Capital Expenditures--October 2022



By Jim Thompson

Lots of questions recently about my opinion on capital expenditures. This is always a dangerous question and it is not one size fits all.

Here are my thoughts at this point in time, subject to change tomorrow.

Generally, capital expenditures may slow over the next 12 - 27 months (that takes us out to January 2025).

Details...

Europe has its hands full trying to figure out what to do about its energy supply. There may be (and already are some announcements) about converting from natural gas to fuel oil. The European focus is largely on energy.  Capital will be spent on energy assets, not production equipment.

Brazil and other South American countries in the "Eucalyptus Belt." No slowdown, full speed ahead.

North America, new facilities. Converting/printing/box plants...full speed ahead because new equipment is drastically lowering labor costs. Mills...not so much except for the privately owned companies (like Pratt, Saica, Kruger, etc.). The private companies look at the market demand long term, they don't have to worry about stock price.  Overall, containerboard is getting soft, the question is for how long?  May be trouble for new entrants.

North America, M & A. The Chinese will continue to opportunistically buying distressed public companies until Congress stops it.

From the equipment supplier side, all of this means there may be some shop time opening up which will be an opportune time for mills to place orders for new machinery at great prices.  Lock up prices for new equipment deliveries in 2025 and beyond.

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