will eliminate some domestic envelope sales. Despite these pressures, the envelope industry will experience overall growth if the economy remains healthy. – Gary L. Stanley, Office of Forest Products and Domestic Construction, (202) 377-0375, September 1990.

OTHER CONVERTED PAPER

AND BOARD PRODUCTS

This diverse group of paper and board converting industries includes: Sanitary Food Containers (SIC 2656); Set-up Paperboard Boxes (SIC 2652); Fiber Cans, Tubes, Drums, and Similar Products (SIC 2655); Die-cut Paper and Paperboard (SIC 2675); Stationery Products (SIC 2678); and Converted Paper Products, not elsewhere classified (SIC 2679). In the 1991 U.S. Industrial Outlook, the narrative sections on these six relatively small paper converting sectors have been dropped, because of the lack of uniform, reliable, and current industry data. However, in order to maintain full Paper and Allied Products (SIC 26) coverage, a trends and forecast table for these industries is presented. Projections were made based on the most recent Bureau of the Census data (1988). Detailed background data on these individual converting industries can be found in the 1990 and earlier editions of the U.S. Industrial Outlook in the chapter on Paper and Allied Products. – Leonard S. Smith, Office of Forest Products and Domestic Construction, (202) 377-0375, September 1990.

PHOTO : Shipments of all paper and allied products classified under SIC 26 are projected to climb about 2 percent in real terms in 1991.

PHOTO : Corrugated and fiber box shipments reached a record 316.5 billion feet in 1990 and now represent 60 percent of all sales within the paper packaging sector.

PHOTO : Shipments in the sanitary paper products industry sector achieved a 2.5 percent rate of growth in 1990, continuing as one of the most dynamic sectors in paper manufacturing.

Additional References

(Call the Bureau of the Census at 301-763-4100 for information about

how to order Census documents.) Pulp, Paper, and Board: 1988, Current Industrial Reports, MA26A(88)-1,

Bureau of the Census, U.S. Department of Commerce, Washington,

D.C. 20233. Telephone: (301) 763-2414. American Paper Maker, ASM Communications Inc., 6 Piedmont Center,

Suite 300, 3525 Piedmont Road, Atlanta, GA 30305. Telephone: (404)

841-3333. Board Converting News, NV Business Publishers Corp. South 105

Farview Avenue, Paramus, NJ 07652. Telephone: (201) 368-1225. Boxboard Containers, Maclean Hunter Publishing Company 29 N.

Wacker Drive, Chicago, IL 60606. Telephone: (312) 726-2802. 1989 Statistics of Paper, Paperboard, and Wood Pulp, American Paper

Institute, 260 Madison Avenue, New York, NY 10016. Telephone: (212)

340-0630. Nonwovens Industry, Rodman Publications Inc. 17 S. Franklin Turnpike,

P.O. Box 555, Ramsey, NJ 07446. Telephone: (201) 825-2552. Official Board Markets, Magazines For Industry Inc. 233 N. Michigan

Avenue, Chicago, IL 60601. Telephone: (312) 938-2300. Paper Age, Global Publications Inc. 400 Old Hook Road, Westwood, NJ

07675. Telephone: (201) 666-2262. Paper, Film and Foil Converter, Maclean Hunter Publishing Company 29

N. Wacker Drive, Chicago, IL 60606. Telephone: (312) 726-2802. Paper, Benn Publications Ltd. Sovereign Way, Tonbridge, Kent TN9 1RW,

England. Telephone: + 44 (732) 364422 Pima Magazine, Paper Industry Management Association 2400 E. Oakton

St., Arlington Heights, IL 60005. Telephone: (708) 956-0250. Paperboard Packaging, Edgell Communications Inc. 7500 Old Oak

Boulevard, Cleveland, OH 44130. Telephone: 1-800 225-4569. Pulp and Paper, Miller Freeman Publications, 500 Howard Street, San

Francisco, CA 94105. Telephone: (415) 397-1881. Pulp and Paper International, Miller Freeman Publications, 500 Howard

Street, San Francisco, CA 94105. Telephone: (415) 397-1881. Monthly Statistical Summary, American Paper Institute, 260 Madison

Avenue, New York, N.Y. 10016. Telephone: (212) 340-0630. Walden’s Fiber and Board Report, Walden-Mott Corp. 475 Kinderkamack

Road, Oradell, NJ 07649. Telephone: (201) 261-2630.

COPYRIGHT 1991 U.S. Department of Commerce

COPYRIGHT 2004 Gale Group