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Smurfit Kappa reports 137% increase in recycling input costs

Smurfit Kappa Group’s (SKG) half-year financial results show a 137% increase in year-on-year manufacturing costs within its European operations, putting pressure on margins.

The report states the Group’s recovered fibre costs were 31% higher, wood was 16% higher, starch was 85% higher and energy was 5% higher in H1 2011 against H1 2010. But SKG still generated increased 14% revenue growth in H1 2011 compared with a year earlier.

Recovered fibre costs for Q2 2011 have increased by 12%, there has been a 10% increase in starch and 3% increase in energy on Q1 2011. Recovered fibre prices reached an “all time high” of €165 (£145) per tonne in April and May due to Eastern European demand.

The increases, along with good demand levels and appropriate inventories, pushed recycled containerboard prices up by €70 per tonne, although this fell by €15-€20 per tonne in July.

SKG chief executive Gary McGann said: “Against a backdrop of increased cost pressure in the second quarter, our improved EBITDA margin of 14.2% primarily reflects further progress on European corrugated pricing recovery, an increasingly efficient operating base and a continuing strong performance in our Latin American business.”

The increase in containerboard prices looks set to continue, as SKG reports: “With corrugated packaging demand expected to continue to rise broadly in line with general economic growth, the underlying key driver of pricing through the cycle should remain supply. In that context, it is worth bearing in mind that the industry is expecting only one new recycled containerboard machine in Europe to start up in Q1 2012 and another in 2013.”

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