Smurfit sets example but suffers

Some more good news for the US packaging industry which seems to be heading into a phase of uncharacteristic stability. And to give credit where it is due, Smurfit has played a leading part in imposing some sense of responsibility on an industry which had previously taken the view that the best way to boost prices and increase demand was to build more plants than the industry needed.

Smurfit and its Smurfit Stone association has already taken lots of pain since its merger, but that merger has led to further mergers in the industry and a reduction of capacity which has seen two price rises remain intact (previously unheard of).

Now another of Smurfit's competitors, Weyerhauser - soon to merger with McMillan Bloedel - has more than doubled its third quarter earnings and announced a reorganisation that will cost it around $130 million (€121 million). Another Smurfit rival that has just announced bumper results, International Paper, has also doubled its third quarter results, continuing the trend of bumper third-quarter results.

Given the American packaging industry's penchant for shooting itself in the foot, one hesitates to go overboard about this recovery. But so far, so good, with capacity being taken out and none of the major producers getting too greedy by trying to impose another price hike that might not stick.

Smurfit has taken an awful lot of flak - and there is no denying that its share price performance in the past five years has been truly dismal. But there are signs that the worst is over and the cyclicality that has dogged the company is now much-reduced.

But the market has still to be totally persuaded, with Smurfit still trading on a discount to its peer group. So, the jury is still apparently out.