For many years Australia has had substantially a duopoly of corrugated box suppliers, with Visy Industries (Pratt Group) and Amcor (now Orora) between them supplying more than 85% of the market. A bruising "box war" many years ago saw the demise of the Smorgon Group as Australia's third integrated corrugated box supplier. Visy consolidated its market leading position and now holds well over 50% market share and Orora more than 30%. This orderly state of affairs may be about to change.
Oji (previously Carter Holt Harvey) provides the only other significant presence in the corrugated box market (about 9% market share) and a number of small independents make up the balance. Oji has signaled that it intends to be a more significant participant by constructing a new facility to manufacture and supply corrugated packaging products to end-use markets throughout Queensland, Northern New South Wales and Northern Territory. Southern Queensland and northern New South Wales are significant baskets for agricultural production, including semi-tropical produce such as bananas and pineapples, which are shipped in corrugating packaging. Visy and Orora have substantial corrugating facilities nearby so customers in these markets can expect to enjoy some special pricing and contract arrangements in the lead-up to the commissioning of the new facility. This new facility is reported to be on track for startup in the last quarter of 2017, with an investment cost of Aus$68 million (US$50 million). There has been no indication of plant capacity or, indeed, any other update on the status of this project and only time will tell if this does represent the start of a major tilt at the established order or a low impact excursion to test the resolve of the established hierarchy.
Either way, this development should not come as a surprise. Unlike International Paper's acquisition of a controlling investment in Carter Holt Harvey (CHH) after CHH acquired New Zealand Forest Products in 1991, Oji's investment makes strategic sense. Oji has more than 35 facilities around the world and a strong Asia-Pacific presence. It has a clear objective to be a significant global company, although Japan still produces 75% of its revenue. It holds the number one position in Japan in containerboard, boxboard and packaging paper. It has strong positions in Malaysia and Cambodia and is also active in India and Vietnam. It has a growing range of businesses in China, including packaging products manufacture as well as tree plantations and printing paper manufacture. It has publicly identified probable forays into Indonesia and The Philippines. Oji is a significant global company and has consolidated its fourth place ranking in the listing of the Top 100 Global Forest, Paper and Packaging Industry companies.
As Oji expands its Australasian presence it has the potential to be a strong force in the industry. Visy has the optimum capability with its large Kraftliner mill and a network of secondary fiber mills, but Oji has an efficient Kraftliner mill in New Zealand with a product acknowledged as excellent, as well as a corrugating medium mill. Both Visy and Oji are well placed to take strong positions in the agricultural sector where Kraftliner provides real benefits for cold storage of agricultural products.
Orora finds itself in an interesting position. It has a single large and very efficient mill in Sydney making corrugating medium and linerboard from recycled paper. For its Kraftliner supply it depends on a contract arrangement with Nippon Paper from its large Maryvale mill in regional Victoria. At the moment this is probably a beneficial business arrangement for both Nippon and Orora, but is not without its long-term strategic challenges for both companies.
There is a small but growing trade in imported pre-converted corrugated boxes, accounting for about 3% of the overall market but this will be of more concern to the small independent converters, mainly Abbe, which holds a similar share of the market. Abbe is privately owned by a family with a long history of connection to the box business in Australia. It offers a wide range of products as a niche supplier offering a more personalized service without the scale and integrated raw materials offered by its competitors.
Not all companies are overawed by the challenges of integrated manufacture. Lakeside Packaging in Melbourne, another family owned and operated business, was established 30 years ago with one printing press and operating from the garage of the family home. It printed wedding invitations and entry tickets. It has quietly installed a paperboard machine and claims to manufacture Kraftliner and recycled products as well as coated duplex board. Very little is known about this operation but it seems the machine is a small second-hand unit and includes an off-machine coater. Capacity is thought to be measured in tons per day rather than tons per hour. It needs to be remembered that this is the way the Pratt Empire began, becoming a major producer of corrugated products before its first venture into paper manufacturing. In the immediate term, Lakeside Packaging is unlikely to feature significantly (if at all) in the aspirations of Oji and its competitors.
There are numerous independent sheet plants manufacturing specialized and short-run boxes, which among them hold very small market shares, but clearly they all manage to find a viable business niche.
For the last decade, Australian net consumption of container materials has experienced low net growth and annual consumption has ranged between one million and 1.1 million metric tons. On average, annualized growth has been about 0.6% per annum over the decade from 2005. In the year to June 30, 2016 the demand surged to well over 1.2 million metric tons, a 14.6% increase from the previous year, according to research by IndustryEdge. There is no clear explanation for this surge in demand. There is evidence of increased exports of packaged food and some market share gains against other packaging materials and probably inventory adjustments have impacted the apparent demand statistics.
Annual consumption of container materials in New Zealand is naturally much lower than in Australia, in line with the smaller NZ population. Oji, being the only local producer, enjoys a more significant market share (probably more than 50%) but still has to share that market with Visy and Orora (trading under the evocative Orora Kiwi Packaging brand). The net consumption of container materials is proportionally larger than the population would indicate, due to the very large export component of fruit (particularly kiwi fruit and apples), vegetable, meat and dairy products. Statistics from New Zealand are lumped so that it is difficult to extract information specific to the corrugated box sector but its size is about 30% the size of the Australian market. Given that Oji exports about half of its Kraftliner production and a much larger percentage of its corrugating medium, the attraction of growing its Australasian business is compelling.
It remains to be seen whether this investment by Oji signals the start of an alignment to match paper manufacturing capacity on a regional basis, consistent with the objectives of Oji to consolidate its leadership ambitions in Asia-Pacific. Of course it may be the start of a more localized trans-Tasman strategy with an objective of consolidating its position in Australasia. One thing is for sure and it is that Visy and Orora will be revisiting their own marketing and development plans to be ready if a new box war erupts.